Traditional bookbuilds occur “off-market” – that is, they happen behind closed doors.
Since lead managers are generally paid by both the company (a capital raising fee) and investors (via an ongoing brokerage relationship), a potential conflict of interest is embedded into the off-market bookbuilding process.
During a bookbuild, the company and their lead manager set the price that the shares will be sold at based on feedback from a small group of investors - usually the best clients of the lead manager. The book is preferentially allocated to these investors as well. The investors that do not have a relationship with the lead manager typically miss out on getting an allocation. Even if they investors are willing to pay more for the stock than the price at which it is being offered, it is difficult to communicate that to the company.
An on-market bookbuild gives everyone fair access. It allows investors willing to pay more to bid more for shares, and potentially be rewarded for price leadership with a better allocation. It also allows companies to price the offer in light of all of market demand – giving them the option of maximising the price and thereby minimizing dilution for existing shareholders.
These are just some of the benefits. At the heart of it, bookbuilds conducted on-market are more efficient, transparent, and fair – resulting in a better outcome for investors and for companies.