What is a Book Running Lead Manager (BRLM) in IPO?

The initial public offering (IPO) of any company involves several stakeholders. One of the most important players in the IPO process is the book-running lead manager. The BRLM is a SEBI-registered merchant banker or investment bank appointed by the company to manage the entire IPO process.

BRLMs are thus the primary intermediaries responsible for tasks such as drafting the red herring prospectus, conducting due diligence, and determining the price band. Let us learn more about the BRLM below. 

What is a Book Running Lead Manager (BRLM)?

The BRLM (book running lead manager) is the SEBI-registered investment bank or merchant banker appointed by any company to manage the entire process of its initial public offering (IPO).

The BRLM is the primary intermediary responsible for several crucial steps in the IPO process. These include conducting extensive due diligence of the company’s financial, legal, and other aspects, book building (managing the bidding process and determining the final price of the shares), and regulatory compliance (meeting all SEBI requirements and legal guidelines). 

They also work as primary underwriters in most cases, guaranteeing the share purchases and coordinating the final share allotment to investors. 

In many cases, the bookrunner lead manager may also promote the initial public offering to retail and institutional investors to ensure a successful listing. Multiple BLRMs may sometimes be appointed for large issuers to manage higher demand and ensure broader reach among investors. 

Why Is a Book Running Lead Manager BRLM Important in an IPO?

The importance of a BRLM (book running lead manager) is vital for any IPO. This is because the BRLM is the chief architect of the IPO, with full responsibility for managing the whole process from beginning to end. Here are some of the main reasons behind the importance of the BRLM in the IPO process: 

• The BRLM is responsible for drafting the red herring prospectus (DRHP) and ensuring compliance with SEBI regulations. This considerably lowers the issuer’s legal risks. 
• BRLMs also hold road shows and analyse investor demand to set up a suitable price band, thereby playing a crucial role in price discovery and valuation. 
• They also utilise their networks to attract more HNWIs and institutional investors, ensuring the issue is fully subscribed. 
• They manage the underwriting process, serving as the vital buffer to ensure shares are sold, even when market demand is low. 
• BRLMs also serve as the central point of contact between the company/issuer, regulators, and stock exchanges. 

An IPO cannot be implemented without a BRLM, which makes it indispensable for transforming any company from a private to a public entity. 

Core Roles & Responsibilities of a Book Running Lead Manager (BRLM)

The role of BRLM in an IPO needs to be understood carefully from several perspectives. Some of the key roles and responsibilities include the following: 

Structuring the IPO

The BRLM (book running lead manager) is the chief advisor on tailoring the offering to maximise overall capital while simultaneously aligning with market appetite. They provide guidance on the timing of the issue, depending on market conditions, while determining the optimal issue structure and size.

At the same time, the BRLM also conducts extensive due diligence of the issuer/company’s operations, financials, and management to suggest a fair valuation. 

BRLMs also play a role in setting the price band by defining the floor and cap price for shares (in consultation with the company/issuer). Another key role of the BRLM is syndicate formation, i.e. the appointment and coordination of brokers or syndicate members to manage share distribution. 

Regulatory Filings & Documentation

BRLMs manage compliance and legal documentation to ensure adherence to SEBI/SEC regulations. They prepare the DRHP or draft red herring prospectus and the RHP or red herring prospectus. These contain all the vital information/details about the issuer or company. 

At the same time, the BRLM also handles regulatory liaison and filing of necessary documents with all regulatory authorities, such as SEBI and the stock exchanges (NSE or BSE). They also handle disclosure compliance, i.e., ensuring that all material information, financial statements, and risks are clearly disclosed to safeguard investors' interests. 

Price Discovery via Book Building

One of the key responsibilities of the book-running lead manager is to conduct IPO price discovery and book-building. It is a core function of the BRLM, in which the final price is determined by demand. BRLMs manage the book, inviting bids from QIBs or qualified institutional buyers, NIIs or non-institutional investors, and retail investors via electronic systems. 

They also play a role in tracking subscription levels in real time and evaluating bids to understand overall market sentiment.

At the same time, BRLMs play a vital role in finalising the issue price through collaborations with the issuers/companies. This is done to determine the final cut-off price based on the demand analysed. 

Share Allocation & Underwriting Support

BRLMs supervise the entire allotment process once the final price is determined. They also ensure stringent compliance with all regulatory quotas for various categories of investors. At the same time, they also offer underwriting support to ensure the issue is fully subscribed (sometimes purchasing unsold shares if required). 

