Impact of book building and book running on your fundraising

Credibility is everything when it comes to business. People invest in you because they believe in you. They believe that your company has potential. And it is important that you get a feel of what the general public perceive about your product. Book building acts as an evaluation mechanism and helps ascertain the worth of the security you offer and your company’s credibility in the public sphere. Also, the entire process follows a wholesale basis.

To make it big with your offering, it is imperative that you know where you stand with your instrument. Book building facilitates a realistic, accurate perspective of investors’ response and commitments to the issue, thereby giving you clues and information to help you arrive at fixing a price for your instrument.

You are into this business for making some profit, if not a bulky one, in the first place. You need enough funding. You expect a handsome return of the time and effort you put in. Therefore, fixing the best price possible is the logical step towards that direction. And accurate perspective of the demand coming your way is the key. Only then you can get a picture of the highest market price for your shares and securities as well as the level of demand from promising investors.

Book building benefits the issuing company as it offers a scope for realistic pricing of the issue, the final price being decided 11 to 12 days prior to the opening of the issue. Another benefit is that book building offers the company an early access to capital. Furthermore, apart from bringing in liquidity and buoyancy, book building also facilitates a timely flow of information regarding issues, investors, syndicate members and lead managers.

For businesses, uncertainties impose risk and risk spells loss of profit and worse, even loss of capital, down the line. Therefore uncertainty is something a company or business cannot simply afford to accommodate. But with book building there is a possibility for a pre-sale of the issue which grants an early snapshot of the scheme of things, thereby doing away with uncertainties that may loom over the fate of the issue. Also, apart from facilitating transparency of allocation, you can enjoy a certain degree of flexibility with the price as well as size of your offering.

Who does not want to save precious fund when there is a way to do so? Also, what is the rationale of splurging funds for certain undertakings the need of which you can eliminate? This is to allude to the expenditure you will incur on paying for advertising and brokerage commissions. With a good book building you can brush aside and forget about having to pay for advertisements and commission fees. Book building takes care of everything in that respect.

Also, apart from availing optimal demand-based pricing, you are in a position to have effective fundraising by means of the best tried-and-tested issue procedures. The perk of optimal pricing aside, you can also avail a cutback on issue cost, a significant reduction in paperwork and lead times.

Quality is always at the core of any product; people expect quality in what you give and you expect the same with what you receive. Surely, you will get very far with your business if you can choose whom to do business with because then you can look for positive quality and potential and get hold of both. In fact, the success of a business hinges on that. Engaging in business with people who showcase quality is the only sure way to achieve success. Book building enables you to do just that with your offering. It allows you to set quality as the benchmark for finalising investors. And you can afford to be picky with the kind of investors you choose to engage and count in those investors with positive potential.

Book building can be a win-win for both the issuer and the investor. While you have the bandwidth to ensure quality investors, your investors also have a say in the pricing of issues. And the major takeaway here is that investors can rest assured of being allotted what they demand and expect. They can sit back and chill without having to bother about depositing large amounts of capital with the issuing company as they pay towards the end of the process.

Also, as the price of the issue is determined by firstly taking into account the market, investors have no reason to worry over the likelihood of the market price of the shares falling below the issue price. As such, the investor is very unlikely to see erosion of his investment on the listing. And the fringe benefit that comes with all of this is that the confidence of the investors gets a massive boost, resulting in an expanding investor base.

Understanding first and foremost what you hold as well as what the market holds for you is the key. Getting a clear picture of this aspect is absolutely necessary. Informed awareness of current market will help you organise and make the most of your offering. To that end, what a book running/book runner will bring to the table is assessment of your company financials and current market trends. This will help you arrive at the initial value and quantities of shares to be sold.

Book running ensures that you meet all requirements regarding documentation and reporting. Your book runner will also help in marketing your upcoming offering and work with potential investors to assess public interest for the same.

There is always risk when it comes to businesses, and there are many who shy away from taking on certain ventures because of risk-related apprehension. But with a book running in place there is a scope for reduction of risk. This is taken care of by your book runner by syndicating with other firms for the issuance of your security, debt or equity. Needless to say, your book runner acts as lead underwriter and establishes an underwriter syndicate by working with other investment banks, thereby creating a dynamic initial sales force.

One major task an underwriting institution fulfils is helping you in the determination of the final offering price. There will be a continuous collaboration down the line as your underwriter will work closely with you to arrive at a final price through well-calculated steps. Once you both agree on a price for your securities, and the relevant regulatory body of your country has acknowledged the registration, your book runner will facilitate confirmation of orders from subscribers. If things go well with you and demand is exceptionally high, you and your underwriter may raise the price and reconfirm the same with subscribers.

Determining of a final offering price is a very crucial process in that it helps ascertain the size of proceeds that may be generated. It also helps your book runner determine how easily you can sell your securities to buyers.