Follow-on offering

A follow-on offering is an additional sale of new shares by a company that is already publicly traded, done to raise more capital after its original IPO. The company creates and sells new stock, similar in structure to an IPO, typically through underwriters who help price and distribute the shares to investors.

Companies run follow-on offerings for reasons like funding an acquisition, paying down debt, or financing growth, when raising money through new equity is preferable to taking on more debt or when the company's balance sheet or stock price makes an equity raise attractive. Because new shares are created, a follow-on offering dilutes existing shareholders, increasing the total share count and typically putting some pressure on the stock price in the days around the announcement.

Unlike a secondary offering, where existing shareholders sell shares they already hold and the proceeds go to them rather than the company, a follow-on offering is a primary raise, meaning the company itself receives the capital. The market's reaction to a follow-on offering often depends heavily on what the money is being raised for, with a raise meant to fund growth or an acquisition typically read more favorably than one used simply to cover a cash shortfall.