On Market BookBuilds: Optimising the IPO process

Canstar reviews On Market Bookbuilds, a company that allows previously excluded investors to participate in IPOs or placements and issuers to better gauge investor demand.

Historically, the only way for an investor to invest in hot IPOs was to be a client of one of the investment banks that is part of the IPO underwriting syndicate.  IPOs are generally closed to the public.  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.

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How does On Market Bookbuilds work?

There are six steps that an IPO company (“issuer”) completes to successfully complete an exchange-hosted IPO.

  1. 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
  1. 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.
  1. The issuer submits an ASX BookBuild application form, which needs to be submitted by 12pm on the day before opening the facility.
  1. 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.
  1. 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.
  1. 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.

On market Bookbuilds provides a comprehensive Q&A section throughout its site.  Canstar has provided a summary of some of the more popular Q&As below.

Q: Who are On Market Bookbuilds?  

A: On Market Bookbuilds (“OMB”) was started in 2010 by former capital market professionals made up of investment bankers, traders and Equity Capital Market lawyers.  Their aim was to find a better way for companies to raise capital, and therefore developed OMB’s intellectual property which powers ASX BookBuild, an exchange-hosted capital raising platform, the first of its like anywhere in the world.  With the objective of bringing companies and investors closer together, OMB went on to build OnMarket, which is the world’s first free-access portal into capital raisings for ASX listed companies.

Q:  How are OMB and ASX BookBuild related?

A: OMB developed the intellectual property (IP) that powers ASX BookBuild, which they licensed to ASX, who incorporated their specifications into their main trading system and built ASX BookBuild.  As part of OMB’s agreement with the ASX, they have agreed to educate and support market participants who wish to use ASX BookBuild.

Q:  Is OnMarket regulated?

A:  On-Market BookBuilds Pty Ltd holds an Australian Financial Securities License (AFS License No 421 355), which means they are supervised and regulated by ASIC (Australian Securities & Investments Commission).  Further information can be found in their Financial Services Guide (FSG) Financial Services Guide (FSG).

Q:  What principles are behind ASX BookBuild?

A: ASX BookBuild was developed to allow companies and lead managers to access every broker in the market and their clients.  This contrasted with the traditional process of capital raising, whereby a company could only access investors who were known to the lead manager and invited by them into the capital raising.  The result of this limited reach was that companies were not assured that they optimised the outcome of their capital raising through accurate price discovery.

Suboptimal pricing is frequently seen following an IPO when the close of the first day’s trading following an IPO is more than 10% higher or lower than the issue price, which occurs in more than 40% of all IPOs.

Q:  Which brokers participate in ASX BookBuild transactions?

A: A complete list of brokers can be found here:  https://au.onmarketbookbuilds.com/help-faq/asx-bookbuild/which-brokers-are-participating-in-asx-bookbuild-transactions/

What types of capital raisings will be available via OnMarket?

A: OnMarket can be used for IPOs, placements (the issue of new shares offered by listed companies), and the sale of renounced rights

Q:  Is OnMarket available as an app?

A:  Yes, both an IOS and Android app exist supporting IOS devices running IOS7 or newer and Android devices running 4.1 Jelly Bean and above.

Q:  Does OnMarket offer a rewards program?

A: Yes, it offers two in fact.  These are General Rewards and Influencer Rewards.

Under the General Rewards program, when customers share OnMarket with their network, they grow their rewards balance by $50 every time one of their contacts joins OnMarket. The rewards balance will be used to reward the customer with additional shares in offers they bid for. The value of the rewards shares that they receive will depend on the broker stamping fee that the company will pay OnMarket on that particular IPO or placement. OnMarket will reward the customer with additional shares equal to 25% of value of the broker stamping fee (there may be some rounding as a result).

Under the Influencer Rewards program, OMB will pay 25% of the broker stamping fee being paid to OnMarket into the customer’s nominated account every time someone that they have referred to OnMarket gets a successful allocation in an Offer.  OMB will continue to pay you 25% of the broker stamping fee for on all successful allocations to the customer’s referred members for 2 years after they sign up.

In addition, when a customer joins, they will automatically receive a $500 sign up ‘rewards’ bonus that is applied to their rewards balance.

Q:  How much money do I need to start bidding?

A: Each offer will have a minimum bid amount (generally, in the vicinity of $2,000) that is set by the company.

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