This is a financial promotion by Retail Book Limited (FRN 994238). Values can fall as well as rise. This information is not investment advice. It is intended for UK retail investors.
You may have heard about IPOs - when a company first lists its shares on the stock market. But what happens after that? Companies often need more money to grow, pay off debt, or fund new projects. That’s where follow-ons come in. These deals give investors another chance to buy shares, sometimes at a discount, and help companies take the next step. As well as benefits, follow-ons present certain unique risks. This article helps to explain the benefits and risks so you can make an informed decision on whether follow-ons are for you.
What is a Follow-on?
A follow-on is when a company that’s already listed on a stock exchange offers more shares for sale. These can be new shares, which raise fresh money for the company, or existing shares, which allow current owners to sell.
There are two main types of follow-ons. Pre-emptive follow-ons, like rights issues and open offers, give existing shareholders the first chance to buy new shares. This helps them avoid dilution, which means their percentage ownership in the company doesn’t shrink. Non-pre-emptive follow-ons, such as placings, are open to new investors rather than being limited to current shareholders.
Why Do Companies Launch Follow-ons?
Companies use follow-ons to raise money for lots of different reasons. They might want to expand by investing in new equipment or technology, repay debt, or buy another business. In the UK, the three main types of follow-ons are placings, open offers, and rights issues. Each has its own rules and timetable. Placings are quick and simple, but limited in size. Open offers and rights issues can raise more money but take longer and cost more to organise.
How Does a Follow-on Work?
Let’s look at a real example. In November 2025, SSE, a FTSE 100 company, raised about £2 billion through a follow-on. (Source: sse.com regulatory news; £2,006m raised at 2050p) The shares were offered at a price below the market rate, giving investors a chance to buy at a discount. Discounts typically refer to the offer price relative to the last close; discounts do not imply or guarantee future performance. Retail investors were invited to take part, so existing shareholders could avoid dilution and new investors could build a position. Earlier in 2025, Coats Group, a FTSE 250 company, raised c.£250 million in a similar way.
These deals are often done quickly, with banks collecting orders from investors in just a few hours or over a single day. This process is called an accelerated bookbuild with the final price based on demand during this period. Because the timetable is short and pricing can move quickly, investors may have very limited time to assess the opportunity and there is a risk of making investment decisions without full information. The offer price may be volatile and you may not be able to sell your shares at or above the price you pay.
Share Dilution: What Does It Mean for You?
Dilution happens when a company issues new shares. Imagine a company with 10 shareholders, each owning 10 shares. If the company issues 25 new shares and one person buys them all, the original shareholders now own a smaller percentage of the company. Their voting power and share of profits has reduced; they have been ‘diluted’. Pre-emption gives all existing shareholders the chance to avoid dilution by buying new shares proportionate to their ownership, allowing them to retain their stake.
Types of Follow-ons: Placings, Open Offers and Rights Issues
Placings are the most common type of follow-on in the UK. They are fast, simple, and usually don’t require a prospectus, a useful but very detailed document explaining the deal. Placings do not strictly observe pre-emption and have traditionally been limited to 20% of the company’s existing shares, although regulatory change is increasing this amount significantly.
Open offers and rights issues respect pre-emption by giving existing shareholders the chance to buy more shares in proportion to those they already own. Rights issues let shareholders sell their rights if they don’t want to take part, while open offers do not. These deals can raise more money but take longer and cost more.
Follow-ons vs IPOs: What’s the Difference?
With an IPO, a company is selling shares to the public for the first time. Investors may not know much about the company’s management or track record. In a follow-on, the company is already listed, so investors have already benefitted from access to regular updates and reports. Shares in a follow-on are usually sold at a discount to the current market price, making them attractive to buyers. While investors may have access to more public information than at IPO, follow‑ons can occur in both strong and distressed situations, and risks may be higher or lower depending on the company circumstances.
Why Take Part in a Follow-on?
There are several reasons to consider investing in a follow-on:
- You might be able to avoid dilution if you already own shares.
- New shares are often offered at a discount, making it a good time to buy.
- There’s no commission or stamp duty when you subscribe for new shares in a follow-on.
- The extra money raised can help the company grow, reduce debt, or improve its outlook, which could lead to a stronger share price.
Key Risks to Watch For
Like any investment, follow-ons come with risks. It’s important to understand why the company is raising money. Sometimes, selling more shares can be a sign of financial trouble. Follow-ons can cause share price swings, especially if new shares are offered at a discount. You may have very little time to decide whether to invest—sometimes just a few hours. Always read the offering documents and consider speaking to a financial adviser before making a decision.
Next Steps
Follow-ons are a way for companies to raise extra money after their IPO. They give investors a second chance to buy shares, often at a discount. If you already own shares, taking part can help you avoid dilution and retain ownership. If you’re new to the company, it’s a chance to build a position with more information than you would have at IPO.
Remember, every investment carries risk. Always check why the company is raising money and how it plans to use it. Read the offering documents carefully. If you’re unsure, talk to a financial adviser. Follow-ons can be a great opportunity, but only if you understand what you’re buying and why.
This is not investment advice. You should consider seeking independent advice.
Retail Book Limited (“RetailBook”), a limited company registered in England and Wales (company no. 14087330) with its registered office at 10 Queen Street Place, London, United Kingdom, EC4R 1AG. RetailBook is authorised and regulated by the Financial Conduct Authority (FRN 994238).
