Introduction

Frequent participants in capital raises will be aware that offers rarely close at the advertised “bids due” time. For investors, this can make it difficult to know exactly how long you have to research and prepare a bid and in some cases can result in a missed opportunity. 

At Fresh we try to ensure that investors have as much time and information as possible. Behind the scenes the complexities of capital markets can sometimes make this difficult. 

To understand why offers close early, it’s useful to understand how the bookbuild process works during a capital raise. 

The Bookbuild

The bookbuild refers to the process undertaken by a company and/or their broker(s) to determine the structure and composition of investors for a capital raise. 

Most capital raises are not spur of the moment events, there is a lot of pre-launch work required to make a raise successful. Planning a capital raise can start anywhere from 3-12 months before a trading halt is announced.

Timeline of a Capital Raise

A company and/or broker will usually decide to stop taking bids once...

• They have reached their target raise amount: Companies will generally have a target amount for how much they would like to raise, which they outline in the term sheet. Once they reach this target they would close the book; or

• They have reached an upper limit of demand: Some companies and brokers will choose to accept bids in excess of the total raise amount. This may be done to give the company more optionality during the allocation process or to create overhanging market demand. If this is the strategy chosen by the company/broker, they will choose to close the book once they feel that the size of the book is sufficient to give them optionality and/or overhanging demand. 

At Fresh Equities we work to build direct relationships with companies so that we can be involved earlier in the raise process. This helps us get better allocation outcomes for our investors and more control over when the offer closes. Please see our Wall-Crossed Offers for examples of this process. 

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If you are a company interested in raising, you can reach out to our corporate team here corporate@freshequities.com.

How Fresh Participates in Capital Raises

There are 5 main channels through which Fresh Equities can participate in a capital raise.

1. Participating directly with the company - Helping to arrange the offer

This is where Fresh has been involved in the pre-raise structuring and sounding process that occurs before a trading halt. In this process the structure, participants and offer price of the raise are all discussed and agreed upon. 

• Access & Bidding: When we bid this way, Fresh is typically generating bids for most of the book. This means that investors can participate much earlier and at a greater scale.

• Timing & Allocation: As we have direct communication with the company and are more involved in this process, it is easier for us to give investors greater visibility of when the offer will close and what the allocation outcome might be.

Click here to learn more about a wall-crossed offer.

2. Participating directly with the company - Another broker or advisor arranging the offer

Occasionally companies will appoint a broker to run their capital raise but still manage a portion of the book themselves. In this case, Fresh may be asked to participate alongside the company before a trading halt and engage our network of investors. 

• Access & Bidding: Even though Fresh is not involved in the structuring of the book build, we would still be involved in the pre-halt period and have a direct connection with the company. This means our investors might be able to participate earlier and at a greater scale.

• Timing & Allocation: As we have this direct connection with the company there is still good visibility of how the book build is progressing and when it might close.

3. Through the lead manager of the offer

This is when a company appoints a broker/advisor to run their capital raise and give them an exclusive right over the bookbuild process. In this instance Fresh would participate through communication with the lead manager of the offer. This would typically occur after the trading halt has been announced. 

• Access & Bidding: As Fresh becomes involved during the trading halt, our investors are bidding into a subset of the larger book and there may be less room for new bidders.

• Timing & Allocation: As contact is with the lead manager and not the company itself, communication has to go through multiple people to reach us. Not all lead managers will provide timely book updates. Each offer is different, but introducing another layer of communication can slow down the accuracy and speed of the flow of information.

What this means for our investors is that the offer could close without much notice. We try to relay the information to our investors as soon as we get it from the lead manager.

4. Through a joint lead manager of the offer

A company could appoint multiple brokers or advisors to help complete the capital raise. The difference between Fresh’s participation with a single lead manager and joint lead managers is that the book is essentially split, with each lead manager usually taking charge of a certain portion of the book. Fresh would typically work with one of these lead managers to get an allocation for our investors, generally after the trading halt has been announced. 

• Access & Bidding: As Fresh becomes involved after the trading halt has been announced, our investors are bidding into a subset of the larger book. This subset could also potentially be smaller than what it would be if there were only one lead manager involved in the raise.

• Timing & Allocation: As there is more than one lead manager, there is an added layer through which information needs to flow to reach Fresh. This potentially makes it difficult to know the progress of the book and when the offer might close.

5. Through a syndicating broker

A syndicating broker is an entity who has been invited under a company or lead manager to fill a reserved part of the offer. This can happen when they have previously worked with the company or have a large number of existing shareholders as clients. In this instance, Fresh would participate through this syndicating broker who would be in contact with the company or broker. 

• Access & Bidding: As Fresh becomes involved after the trading halt has been announced, our investors are bidding into the subset of the larger book and there may be less room for new bidders. 

• Timing & Allocation: When Fresh bids this way, we are at least two steps removed from the coordination of the book build. Information about the status and timing of the offer has to flow through at least two parties: 

The company -> lead manager -> syndicating broker -> Fresh. 

The more parties the information has to flow through, the slower and less accurate it will be.

We know it can be frustrating when offers close early and allocations are lower than expected, but understanding the book build process and methods of bidding should highlight that there is a lot of complexity in the process and information is not always immediately available

There is a high degree of complexity surrounding investor’s participation in capital raises. Our goal at Fresh is to get as close to full visibility over timing and the book build for our investors as possible. We are continuously working closely with companies to get the best possible outcomes for our investors.

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Some articles you might find useful:

• Which deals are covered by Fresh?

• How does Fresh Equities get access to these deals?

• What happens when I bid?

• What happens during Allocation & Settlement?

DISCLAIMER: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.