A follow on public offer refers to issue of shares to its investors by companies which are already listed on stock exchanges. It is also called second offering. Companies go for FPO or follow on public offer to raise additional equity capital when companies are in need for funds. The amount which is raised through FPO can be used by the company either for expansion of the business or when company wants to restructure its balance sheet, which implies that when company wants to improve the debt equity ratio.
As with IPO (initial public offering), in FPO also company has to fix a price band which depend on the current market price of the stock of the company and also the general market condition. The FPO is usually offered at a discount to the current market price of the stock, so that FPO becomes more attractive and more investors can apply to the FPO.
FPO are different from IPO because IPO are the initial public offering of equity to the public, in other words company which is offering the IPO is not listed in stock market, while FPO are additional shares which are issued by the companies which are listed in the stock market.