How to Answer a Block Trade vs. Accelerated Bookbuild Question in an ECM Interview

The block trade question is one of the most common openers on an equity capital markets desk, and almost every weak answer fails the same way: the candidate lists differences between an accelerated bookbuild and a bought deal without ever putting a number on them. A strong answer does five things in order — size the stake against liquidity, price each route, net the fees, collapse everything into one all-in cost, and only then say who would choose what. This walkthrough runs that structure end to end on a live set of numbers, the same ones used in the Block Trade vs. Accelerated Bookbuild case study.

The question you will actually be asked

The prompt usually arrives in one of these forms:

• "A sponsor wants to exit a 22% stake in a listed industrials company. Walk me through the options."
• "What is the difference between a block trade and an accelerated bookbuild, and when would you use each?"
• "Why would a seller accept an 8% discount when they could market the deal properly and pay 3%?"

All three are the same question. The interviewer wants to know whether you understand that a placement discount is the price of speed and certainty, and whether you can quantify that trade-off rather than assert it.

The set-up we will use throughout: 200.0m shares outstanding, a €45.00 last close, a 22.0% sponsor stake, and 0.8m shares of three-month average daily trading volume. The banks quote a fully marketed secondary at a 3.0% discount and a 2.75% fee, an accelerated bookbuild at 5.0% and 1.25%, and a bought deal at 8.0% with no separate fee.

Step 1: Size the stake and test liquidity first

Start here, always. The liquidity test is what justifies the entire conversation, and candidates who skip it end up arguing about discounts without explaining why a discount is necessary at all.

Shares Sold = Shares Outstanding × Stake % = 200.0m × 22.0% (0.22) = 44.0m shares

Market Value of Stake = 44.0m × €45.00 = €1,980.0m

ADV Multiple = Shares Sold / Average Daily Trading Volume = 44.0m / 0.8m = 55.0x

Now make the point explicit. If the sponsor tried to sell in the open market at a disciplined 20% of daily volume, it would move 0.16m shares a day, so:

Days = 44.0m / 0.16m = 275 trading days, or roughly 1.1 years at 252 trading days a year.

Saying this out loud in an interview does more work than any other single sentence: it establishes that the market alternative does not exist, so the only question left is which placement format to use. Desks generally treat anything beyond ten to fifteen times ADV as block territory, and 55.0x is far past that line.

Step 2: Price each route off the last close

The placement price is always struck against the last closing price (sometimes the day's volume-weighted average), never against the seller's entry cost and never against an analyst target. Getting the reference price wrong is the fastest way to lose the interviewer.

Placement Price = Current Share Price × (1 − Discount)

Multiply through by the 44.0m shares to get gross proceeds of €1,920.6m, €1,881.0m and €1,821.6m respectively. Do not stop here. Gross proceeds flatter whichever route carries the biggest fee, and the fee scale runs the opposite way to the discount scale.

Step 3: Net the fees down to what the seller receives

Net Proceeds = Gross Proceeds × (1 − Underwriting Fee)

Explain the zero. A bought deal shows no commission because the bank is not being paid one: it buys the entire block at €41.40, warehouses it on its own balance sheet, and keeps whatever it can resell above that level. The compensation has moved from a fee line into a trading spread. Candidates who read the zero as "cheapest" have simply not followed the money.

Step 4: Collapse everything into one all-in cost

This is the step that separates a good answer from a competent one. Discount and fee are not comparable until they sit on the same denominator.

All-In Cost = (Market Value of Stake − Net Proceeds) / Market Value of Stake

Now the trade-off is a sentence instead of a list: the sponsor pays 52 basis points, or €10.3m, to compress four weeks of exposure into one night, and a further 181 basis points, or €35.9m, to remove the residual price risk entirely. Whether that is worth it is a judgement about volatility, deadline pressure and how much of the fund's remaining value sits in this one position — the same kind of exit-timing judgement that drives a sponsor's multiple of money and IRR.

Step 5: Answer the "who uses which" half of the question

Most candidates do the arithmetic and then forget that the prompt had two halves. Map seller type to route explicitly:

• Financial sponsors dominate ABB and bought-deal volume. A fund approaching the end of its life has a hard deadline, limited partners waiting for distributions, and no shareholder register to nurse. Certainty beats 50 basis points. The same preference for clean, fast liquidity shows up in a secondary buyout or a dividend recapitalisation when a public exit is unattractive.
• Corporates divesting a non-core listed stake usually have time and a reputation to manage, so they favour the fully marketed route or a staged sell-down. Where the whole asset is in play rather than a minority stake, the decision becomes the classic dual-track question of IPO versus trade sale.
• Governments and state holdings lean towards bought deals, because a fixed price agreed in advance is defensible in a way that a book which priced badly is not.
• Founders and management sell small relative to free float, pre-announce, and accept a lock-up on the remainder, because the signalling cost dwarfs the execution cost.

The follow-up they will hit you with

Expect: "The bank will do the bought deal at 8%, or run an ABB it expects to price around 5%. How far can the ABB slip before the sponsor is worse off?"

Set the ABB net proceeds equal to the bought-deal net proceeds and solve for the discount:

€1,980.0m × (1 − d) × (1 − 0.0125) = €1,821.6m

(1 − d) = €1,821.6m / (€1,980.0m × 0.9875) = 0.9317, so d = 6.8%

The answer: the ABB can price up to roughly 180 basis points wider than indicated and still beat the bought deal. Unless the sponsor genuinely expects the book to clear beyond that, the ABB is the better trade — and pricing that probability is exactly what the syndicate desk is paid for. Producing this number unprompted is one of the more reliable ways to stand out on an ECM interview.

