Follow-on offering

A follow-on offering is any public offering of shares in a company that is already publicly traded, after its original IPO. Follow-ons come in two kinds: those where the company creates new shares to raise more capital, diluting existing holders, and those where existing shareholders sell shares they already hold, which creates no new shares. This term covers the first kind, in which 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 dilutive follow-on offering is a primary raise, meaning the company itself receives the capital. The two labels are often used loosely, and some coverage calls any follow-on a secondary offering, so checking whether new shares are being created is the reliable way to tell them apart. 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.