Bookbuild
Capital MarketsThe process of collecting investor demand at different prices to set the size and price of an offering.
Also written: book building, accelerated bookbuild, ABB
In a bookbuild the underwriters market a range rather than a fixed price and collect orders from institutions specifying how many shares they want and up to what price. The resulting demand curve sets the final price and allocation.
It replaced fixed price offerings because it discovers what the market will actually pay rather than guessing in advance. A book that is multiple times covered supports pricing at the top of the range; a poorly covered book forces a cut or a pulled deal.
Allocation is discretionary, not pro rata. Underwriters favour investors they judge likely to hold rather than flip, which is part of how aftermarket stability is managed.
An accelerated bookbuild compresses the whole thing into hours, typically overnight, and is used for placing an existing large shareholding or raising equity quickly from institutions without a full marketed process.
Worked example
A deal is marketed at €17.00 to €19.00 for 20 million shares. At €18.00 the book is four times covered; at €19.00 it is 1.1 times.
Pricing at €19.00 raises more but leaves almost no aftermarket support, so the shares are likely to break issue. Pricing at €18.00 leaves demand unsatisfied, which supports trading and protects the issuer's ability to return to the market.
This is why deals are deliberately priced below clearing: the cost is measurable and the damage from a broken deal is not.