Bookbuilding

Bookbuilding is the process used to determine the issue price in a share offering. Investors state within a defined price range how many shares they would buy at which price. These bids create a picture of demand, based on which the final price is set.

The process begins well before the subscription period with analyst presentations and an early sounding of investor interest, from which the underwriting banks derive the price range. After the prospectus is approved by the competent authority, in Germany BaFin under the EU prospectus regulation, the roadshow follows, in which management meets institutional investors while the order book is built in parallel. The banks record not only size and price limit but also the quality of demand, meaning whether it comes from long-term investors or from short-term flippers. At the end of the period price and allocation are set, and deliberately not simply at the highest achievable level: a modest discount is intended to support the share price after listing and keep the stock attractive to investors. The process is regularly complemented by an over-allotment option allowing the syndicate to allocate additional shares and stabilise the price in the first weeks.

Bookbuilding differs from a fixed price offering, where the price is set in advance but demand still affects allocation, and has a specialised form, the accelerated bookbuild, which often places shares with institutions within hours. It is used not only in initial public offerings but also in capital increases, secondary offerings and, in adapted form, in bond issues. For the issuer, allocation matters as much as the price achieved, because it determines who becomes a shareholder: a high proportion of long-term investors stabilises the price, while a high proportion of short-term subscribers creates selling pressure immediately after listing. Deliberate steering of the allocation towards anchor investors, who commit in advance, is therefore customary. The proportion allocated to retail investors is part of the same decision.