Book Building and Reverse Book Building: All you supposed to know

When a company wants to raise money by selling shares, or when a company/promoter wants to buy shares from existing shareholders, one important question arises:

“At what price should the shares be sold or bought?”

The answer is not always decided by simply choosing a number.

Instead, the market can be asked:

• “How much are you willing to pay?” — this is the basic idea behind Book Building.

• “At what price are you willing to sell?” — this is the basic idea behind Reverse Book Building.

These terms may sound complicated, especially to students of Company Secretary, CA, CMA, MBA and Commerce, but the underlying idea is quite simple.

Let's understand them with everyday situations and easy examples.

1. What is Book Building?

Imagine that a company wants to sell its shares to the public through an IPO (Initial Public Offering).

The company has a problem.

It has to decide:

“What should be the price of our shares?”

Suppose the company believes its share could be worth around ₹100–₹120.

Instead of simply saying:

“Our share price is ₹120. Take it or leave it.”

the company can ask potential investors:

“How many shares would you like to buy, and what price are you willing to pay?”

Investors submit their bids.

The company collects all these bids and studies the demand.

This process of collecting investor bids and using them for price discovery is called Book Building.

In simple words:

Book Building = Finding the price of shares by studying how much investors are willing to pay.

2. Why is it called "Book Building"?

Don't imagine a normal book!

During the IPO process, the bids received from different investors are collected electronically.

You can think of this collection of bids as a “book of demand.”

For example:

Investor	Shares wanted	Price offered
A	10	₹100
B	30	₹110
C	60	₹120

The company and its intermediaries can study this demand to understand what price the market is prepared to accept.

Therefore, the term Book Building.

3. How Does Book Building Work?

Let's understand the process step by step.

Step 1 – Company decides to raise money

Suppose ABC Ltd. wants to raise money to build a new factory.

It decides to offer shares to the public through an IPO.

Step 2 – A price band is announced

Suppose the company announces:

Price Band: ₹100 – ₹120

This means investors can bid within the specified price range, subject to the issue rules.

Step 3 – Investors submit bids

Investors tell the company:

“I want 100 shares at ₹110.”

Another investor may say:

“I want 200 shares at ₹120.”

Another may say:

“I want 500 shares at ₹105.”

All these bids are collected.

Step 4 – Demand is analysed

The company now gets a picture of how much demand exists at different prices.

Step 5 – Price is discovered

After the bidding period closes, the final issue price is determined in accordance with the applicable rules and the demand generated during the book-building process.

This is called price discovery.

4. A Very Simple Book-Building Example

Suppose a company wants to sell 100 shares.

Its price band is:

₹100 – ₹120

Investors submit the following bids:

• Investor A → 10 shares at ₹100

• Investor B → 30 shares at ₹110

• Investor C → 60 shares at ₹120

Now look at the demand.

At ₹120

Only investors willing to pay ₹120 or more are considered.

Demand = 60 shares

At ₹110

Investors bidding ₹110 or ₹120 can participate.

Demand =

30 + 60

= 90 shares

At ₹100

All three groups are willing to pay at least ₹100.

Demand =

10 + 30 + 60

= 100 shares

So, in this simplified example, ₹100 is the price at which the entire 100 shares can be sold.

The actual determination of an IPO price involves the applicable regulatory framework and issue process, but this example helps us understand the basic principle of demand-based price discovery.

5. Why is Book Building Important?

Imagine two situations.

Situation A

Company says:

“We think ₹120 is the right price.”

But investors are willing to pay only ₹100.

The IPO may struggle.

Situation B

Company says:

“We think ₹100 is enough.”

But investors are actually willing to pay ₹150.

The company may be leaving money on the table.

Book building helps the company and its advisers understand actual market demand rather than relying entirely on a guess.

That is why we often describe book building as a price discovery mechanism.

6. What is Reverse Book Building?

Now let's turn the situation around.

Instead of a company selling shares, imagine that the company or an acquirer wants to acquire shares from public shareholders, particularly in the context of a delisting process.

Now the question becomes:

“At what price are shareholders willing to sell their shares?”

This is where Reverse Book Building comes into the picture.