There is also the Green Shoe Option, under which BRLMs handle the issuer’s overallotment of shares (if applicable) to stabilise prices. 

Post-Issue Support

The BRLM is the central link between the company and potential investors. At the same time, responsibilities persist even after the issue is closed. The BRLM holds responsibility for ensuring a smoother transition to the stock exchange. BRLMs coordinate with stock exchanges to list shares for trading and supervise the crediting of shares to demat accounts. 

They also handle refunds to unsuccessful bidders at this stage. At the same time, they may seek to support the post-listing price by adopting various market-stabilisation mechanisms. BRLMs may also handle post-issue investor/regulator complaints, grievances, or queries. 

Alongside these key roles, BRLMs also work in marketing and investor outreach. They organise meetings with investors, presentations, and road shows for marketing/promoting the IPO to potential investors. They also identify and secure larger institutional investors or anchor investors prior to the IPO opening (as a confidence-building measure).

BRLMs may also manage investor communication and advertising for the IPO to increase market awareness. 

BRLM vs Other IPO Intermediaries

The BRLM is not the only intermediary involved in the IPO process. Here’s looking at the differences of this role from the others. 

BRLM vs Lead Manager

Understanding the differences between the lead manager and BRLM is vital in the backdrop of an IPO. The terms are sometimes used interchangeably in everyday contexts, although there are a few differences in responsibilities.

The BRLM holds primary responsibility for the book-building procedure, price discovery, and the management of investor demand, among other responsibilities. They oversee the entire process, including coordination with syndicate members for distribution.

On the other hand, lead managers focus more on promoting, marketing, and distributing shares to investors. Hence, for larger mainboard IPOs, the issuer appoints multiple BRLMs to manage the books, whereas a single lead manager is usually sufficient for SME IPOs. 

BRLM vs Underwriters

The BRLM is the manager and advisor to the company or issuer, overseeing the entire IPO process and ensuring regulatory compliance.

On the other hand, underwriters are entities (which may include the BRLM, members of the syndicate, and brokers) that offer guarantees to purchase the issuer's unsubscribed shares.

In this case, the BRLM functions as the lead or central underwriter. While BRLMs usually manage the entire IPO process, underwriters bear the financial risks of the issue. 

Another intermediary in the IPO process is the registrar of the issue. The registrar manages investor applications, allotments, and refunds, while the BRLM handles strategy and valuation. On the other hand, syndicate members appointed by the BRLM are responsible for accepting investor bids without managing the overall process. This table will help you get a clearer picture: 

How Companies Select a Book Running Lead Manager (BRLM)

Here are some of the main factors behind the decision to choose a book-running lead manager for an IPO: 

• Experience and Reputation: Companies usually prefer merchant bankers with proven track records of executing well-priced, successful IPOs. 
• Industry Expertise/Knowledge: BRLMs with knowledge/experience in the specific business sector are mostly preferred. This is because they will have a better understanding of investor sentiments and sector-specific risks. 
• Reach and Overall Investor Network: BRLMs are often chosen for their ability to secure more subscriptions from QIBs, NII (institutional investors), and retail investors. This is otherwise vital for expanding the size of the issue. 
• Strength of Underwriting: BRLMs must provide proof of their commitment and financial capacity to underwrite the issuer’s shares. They should be strong enough to handle all the risks linked to the offering. 
• Regulatory Knowledge & Expertise: BRLMs should be SEBI-registered merchant bankers with extensive knowledge of all the disclosure, compliance, and legal requirements. This is mainly useful while drafting the red herring prospectus (RHP). 

Here is the usual selection process for BRLMs: 

• RFP (Request for Proposal): Issuers or companies often issue the RFP to potential merchant bankers. They seek detailed and extensive presentations on these entities’ fee structures and strategies in this case. 
• Evaluation Stage: All BRLM candidates undergo a thorough evaluation by the issuer, based on their expertise, proposed strategy, past track record and performance, and the team's experience. 
• Appointment: Issuers then appoint one or more BRLMs (they may appoint up to eight BRLMs for larger issues) to form their syndicate. This manages the book-building process thereafter. 

Concluding Note

The choice of BRLM matters a lot for any issuer, since a top-tier entity adds credibility to the entire IPO process. This also enables better price discovery, balancing fair investor value with maximum capital for the issuer.