Companies often engage in book building when they need to issue securities to raise cash. An initial public offering (IPO) is the sale of securities to both institutional and individual investors. Investment banks and other financial organisations often take on the role of bookrunners when it comes to bookbuilding. In this piece, we’ll look at book building from several angles and talk about what a book-runner does. 

What is Bookrunner? 

When investment banks issue new equity, debt, or security instruments, the main underwriter or lead coordinator is known as a book runner. 

When it comes to investment banking, the entity in charge of the books is known as the book runner. Book runners also coordinate with other parties, such as those representing firms in massive leveraged buyouts (LBOs), to lessen their risk exposure. 

Understanding Bookrunner 

Initial public offerings (IPOs) and leveraged buyouts (LBOs) are two examples of financial transactions in which book runners play a key role as lead underwriters. Lead managers and lead arrangers are other terms used in the business world. The book runner looks at the company’s finances and the market to determine the first share price and quantity to be offered to private parties in an initial public offering (IPO). Book runners can accomplish this through a secondary offering, although it is more common during an initial public offering. 

By teaming up with other underwriting businesses, the book runner can lower its risk when issuing new shares, debt, or securities. The investment banking sector is rife with this type of short-term agreement between companies. The book runner acts as the chief underwriter and forms the underwriter syndicate with other investment banks to sell shares initially. After that, both individual and institutional investors buy these shares. The lead underwriter owns the bulk of these new shares, and the underwriter syndicate receives a substantial commission of 6% to 8% from each. 

The lead-left book runner—also known as the managing underwriter or syndicate manager—is mentioned first among the underwriters involved in the issue. In most transactions, the lead-left book-runner takes the lead and keeps the lion’s share of the new issue for themselves while also allocating some to other underwriting companies. The prospectus lists this book runner’s name and the first bank’s name in the top left-hand corner. 

Book runners also assist in leveraged buyouts, which frequently include more than one company. When a business borrows money to finance an acquisition, it is known as a leveraged buyout (LBO). As a representative of one of the participating companies, the book runner acts as an intermediary between the other enterprises. Typically, one business is in charge of the books. However, a security issuance might be controlled by multiple book runners (also known as a joint book runner). 

Responsibilities of Bookrunners 

  • One of the primary roles of an underwriter is to establish the ultimate offering price. The price affects the issuer’s profit first and foremost. Second, it establishes the underwriter’s selling power for the securities. 
  • It is common practice for the issuer and the lead book runner to collaborate on setting the price. After the underwriters and subscribers reach a pricing agreement and the SEC makes the registration statement effective, the underwriters will contact the subscribers to confirm their orders. Underwriters and issuers may reaffirm sales with subscribers and increase prices if demand is exceptionally high. 
  • The book runner is responsible for creating a working list in a book. This way, information about those interested in the new item or problem can be tracked. The amount of interest from prospective investors can be gauged, and this data can be used to set an initial public offering (IPO) price. 
  • If the market values the shares highly, being the main underwriter for an initial public offering (IPO) or other stock offering can result in a substantial payout. Suppose there is a lot of interest in a stock offering. In that case, the issuer may give the lead underwriter permission to over-allot shares so that the underwriting company may make more money. An alternative known as a green shoe is this. 
  • Underwriting stock offers carries significant risk. When a firm goes public, for example, its stock price might fall precipitously. This is why major investment banks offer a wide range of different products every year. Instead of focusing solely on the results of one company’s offering, the risk is distributed across several transactions and offers. 

Importance of Bookrunner 

Determining the Final Offering Price. 

Determining the ultimate selling price of the issued securities is a key responsibility of underwriters, including the lead book runner. This price choice has important ramifications because it influences the issuer’s proceeds and the convenience of selling the securities to buyers. Finding the best price is a joint effort between the issuer and the main bookrunner. The role of the Securities and Exchange Commission (SEC) is critical for the registration statement to be effective. 

Verifying Purchases. 

Underwriters, including the bookrunner, contact prospective purchasers or subscribers to verify orders once the price decision is reached. The issuer and underwriters may reevaluate the offering price and contact subscribers to confirm sales if demand is very high. 

Building an Anthology. 

To facilitate the launch of a new offering or issue, book-runners produce a book that includes a preliminary roster of potential participants. This book may be used as a tool to monitor possible investors and determine their seriousness. It also provides information about investor opinion and helps decide the opening price for an IPO. 

Opportunity for a green shoe. 

An over-allotment of shares may be negotiated by the lead bookrunner with the issuer in cases of extremely strong share demand. With this “green shoe option,” the underwriting company can issue more shares than were originally planned for the offering. If this option is exercised, the underwriter stands to gain more money. 

Managing Risks. 

The value of the shares might fall after they start trading publicly, which is one of the inherent hazards of underwriting stock issues. Large investment banks frequently participate in a wide range of offers throughout the year to lessen the impact of these risks. They limit their exposure to the result of any company’s offering by participating in several deals and issuances. 

Examples of Bookrunner 

A bulge bracket bank employs Jeremy in their corporate finance department. He is tasked with overseeing the first public offering (IPO) of a manufacturing company’s shares to raise $20 million. The IPO’s main underwriters could be any number of competing investment banks, but Jeremy’s company is serving as the deal’s book runner. 

Investment banks often use the book-building strategy to obtain capital during initial public offerings (IPOs) in the main market. Investors, including private equity companies, big businesses, boutique brokerage firms, banks, and retail investors, will place bids with the investment bank, which will then make all of the securities available to the public. The IPO Roadshows are scheduled to begin one month following the closing date, and Jeremy will be meeting with the manufacturing company’s representatives to discuss the possible offer/issue price of the deal. Investors have the opportunity to place bids within a 20% price range, and the issue price will be determined once the bidding process concludes. 

There are now 500,000 shares in circulation at the manufacturing firm. Of them, 50% will go to big investors, 35% to small investors, and 15% will be distributed through refund orders to the other investors. 

The Final Analysis 

When investment banks issue new debt, equity, or security instruments, a book runner is the principal underwriter. During an initial public offering (IPO, for instance), they are the primary underwriting firm responsible for managing the financial records. 

The book runner often forms the initial share sales force by collaborating with other investment banks to form an underwriter syndicate. This lowers the stakes for everyone involved, but it also lowers their cut of the profits. But the book runner often gets the most commission as they’re the ones who take on the most responsibilities during the offering. 

Frequently Asked Questions

Usually, an investment bank acts as the “underwriter” in a firm commitment underwritten initial public offering (IPO), purchasing shares from the business and then reselling them to the market. Leading underwriters, or “bookrunners,” oversee the process. There are also “co-managers,” whose responsibilities are more limited. 

Lead coordinators are most often involved in a company’s regulatory and operational tasks. Additionally, they can be crucial in promoting and listing a firm on the stock market. The primary focus of the bookrunners is underwriting and managing the syndicate team. 

The book runner examines the company’s finances and the market to determine the first share price and quantity to be offered to private parties in an initial public offering (IPO). Although a secondary offering is more common during an IPO, book runners can accomplish this through a secondary offering. 


The bank that oversees the due diligence process structures the loan, and prepares the necessary paperwork is known as an arranger. One bank that oversees the sale of loans to other banks outside of the lending consortium is known as a bookrunner. 

Most often, lead coordinators are involved in a company’s regulatory and operational tasks. Additionally, they can be crucial in promoting and listing a firm on the stock market. The primary focus of the bookrunners is underwriting and managing the syndicate team. 

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