Tuesday, July 06, 2021
Asset Match BookBuild
BookBuild is our market that helps price and manage corporate actions and block placings for private companies.
We believe that price discovery is a major contributor towards high-quality secondary liquidity, and in Private Market we have built an auction-based market with this goal. However, price discovery need not be limited to secondary liquidity, and the same principles behind Private Market can be applied to primary fundraises, distributions, buybacks and large secondary placings. This is what we call BookBuild.
How does BookBuild work?
Corporate actions are significant events in the growth and development of a company. Get them right and they can turbocharge growth; get them wrong and the fallout can take years to remedy.
Success in corporate actions depends on many factors, but the three to consider most are timing, structure and pricing. We work closely with the company and its existing professional advisers to get these three factors right.
When setting up a BookBuild, we will specifically look at:
1. Deal structure
No two deals are the same and a well-executed action may have to consider: pre-emption rights; any tax considerations; change of control provisions; underwriting; allocation policy; Takeover Code implications; execution risk; timetable; process for settlement… etc. The deal structure determines the exact type of BookBuild required.
2. Price discovery vs. fixed price
Whilst we are big fans of price discovery and its many benefits, it may be that a deal is best done at a fixed price if pricing discussions have already taken place with large investors or where there is a recent benchmark valuation available. BookBuild can still be used to collate the order book and advise on final allocations.
In most cases, we may be able to use our standard pricing and matching algorithms as used in Private Market. These are tried and tested. However, they may not be suitable in all cases, and we are able to modify these as required.
When it goes live, each BookBuild has a dedicated deal page that contains the live order book, live pricing and deal documents. The results are then displayed on this page when the BookBuild ends.
What are the benefits of BookBuild?
The main benefit provided by BookBuild is price discovery – a market-derived price that accurately reflects the current appetite of investors for that deal. But this benefit is not standalone and has very important subsidiary benefits:
1. Shareholder value
Getting the correct price for a corporate action is not just a “nice to have”, it is an important protection against unnecessary shareholder dilution (where a shareholder’s percentage holding is reduced by the issue of new shares at a discount to “fair value”).
2. Fairness and transparency
Shareholders and investors are able to participate equally in the deal and, most importantly, are able to observe the price discovery process in action. If they see it, then they can understand it.
3. Corporate governance
It is not uncommon for the directors of private companies to also be significant shareholders. They may often be the larger investors in a fundraise and this can create issues with corporate governance and conflicts of interest. By using BookBuild, the directors are able to outsource the price setting, the allocations and the process to Asset Match as an independent party. This provides a paper trail should any suggestions of improper conduct arise.
Some examples of BookBuild in action…
• Open offer by a VC to its investors (also known as an entitlement issue).
• Expected that the fund’s managers would be the largest investors in the offer.
• Minimum and maximum fundraise targets set.
• Modified algorithm used to price the open offer subject to satisfaction of minimum and maximum levels.
• BookBuild process generated an issue price and allocation which were presented to the fund trustees.
• The process mitigated any perceived conflicts of interest for the fund’s managers in setting the issue price.
• Sale of underlying illiquid investments by a VC in wind down.
• No readily available price for the underlying investments, so price discovery on the sale was required.
• Held a two-week auction using our standard algorithms to price and allocate the sale of the investments.
• The VC was able to return sale proceeds to its investors and wind down.
• General offer for subscription by a company admitted to trading on Private Market.
• No price discovery was required as price had been negotiated with institutional cornerstone investors.
• Secondary auctions were suspended during the BookBuild process.
• Asset Match acted as bookrunner in managing orders and setting allocations.
Can BookBuild work for you?
Our team at Asset Match has broad experience in private equity, advisory, deal structuring and operations. If you think that you might benefit from BookBuild, then contact us for a confidential discussion.