What Is a Book Runner?
The book runner is the primary underwriter or lead coordinator in the issuance of new equity, debt, or securities instruments. In investment banking, the book runner is the lead underwriting firm that runs or is in charge of the books. A large, leveraged buyout could involve multiple businesses; the book runner, representing one of the participating companies, coordinates with the other participating firms. Typically, one company takes the responsibility of running or managing the books, though more than one book runner (joint book runner) can control a security issuance.
Understanding Book Runners
In investment banking, a syndicate is a group of underwriters who are responsible for placing a new equity, debt, or security issue with investors. To reduce risk, the book runner syndicates with other underwriting firms for the issuance of the new equity, debt or security.
The book runner serves as lead underwriter, who will usually work with other investment banks to establish an underwriter syndicate, and thereby create the initial sales force for the shares. These shares will then be sold to institutional and retail clients. The book runner will assess the company financials and current market conditions to arrive at the initial value and quantity of shares to be sold, to private parties, as an IPO, or through a secondary offering. These new shares carry a hefty sales commission (as much as 6 to 8 percent) for the underwriter syndicate, with the majority of shares being 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. The lead-left book runner's name is also the first bank to be listed on the prospectus, in the upper left-hand corner.
- The book runner is the primary underwriter or lead coordinator in the issuance of new equity, debt, or securities instruments.
- In investment banking, the book runner is the lead underwriting firm that runs or is in charge of the books during the issuance of new equity of a client firm.
- The book runner serves as lead underwriter, who will usually work with other investment banks to establish an underwriter syndicate, and thereby create the initial sales force for the shares.
Book Runner Responsibilities
In the securities industry, an underwriter is a representative of a particular business entity, most often an investment bank, who works with corporations regarding the creation and issuing of public offerings. Underwriters work to guarantee that all documentation and reporting requirements are met, as well as work with potential investors to market the upcoming offering and gauge public interest. An underwriting institution may offer guarantees regarding the amount of stock that will be purchased and assume responsibility to buy securities to meet the minimum guarantee.
Determining the final offering price is one of the biggest responsibilities of an underwriter. First, the price determines the size of the proceeds to the issuer. Second, it determines how easily the underwriter can sell the securities to buyers. Usually, the issuer and lead book runner work closely together to determine the price. Once they agree on a price for the securities, and the SEC has made the registration statement effective, the underwriters call the subscribers to confirm their orders. If the demand is particularly high, the underwriters and issuer might raise the price and reconfirm the sale with subscribers.
A book runner performs the same duties as an underwriter while also coordinating the efforts of multiple involved parties and information sources. In this regard, the book runner functions as a central point for all information regarding the potential offering or issue. This pivotal position may allow the book runner and his associated firm to know new information before it is widely known.
Book Creation for IPOs
One responsibility of the book runner is to create a book containing a working list, which is useful in tracking information about parties interested in participating in the new offering or issue. This information is used to help determine an opening price for an initial public offering (IPO) as well as to gain insight into the level of interest expressed by potential investors.
Being the lead underwriter for a stock offering, especially an initial public offering (IPO), can bring a large payday if the market shows high demand for the shares. Often, the stock issuer will allow the lead underwriter to create an over-allotment of shares if demand is high, called a greenshoe option, which can bring in even more money to the underwriting firm. There are substantial risks involved in underwriting stock offerings – any one company could plummet in the open market once public trading begins. This is why the large investment banks, such as Merrill Lynch, Morgan Stanley, Goldman Sachs, Lehman Brothers, and others will look to conduct many diverse offerings in the course of a year.