Follow-On Public Offer
What it is:
A follow-on public offer, also called a sale of by a company or by an existing shareholder of a company that is already publicly held., is a
How it works (Example):
Let's say Company XYZ is a public company and would like to sell additional shares in order to raise to build a new factory. This sale of additional shares is called a follow-on public offer. Company XYZ would hire an investment bank to underwrite the offering, register it with the Securities and Exchange and handle the sale. The company receives the proceeds from the sale of the shares.
Company XYZ is not the only entity that can do a follow-on public offer, however. Let's say an individual person own a very large block of Company XYZ shares -- maybe 100,000 shares. In this type of, the seller -- which is not Company XYZ in this case -- receives the proceeds.
Why it Matters:
Follow-on public offers can dilute existing shareholders considerably if thecomes from the company because new are being created. Follow-on public offers from existing shareholders, however, do not dilute existing shareholders. Thus, it's important to know who the seller is.
In many cases, follow-on public offers from existing shareholders often involve founders or other managers (such as venture capitalists) selling all or a portion of their stakes in a company. This is often the case if the company's originalincluded a "lock-up" period during which the founding shareholders were not allowed to sell their . Follow-on public offers thus give these shareholders a way to their positions.