Bookrunner

What is a Bookrunner?

The term book runner or a bookrunner refers to the primary underwriter or lead coordinator in the issuance of new equity, debt, or securities instruments. The book runner is the lead underwriting firm that runs or is in charge of the books in investment banking. Book runners may also coordinate with others in order to mitigate their risk such as those that represent companies in large, leveraged buyouts (LBOs).

The book runner is the lead underwriter in a company’s initial public offering (IPO) or in a leveraged buyout (LBO).

What Does Bookrunner Mean?

A book runner is leading the book building process, i.e. the process of issuing capital through an IPO. During the book building period, the book runner collects bids both from retail and institutional investors who are interested in the IPO. Once the bids reach the closing date, the book runner determines the issue price. Alternatively, a book runner may be the lead underwriter in a leveraged buyout (LBO). In this case, the book runner coordinates the participation of the interested firms, the lead discussions, Roadshows and so on.

Understanding Book Runners

Book runners are the lead underwriters involved in different parts of the financial industry including initial public offerings (IPOs) and LBOs. As such, they’re also known in the industry as lead arrangers or lead managers. With IPOs, the book runner assesses a company’s financials and current market conditions to arrive at the initial value and quantity of shares to be sold to private parties. While most often done during an IPO, book runners may also do this through a secondary offering.

To reduce its risk, the book runner syndicates with other underwriting firms for the issuance of the new equity, debt, or security. This is fairly common in the investment banking industry and is a temporary arrangement between entities. The book runner serves as lead underwriter, working with other investment banks to establish an underwriter syndicate, thereby creating the initial sales force for the shares. These shares are then sold to institutional and retail clients. These new shares carry a hefty commission—as much as 6% to 8%—for the underwriter syndicate, with the majority of shares held by the lead underwriter.

The lead-left book runner, also called managing underwriter or syndicate manager, is listed first among the other underwriters participating in the issuance. The lead-left book runner plays the most important role in the transaction and will typically assign parts of the new issue to other underwriting firms for placement while retaining the most significant portion for themselves. This book runner’s name is also the first bank to be listed on the prospectus, in the upper left-hand corner.

Book runners also work with large, leveraged buyouts, which often involve multiple businesses. LBOs take place when a company makes an acquisition using borrowed capital. In these cases, the book runner represents one of the participating companies and coordinates with the other participating firms. One company generally takes the responsibility of running or managing the books, though more than one book runner—also called a joint book runner—can control a security issuance.

Example

Jeremy works in the corporate finance department of a bulge bracket bank. He is assigned with the IPO of a manufacturing company that seeks to raise $20 million by offering its shares to the public. Although there are many competitive investment banks that could be the IPO’s lead underwriters, Jeremy’s firm is the book runner on the deal.

The investment bank will raise the funds in the primary market through the IPO using the book building method. The securities will be 100% offered to the public, whereas the investment bank will collect the bids of investors, i.e. private equity firms, large corporations, boutique brokerage firms, banks, and retail investors. The closing date is set a month after the initiation of the IPO Roadshows, and Jeremy will be meeting with the representatives of the manufacturing company to discuss the potential offer/issue price of the deal. Investors are allowed to bid within a 20% price frame before the issue price is decided after the closure of the bidding.

The manufacturing company has $500,000 shares outstanding, and the allocation of the shares will be 50% to large investors, 35% to small investors and 15% to the rest of investors in the form of refund orders.