While this meant that clients of these investment firms had a greater chance of being allocated their bid, other investors who were interested in being part of the IPO were locked out.
Enter On Market Bookbuilds, a company opening up the IPO market to all investors to achieve a fairer capital market through the use of technology. Investors are able to make on-market bids for IPOs and as such, can potentially participate in any IPO. The value proposition for investors is therefore pretty clear. Well, clear for those investors who were previously locked out of closed IPOs.
But what is the value proposition for the IPO company? Wouldn’t they want to keep the relationship with their underwriting syndicate intact to ensure increased success of the IPO and a greater likelihood of supporting further IPOs in the future? While this may be true, IPO companies can greatly benefit from utilising On Market Bookbuilds by placing their IPO on the company’s exchange-hosted capital raising platform. With the issuer able to see all bids, those which are off-market but also those on-market, they are better able to assess all of the market demand, which optimises pricing and allocation outcomes and reduces potential conflicts of interest.
How does On Market Bookbuilds work?
There are six steps that an IPO company (“issuer”) completes to successfully complete an exchange-hosted IPO.
- The issuer appoints a Technical Lead Manager (“TLM”). The TLM has the same functions as a Lead Manager, but must also be an ASX trading participant to access ASX BookBuild
- The issuer defines the Priority Book and reserves a portion of the offer to the Priority Book, which is generally made up of Institutional investors or existing clients of the issuer. They will receive 100% of the amount bid as long as their bid price is equal to or greater than the final price at which the TLM closes the offer.
- The issuer submits an ASX BookBuild application form, which needs to be submitted by 12pm on the day before opening the facility.
- The TLM opens the ASX BookBuild to the market. This initiates an announcement which informs the market about the deal parameters set by the issuer and the TLM. Investors are notified of the capital raising by the usual ASX broker or via a market app.
- Once the capital raising is live, all bids are final and the TLM will have access to all the information about the priority bidders, including what price, how many shares are being bid by each broker and broker ID’s to gauge where demand is coming from. On market brokers will only see live bookbuild set by TLM, to see if their bid is in or out of the money.
- When the issuer is satisfied with the price and level of demand, the TLM will close the facility. Once closed, all bids are final and binding. Investors are allocated shares if their bid is at or above the final price. If there is more demand than shares, investors will be scaled back equally.