Book Building - Definition & Advantages of Book Building

This post discusses the process and benefits of book building, a popular method for companies to raise capital. 

Understanding Book Building

Book building is a gradual process used during an initial public offering (IPO) to accumulate orders for a security. It helps establish a fair price and allocates the securities to potential investors, while offering flexibility in timing, size, and price. 

Benefits of Book Building

1. Encourages wide participation and potentially better pricing.

2. Helps identify hidden demand, thereby maximizing subscription.

3. Provides greater control over allocation of securities.

4. Assists in better price discovery.

5. Enables a phased approach for better marketing and investor education.

Book Building Process

Steps involved in the book building process: 

1. Assessing investor interest.

2. Compiling a book of potential buyers and their desired purchase price.

3. Soliciting bids from institutional investors.

4. Setting the final price and allocating securities.

Summary

Book building is an important process for companies going public. It allows discounted purchases by underwriters and institutional investors, generates demand, and gives greater control over share prices. It's a beneficial option for companies considering an IPO.