An accelerated bookbuild is a type of equity capital market offering. It entails selling shares in a short time with little or no marketing. The offering’s book building is completed in one or two days. In such cases, underwriters will guarantee a minimum price and sell proceeds to the firm.
Understanding Accelerated Bookbuild
When a company needs fast funding and debt financing is not an option, an accelerated bookbuild is frequently used. This is especially true when a company is considering making an acquisition offer. In simple terms, if a firm is unable to secure extra financing for a short-term project or acquisition due to its heavy debt obligations, it might employ a method known as accelerated bookbuild to obtain speedy financing from the equity market.
The practice of generating and tracking investor demand for shares during an initial public offering (IPO) or other issuance phases is known as book building. An investment bank is hired by the issuing business to act as an underwriter. The underwriter sets the security’s price range and distributes the draft prospectus to several investors. Given the price range, investors bid on the number of shares they are willing to acquire. The book is open for a set amount of time during which the bidder can change his or her offer price.
The book is closed after a predetermined time, and the aggregate demand for the issuance can be analyzed to assign a value to the security. The ultimate price is just the weighted average of all the bids that the investment banker has received.
The offer time for an accelerated bookbuild is only one or two days long, with little to no marketing. In other words, there is a 48-hour window between pricing and issue. An accelerated bookbuild is frequently implemented overnight, with the issuing company contacting several investment banks on the evening before the intended placement to serve as underwriters. In an auction-style method, the issuer solicits bids and awards the underwriting contract to the bank that commits to the highest backstop price. The proposal containing the price range is sent to institutional investors by the underwriter. In effect, investors are placed overnight, with securities pricing usually occurring within 24 to 48 hours.
In the previous few years, the ratio of rapid bookbuilds in overall offering numbers has risen considerably. This is because they enable established institutions to quickly raise capital by distributing market risk between the issuing firm or shareholder and the underwriting institution. However, because the time available for due diligence on an offering is decreased, a fast bookbuild is not risk-free. As a result, lead managers must rely on experience to swiftly analyze the offering at first, and trust the market to determine the correct price during the second stage, in which they get bids from top-tier financial institutions.
Keynotes
- Accelerated bookbuilding is a type of offering in which corporations sell shares to institutional investors in a relatively short period, usually between 24 and 48 hours.
- Accelerated bookbuilds have grown in popularity over time because they allow companies to obtain capital fast while sharing risk between themselves and underwriters.
Summary Of How Accelerated Bookbuild Works
During an initial public offering, book building is a process in which purchasers (investors) make a demand for shares and other security instruments (IPO). An underwriter, who could be a professional investment manager, an accountant, or an investment bank, is required for an IPO to take place. An accelerated bookbuild, on the other hand, is one in which shares or stocks are offered in a short time. The rapid bookbuild strategy is used by companies who are in desperate need of capital but do not want to take on debt. This is an alternative option for receiving quick money in a short time. Accelerated bookbuild deals are frequently completed overnight.
Bookbuild takes one or two days. An accelerated bookbuild is a good option for organizations that need to raise money quickly in the equity or capital markets. The accelerated bookbuild allows companies to offer shares or stocks in a short time. A company that wants to pursue an IPO contacts investment banks and financial institutions that can act as underwriters. It is frequently done in the manner of an auction, with the highest bidder receiving the offering. This sort of offer is provided to eligible investors, typically high-net-worth companies or individuals.
Conclusion
It takes one or two days to complete a bookbuild.
But it can take a long time if an error occurs. To avoid any errors and save time and money, Financely Group is here for you.
