Book Building

Book Building

What is book building and why should you do it

Book building is the process of selling shares in an initial public offering (IPO) directly to institutional investors, rather than to the general public. By doing this, companies can get a better sense of what institutions are willing to pay for their shares. This information can then be used to set the price of the IPO. While book building is not required in all IPOs, it can be a helpful tool for companies that are looking to maximize their chances of success. In addition, book building can help to ensure that shares are allocated fairly among institutional investors. As a result, it is often seen as a key part of the IPO process.

The different types of book builds and which one is right for you

There are three different types of book builds:

1. Best efforts: In a best efforts book build, the investment bank tries to sell as many shares as possible, but does not commit to selling a specific number. This type of book build is typically used when a company is looking for general feedback from the market about its IPO.

2. Firm commitment: A firm commitment book build is when the investment bank agrees to sell a specific number of shares at a certain price. This type of book build is typically used when a company wants to ensure that it will have enough institutional investors to complete its IPO.

3. Dutch auction: A Dutch auction is a type of book build where shares are offered at a discount to the initial price. This type of book build is typically used when a company wants to ensure that it gets the best possible price for its shares.

How to create a book build plan

To create a book build plan, the investment bank will first assess investor demand by Gauging appetite from potential investors and conducting market soundings. They will then put together a syndicate of banks who will underwrite the deal and help sell the shares to investors. After that, they will set a price range and start taking orders from investors. The final step is to allocate the shares to investors and list the shares on the stock exchange.

The advantages of a book build are that it allows companies to raise capital more quickly and at a lower cost than other methods such as a rights issue or public offer. It also allows them to get a better sense of what price their shares will trade at when they start trading. The disadvantages are that it can be difficult to gauge investor demand accurately, and there is always the risk that the share price will fall below the book build price once trading starts.

What to do after your book build is complete

Once your book build is complete, you will need to send an order instruction to your broker. This instruction will tell your broker how many shares you want to buy and at what price. It is important to ensure that the price you specify is the same as the price you agreed to in your book build.

If all goes as planned, your broker will then purchase the shares on your behalf and hold them in a brokerage account until you are ready to sell them. Remember, it can take a few days for the shares to be transferred into your account, so be patient.