What is an Accelerated Bookbuild?
An accelerated bookbuild is a form of offering in the equity capital markets. It includes offering shares in a short time span, with practically no marketing. The bookbuild of the offering is done quickly in a couple of days. Underwriters may in some cases guarantee a base price and sale proceeds to the firm.
Understanding Accelerated Bookbuild
An accelerated bookbuild is much of the time utilized when a company is needing financing, in which case debt financing is not feasible. This can be true when a firm is hoping to make an offer to procure another firm. In simplified terms, when a company can't get extra financing for a short-term project or acquisition due to its high debt obligations, it can utilize an alternative route of acquiring quick financing from the equity market through a cycle known as accelerated bookbuild.
Book building is the security price discovery process that includes generating and recording investor demand for shares during a initial public offering (IPO) or other issuance stages. The responsible company recruits an investment bank to act as underwriter. The underwriter determines the price range the of the security and conveys the draft prospectus to numerous investors. The investors bid the number of shares that they will buy, given the price range. The book is open for a fixed period of time, during which the bidder can overhaul the price offered. After a predetermined period of time, the book is closed and the aggregate demand for the issue can be assessed with the goal that a value is put on the security. The last price picked is essentially the weighted average of the multitude of bids that have been received by the investment banker.
With an accelerated bookbuild, the offer period is open for only a couple of days and with next to zero marketing. At the end of the day, the time among pricing and issuance is 48 hours or less. A bookbuild that is accelerated is much of the time carried out overnight, with the responsible company contacting a number of investment banks that can act as underwriters on the evening prior to the planned placement. The issuer solicits bids in a sale type cycle and awards the underwriting contract to the bank that commits to the highest back stop price. The underwriter submits the proposal with the price reach to institutional investors. In effect, placement with investors comes about coincidentally with the security pricing happening most frequently inside 24 to 48 hours.
The share of accelerated bookbuilds as a percentage of overall offering numbers has emphatically increased in the last several years. This is basically in light of the fact that they permit laid out institutions to raise capital quickly by sharing the market risk between the responsible firm or shareholder and the underwriting institution. All things considered, an accelerated bookbuild isn't exempt from risk on the grounds that the time accessible for due diligence of an offering is diminished. Consequently, lead managers must depend on experience to quickly evaluate the offering initially and trust the market during the subsequent stage, in which they receive bids from top-level financial institutions, to determine the accurate price.
Illustration of Accelerated Bookbuilding
In 2017, Singapore sovereign wealth fund GIC Private Limited sold 2.4% of its outstanding shares and voting rights in Swiss bank UBS Group. The offer was made exclusively to qualified persons, like high net worth companies. The deal was covered in a short time and allocations reflected strong support from certain investors, with the main 10 orders getting half the shares. There were around 140 lines in the book. The sale, which was directed by UBS as sole underwriter, wrapped up in more than two hours.
- Accelerated bookbuilding is a form of offering where companies offer shares during a tiny time window, generally lasting between 24 hours to 48 hours, to institutional investors.
- The share of accelerated bookbuilds has increased throughout the years since they permit firms to raise capital quickly, while splitting risk among them and underwriters.