2.
Explanation
Book building is a process used for the initial public offering (IPO) of a company’s shares. It is a method to determine the price at which the shares will be offered to the public. Book building is considered a more market-driven and flexible approach to determining the IPO price compared to fixed-price
offerings, where the price is predetermined by the company or its underwriters.
1. Collecting Bids: The company, which wants to go public, and its underwriters (typically investment banks) invite institutional and retail investors to submit bids or offers for the shares being issued.
2. Price Discovery: During the book building process, potential investors specify the number of shares they want to purchase and the price they are willing to pay. This information helps in determining the demand for the company’s shares at various price levels.
3. Price Range: Based on the bids received, the underwriters determine a price range within which the shares will be offered. This range typically includes a minimum and maximum price.
4. Final Price: After collecting and analyzing the bids, the underwriters set the final offer price for the shares. The final price is usually at the higher end of the price range, and it reflects the price at which the company’s shares will be sold to the public.