Simple definition:

Reverse Book Building is a process in which shareholders indicate the price at which they are willing to sell their shares, helping determine a discovered price.

So the direction has changed.

Book Building

Investors → tell the company what they are willing to PAY

Reverse Book Building

Shareholders → tell the acquirer what they are willing to ACCEPT

That's why it is called “reverse” book building.

7. Reverse Book Building – Simple Example

Suppose XYZ Ltd. wants to acquire shares from public shareholders as part of a delisting process.

Assume the floor price is:

₹200 per share

Shareholders submit their offers:

Shareholder	Shares offered	Price
A	40	₹200
B	50	₹210
C	30	₹220

Now the company can see how many shares are available at different prices.

At ₹200:

40 + 50 + 30 = 120 shares

At ₹210:

50 + 30 = 80 shares

At ₹220:

30 shares

If the objective were simply to obtain 100 shares, ₹200 would provide enough shares in this simplified example.

However, actual delisting reverse book building is subject to specific SEBI rules and conditions, so students should not treat this simplified example as the complete legal mechanism.

8. The Best Way to Remember the Difference

Think about a vegetable market.

Book Building

You are the seller.

You ask:

“How much are buyers willing to pay for my vegetables?”

Different buyers give you different prices.

You study the demand and decide the selling price.

Reverse Book Building

You are the buyer.

You ask:

“At what price are sellers willing to sell their vegetables?”

Different sellers quote different prices.

You study the offers and determine the price according to the applicable process.

That's the basic difference.

9. Book Building vs Reverse Book Building

Particulars	Book Building	Reverse Book Building
Basic purpose	Price discovery when securities are offered	Price discovery from shareholders' selling offers
Common application	IPO/public issue	Particularly associated with delisting
Who gives the bids?	Investors/buyers	Existing shareholders/sellers
What is indicated?	Price investors are willing to pay	Price shareholders are willing to accept
Starting point	Price band/floor price as applicable	Floor price
Main objective	Discover issue price	Discover an acceptable acquisition/delisting price
Basic direction	Buyer → Price offered	Seller → Price demanded

10. What Does "Price Band" Mean?

In book building, the company generally specifies a price band.

For example:

₹95 – ₹105

₹95 is the lower end and ₹105 is the upper end.

Investors can submit bids within the permitted range, subject to the issue rules.

The price band gives investors a framework within which they can express their demand.

11. What Does "Floor Price" Mean?

A floor price is basically the minimum price specified for the relevant process.

For example:

Floor price = ₹200

A shareholder cannot normally submit an offer below the applicable floor price.

The precise meaning and calculation of the floor price depend on the relevant SEBI regulations and the type of transaction.

12. What is "Cut-off Price"?

This is a term students frequently encounter in IPOs.

Suppose the final price discovered through the book-building process is:

₹115

This can be referred to as the cut-off price in the relevant IPO context.

A retail investor who chooses the cut-off option essentially agrees to accept the final price discovered through the book-building process, subject to the applicable rules.

So remember:

Cut-off price = the final issue price discovered through the book-building process.

13. Where Does Reverse Book Building Matter Most?

In India, the term Reverse Book Building is particularly important when studying voluntary delisting.

Imagine a promoter owns a large portion of a listed company.

The promoter wants to take the company private and remove its equity shares from the stock exchange.

But there are still public shareholders.

The promoter cannot simply say:

“I will pay you whatever I think is fair.”

The regulatory framework provides a structured mechanism for determining the price at which public shareholders may participate in the delisting process.

Public shareholders submit their bids.

The bids are collected.

A discovered price can emerge through the reverse book-building process, subject to the requirements of the SEBI Delisting Regulations.

14. The 90% Concept in Delisting

This is an important point for students.

In the delisting framework, the success of the delisting process is linked to the acquirer/promoter reaching the required 90% shareholding threshold, subject to the applicable regulations.

So reverse book building is not simply:

“Find the highest price and automatically delist.”

There are several regulatory conditions.

