Definition: 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?
What is the definition of bookrunner? 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.
Let’s look at an example.
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.
Summary Definition
Define Bookrunners: Bookrunner means the principal underwriter overseeing an initial offering or new issuance of stock or debt.
