Book building

The book-building process ( German also order book process) describes a method of placement of securities in which interested investors within a given subscription period on the purchase of these can provide in a given price range and will be decided at the end of the period, which bidder to emitting the receive securities at what price.

General Background

The anglicism popped seen first surfaced in connection with the issuance of the second tranche of British Telecom in 1991. It was part of the job of a consortium, which lead to the order book (to build the book). Herein, the bids will be collected and registered within the subscription period. At the end of the subscription period, usually the issuing entity, or be placed Shareholder decides together with the Underwriters that investors bidding awarded the contract. Not only the size of the bids is crucial, but also the nature of the investor as well as a possible historical connection with this.

The bookbuilding is therefore clearly delineate both the fixed price method, which attempts to sell securities at a fixed price in advance, and by the auction process in which receive the highest bidder or the investors the contract.

Anglo-Saxon method

The Anglo-Saxon method (also classic bookbuilding ) is a book-building process in which a price range and the maximum possible number of shares to be emitting is determined in advance. More specifically, it is a derived from the Anglo -Saxon method for determining a fair market offer price of shares, which in contrast to the fixed-price method enables dynamic pricing. Since the mid- nineties, this process has also enforced in Germany as a standard.

The bookbuilding process involves several steps:

In the pre -marketing phase, the price range is matched with large investors. The IPO aspiring corporation is looking there banks that want to carry out the emission and can. These banks explore the interest of potential investors in the new shares. Based on the suggested retail price offers, the price range will be determined and announced publicly in the marketing phase. Presentations of the company to the international financial markets ( roadshows ) serve to attract other potential investors.

This is followed by the actual bookbuilding (Order Taking ) closes in: Institutional and private investors have within a certain period, the possibility of their purchase orders ( possibly with Limit) leave. These purchase orders consist of a price ( which must be within the price range ) and the desired number of shares that would like to purchase at that price, the investor. At the end of this phase, an emission price is set (closing) from the available drawing requirements.

All bids made below this price are excluded from the share allocation. Investors who have paid a higher price than the final offer price, now buy at the offering price. If the quota of the issued shares be exceeded, the actual allocation must be determined by the underwriting syndicate or the number of shares to be issued to be increased ( green shoe ).

Accelerated procedure

When accelerating or decoupled method, Eng. Accelerated bookbuilding is the promotional tour, however, in the first place with the aim to evaluate the price before shares. After this a usually narrower price range potential investors is set, while the range time is also limited to a shorter time, eg a few days. This leads to the Securities Trading Act to subsequent endorsement subject to change in the prospectus, which must be published.

Decoupled method

In the decoupled method, Eng. Decoupled bookbuilding will be announced, contrary to the traditional marketing methods in an IPO price range at which the shares will be issued, not before or during the roadshow, but only shortly before the opening of the order book. Accordingly, the price range must be added to the Securities Prospectus later.

The decoupled bookbuilding is since the amendment of the German Securities Prospectus Act possible in 2005 and refers primarily against the other book-building process on IPOs and no subsequent transactions such as capital increases. The first company to successfully ventured an IPO with this method was the Ersol Solar Energy AG.

In addition, two types of decoupled bookbuilding be distinguished. While the simple decoupled bookbuilding price range and possibly the offer period is kept open, the maximum number of shares issued but is announced ( and is also an appropriate remark in ( prospectus ) ), is the extended decoupled bookbuilding first also this maximum open and is grudge just like the other information in the securities Prospectus later and announced in an ad hoc announcement. However, the latter method is the view of BaFin now no longer allowed because of the German Securities Prospectus without specifying the number of units is no longer allowed. The modified extended decoupled bookbuilding, however, calls already from the beginning in the securities prospectus a maximum number of new shares offered, but which is subject to a pending approval at the general meeting of the issuer.

Pilot Fishing

As a pilot Fishing an emerging trend since 2004 is called to speak before the first pre-marketing targeted institutional investors ( core investors) to become familiar with the IPO plans and receive their respective professional opinion. The public is not informed of the rule at this time on the plans. First, the core investors, for example, be are particularly heavily invested in the corresponding sector identified. Assuming that their behavior is the model for many other investors due to the expert function and can therefore be inferred from their behavior on possible behavior of a larger group of investors, they will be questioned to what extent adjustments are made or whether an IPO is even to be moved. Thereby it is attempted to increase the probability of a successful placement.

Anchor Marketing

As Anchor Marketing, a method is called, in which, similar to the pilot Fishing, pre- selection select institutional investors is addressed to the exclusion of the public, however, it is not only a pure gathering of opinions, but already some investors to subscribe for to undertake a certain amount of shares.