This is why students should distinguish between:

Simple Concept

Shareholders quote prices → market-based price discovery

and

Actual Legal Process

Shareholder bids + discovered price + shareholding threshold + regulatory conditions

15. What Happens if the Discovered Price is Too High?

Imagine the discovered price is:

₹500

But the promoter thinks:

“₹500 is too expensive for me.”

The regulations provide a framework for how the acquirer can respond, including the possibility of a counter-offer subject to prescribed conditions.

Therefore, reverse book building does not mean that every price quoted by shareholders is automatically accepted.

There are regulatory safeguards and conditions.

16. The Three Important SEBI Regulations

For Indian Company Secretary students, it is useful to connect the concept with the relevant regulations.

1. SEBI (ICDR) Regulations, 2018

ICDR = Issue of Capital and Disclosure Requirements

These regulations are important when studying the issue of securities, including IPOs and the book-building mechanism.

Think:

ICDR → Issue of securities → Book Building

2. SEBI (Buy-back of Securities) Regulations, 2018

These regulations deal with the framework governing buy-backs.

Think:

Buy-back Regulations → Company buying back its securities

The precise mechanism available and its current requirements should always be checked against the latest SEBI framework.

3. SEBI (Delisting of Equity Shares) Regulations, 2021

These regulations are particularly important when studying reverse book building in the context of voluntary delisting.

Think:

Delisting Regulations → Reverse Book Building → Discovered Price

4. SEBI (LODR) Regulations, 2015

LODR = Listing Obligations and Disclosure Requirements

These regulations are concerned with the disclosure obligations of listed companies.

So, broadly:

ICDR → IssueBuy-back Regulations → Buy-backDelisting Regulations → DelistingLODR → Disclosure

This simple connection makes the regulations easier to remember.

17. A Real-Life Situation: Delisting

Let's imagine that ABC Ltd. is a listed company.

The promoter owns 85% of the company.

The promoter wants to take the company private.

There are still public shareholders owning the remaining 15%.

The promoter says:

“I want to acquire the shares held by the public and delist the company.”

Now comes the important question:

“At what price should the public shareholders sell?”

Instead of the promoter simply deciding the price, the reverse book-building mechanism allows shareholders to indicate the price at which they are willing to sell, subject to the applicable SEBI regulations.

The bids are collected.

The discovered price is determined.

The regulatory conditions are checked.

If the prescribed conditions are satisfied, the delisting process can proceed.

This is a good example of why reverse book building exists in the first place.

18. Why Do We Need These Processes?

The central idea behind both mechanisms is:

PRICE DISCOVERY

Suppose one person simply says:

“I think this share is worth ₹100.”

Another person says:

“I think it is worth ₹150.”

Who is correct?

The market can provide useful information.

In Book Building:

The company asks:

“What are investors willing to pay?”

In Reverse Book Building:

The acquirer/promoter asks:

“At what price are shareholders willing to sell?”

Therefore, both processes try to bring market demand and supply into the price-setting process.

19. The Easiest Way to Remember

📈 BOOK BUILDING

Company wants to sell

↓

Investors bid

↓

Demand is analysed

↓

Price is discovered

📉 REVERSE BOOK BUILDING

Company/Promoter wants to acquire

↓

Shareholders bid

↓

Selling offers are analysed

↓

Price is discovered

20. One-Line Memory Trick

For your students, I would suggest remembering this:

Book Building: "How much will you PAY?"

Reverse Book Building: "How much will you ACCEPT?"

That's the heart of the entire concept.

21. In Short

Book Building is a market-based process used for price discovery when securities are offered to investors, particularly in an IPO/public issue context.

Reverse Book Building works from the opposite direction. Shareholders indicate the price at which they are willing to sell their shares, and the bids are used for price discovery under the applicable regulatory framework, especially in delisting.

Remember:

Book Building

Company → Investors → Bids → Demand → Price

Reverse Book Building

Acquirer/Promoter → Shareholders → Selling Bids → Supply → Discovered Price

Ultimately, both mechanisms have the same broad objective:

To discover a price through actual market interest rather than simply guessing a price.

For CS students, the most important takeaway is not just the definition. Understand the situation first—who is selling, who is buying, and who is quoting the price. Once that is clear, the difference between Book Building and Reverse Book Building becomes very easy.