Bookbuilding

Question 1

Definition

Answer 1

• Bookbuilding is a way of setting a price for an offer by obtaining indicative “bids” from investors to acquire specified numbers of shares at a specified price.. It involves the investment bank running a book of interest in the shares from interested investors.
• The issuer will rely on the price-range prospectus in retail offers or the pathfinder in institutional only offers.

Question 2

Timing

Answer 2

• Generally begins on/shortly after Launch and continues until offer price is determined and announced (generally 1-2 weeks after Launch)
• NB – Launch will differ based on whether a price-finding prospectus or Pathfinder is used (see timetable below)

Question 3

Process

Answer 3

• Presentations are made in form of roadshows to potential institutional investors, who make a non-legally binding bid in advance of offer for shares.
• Investors state number of shares and price they are willing to pay, including the price they would purchase for shares in the “price range” provided.
• Price range is either given by the price-range prospectus or the global co-ordinator.
• Advantages for the issuer:

• Company can assess demand for shares in advance of setting issue price, allowing the final price to be more accurately and realistically set.
• It also provides significant comfort that the company will raise the funds it requires from the issue.
- Book-building will often involve roadshows to potential investors who bid in advance of the offer. This is not legally binding. As a financial promotion, s. 21 FSMA and PRR 3.3 need to be considered.
- NB – do not need to know details of price-stabilisation and over-allotment for the exam