OVERVIEW
ABB, aka accelerated book building, is a procedure by which institutional investors are given significant shareholdings. It is an operation to get capital quickly (for M&A reasons, for debt refinancing and so on).
The main benefits are the following :
- The speed of the procedure ; it takes about one or two days and it doesn't need any advertising (like the IPOs) ;
- The placement of the stocks is directly on the institutional investors and not on the market ; it means that the market is not always able to absorb such much stocks in a short time.
The main disadvantages are the following :
- The ABB provides a discount for the institutional investors who buy the shares ; usually, the range of the discount is between about 1% and 5%. That range is their profit margin. In this way, the market reaction is negative, at least in the short-term ;
- Linked to the previous point, there will be most likely a market dispersion among all the stockholders.
From a statistical point of view and in order to build a trading strategy, we must consider some examples, in the history of the financial market. As already announced, the ABB will produce probably a downward pressure on prices, for the aforementioned reasons, in the short-term. On the contrary, in the long-term, it could be a bullish strategy opportunity : it means buying a stock with a cheap price, buying the quality at good prices (of course, the second scenario requires a study and other conditions, to set a pure value strategy or a "buy and hold" strategy).
CASE-STUDIES
About citing the examples, see the following links (TOD's and Brunello Cucinelli) :
- https://www.marketwatch.com/story/mediobanca-places-10-of-tods-shrs-at-eur76shr-for-eur2326m-2010-12-15. We speak about TOD's S.p.A. The package was equal to the 10%. The price was set at 76 EUR/share. As shown in the chart (see the circled area), we can notice the classic gap down after the ABB and consequently, a bearish performance in the following days. The discount was huge, about the 9.50%. After the ABB, the market price aligns itself with the transaction price, theoretically. Indeed, from about 84 EUR to 76 EUR. Then, in medium/long-term the performance became bullish (see the red arrows).
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| Chart from Investing.com |
- http://investor.brunellocucinelli.com/yep-content/media/CS_Shares%20Placement%20Launch_ENG.pdf ; http://investor.brunellocucinelli.com/yep-content/media/CS_Shares%20Placement%20Completion_ENG.pdf. It was the 5.14% of the company's share capital. The price was 18 EUR per share. In this case, the discount was smaller, about 7.90%. The pattern structure and other aspects are substancially the same, compared to TOD's. See the chart.
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| Chart from Investing.com |
Recently, the case of Moncler S.p.A. For further info, consult the link :
https://fashionunited.it/news/business/moncler-eurazeo-ha-venduto-un-altro-3-3-percento/2017102616444. The discount is much smaller than the previous cases (about the 0.85%). For this reason, the market reaction is not so negative. Anyway, we must consider the following trading sessions to confirm that. See the chart and the gap down immediately covered.
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| Chart from Investing.com |
