The Myth of Bookbuilding

The Holy Grail for any company issuing new equity is to build a book of investors who understand the company, support the company, and will stick around for more than a week. Liquidity events like IPOs, after all, should not be opportunities to give away stock cheaply to traders looking to make a quick buck. Rather, they should be opportunities to allow genuinely interested investors to partake in a liquidity event and come away with a sizeable stake. The fear on the part of the company, of course, is that they are under-pricing the issue and that upon listing, investors who have been granted the cheap stock – at the expense of other interested parties who are scaled back or simply not allowed in at all because they aren’t clients of the bookrunner – will run for the woods, taking their immediate profits with them. Of course, all bookrunners worth their salt sell to companies the idea of building a book of “quality investors” (i.e. their clients) who will stick around... Continue reading: (VIEW LINK)