What the syndicate desk is actually doing overnight

Interviewers on an equity capital markets desk often push past the arithmetic to see whether you understand the execution itself. It is worth being able to narrate the night in sequence.

Before launch: wall-crossing

Because the placement price is struck off the last close, anything that moves the share price before launch destroys value. The bookrunner may therefore bring a small number of large investors "over the wall" — giving them the confidential information in exchange for an undertaking not to trade until announcement. A wall-crossed anchor order tells the desk the book will cover and lets it price tighter. The cost is leakage risk: every additional account inside the tent is another possible leak, and a leaked block typically drifts down before launch, so the discount ends up struck off a lower base. Balancing coverage against leakage is a large part of what the seller is paying the bookrunner for.

At launch: the range and the covered message

The deal is announced after the close with an indicative price range, often expressed as a discount band to the closing price. Orders come in over two to four hours. The desk publishes "books covered" messages to build momentum, and if demand is strong it will tighten the range or upsize the deal; if demand is thin it prices at the wide end, downsizes, or pulls. In a best-efforts accelerated bookbuild the seller has no control over which of those happens, which is precisely the risk the bought deal removes.

At pricing: allocation and the aftermarket

Allocation is discretionary, and the desk will favour long-only accounts it believes will hold the stock over hedge funds likely to sell into the first bounce. Good allocation is what keeps the stock stable the next morning; poor allocation is why some placements trade below the placement price within days. Because there is no stabilisation mechanism behind a block, that first session is the real test of whether the discount was set correctly.

How the picture changes in a volatile market

Every number in this walkthrough widens in stress. Investors have less appetite for unexpected supply exactly when volatility rises, so ABB discounts move out, banks bid far more conservatively for bought deals, and books cover less comfortably. The effect is the same one seen in credit markets, where spreads gap out and issuance windows close — the parallel is drawn in high yield versus investment grade bonds. If an interviewer sets the scene in a falling market, adjust your recommendation towards the bought deal and say why.

Variations you should be ready for

"What if the seller only places part of the stake?"

A partial sell-down cuts the ADV multiple and therefore usually narrows the discount, but it leaves a residual holding that the market will treat as an overhang. Sellers normally offset this with a 90 or 180-day lock-up on the remainder, which is the standard tool for signalling that no further supply is imminent.

"How does this compare to raising new equity?"

A block trade transfers existing shares, so the share count is unchanged and there is no earnings-per-share dilution. A rights issue creates new shares at a deep discount with a theoretical ex-rights price to calculate; the mechanics are worked through in how to calculate TERP and the value of a right. Confusing the two is a common and very visible error.

"Is there a stabilisation mechanism?"

No. Unlike an IPO, a block trade has no greenshoe or over-allotment option supporting the aftermarket — see the greenshoe and IPO stabilisation guide for the contrast. That absence is part of why the initial discount has to be wide enough to leave buyers with room.

"Would you ever recommend a convertible instead?"

If the holder wants cash now but believes the stock is undervalued, an exchangeable or convertible structure can monetise the stake at a premium to today's price with equity transfer deferred. It is a legitimate answer, provided you flag that it introduces credit and interest-rate exposure rather than removing risk.

Mistakes that cost candidates the answer

• Skipping the ADV test. Without it you cannot explain why a discount is necessary, and the whole answer becomes a list of definitions.
• Ranking routes on gross proceeds. The fee scale and the discount scale run in opposite directions, so gross proceeds systematically favour the wrong route.
• Calling the bought deal fee-free. The compensation is in the spread. Say so explicitly.
• Equating cheapest with safest. The fully marketed route has the lowest all-in cost and the highest risk; the bought deal is the reverse.
• Confusing a placement with a capital raise. In a secondary block the company receives nothing and the share count does not move, so per-share metrics such as diluted share count are untouched.
• Forgetting the second half of the question. "Who uses which" is not decoration; it is usually half the marks.

A model answer in ninety seconds

"The stake is 44.0m shares worth €1,980.0m, which is 55.0x average daily volume — roughly 275 trading days of selling if you tried to do it in the market, so a placement is the only realistic route. Pricing the three options and netting the fees, the fully marketed deal returns €1,867.8m, an all-in cost of 5.67% but four weeks on risk; the ABB returns €1,857.5m at 6.19%, overnight; the bought deal returns €1,821.6m at 8.00% with the price fixed at signing. So the sponsor pays 52 basis points to remove four weeks of exposure and another 181 to remove the price risk altogether. For a fund near the end of its life I would run the ABB, because the break-even discount is around 6.8% and the book would have to clear 180 basis points wider than indicated before the bought deal wins. If the seller were a government or the tape were unusually volatile, I would take the bought deal."

That is the whole answer: liquidity test, three prices, one all-in cost, a break-even, and a recommendation tied to seller type.

Practise it

Work the numbers yourself in the Block Trade vs. Accelerated Bookbuild case study, and read the conceptual background — why the placement discount exists, how wall-crossing works, and what happens to free float afterwards — in what a block trade is, explained. If equity capital markets is your target desk, pair it with the IPO pricing and stabilisation case, which covers the primary-market side of the same skill set.