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Wednesday, 16 January 2019

EMEA Mid-Market Equity House: Peel Hunt

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New and exotic

UK mid-market specialists faced unique challenges in the midst of Brexit uncertainty. Peel Hunt stood out with bold and well-executed deals that wooed investors by offering something new and exotic and is IFR’s EMEA Mid-Market Equity House of the Year.

If Peel Hunt’s equity team was nervous about the consequences of Brexit – and the messy exit process – it certainly didn’t show. Together, they raised over £2bn for 30 clients and snagged sole bookrunner roles on two of the best performing European IPOs.

“At the start of the year, the most-shorted position in the BAML fund manager survey was volatility, now it is the UK,” said Alex Carter, head of equities at Peel Hunt. “International investors are underweight UK. But for UK investors it is business as usual – they say ‘if we see an issuer we like at the right price, we’ll buy’.”

The numbers speak for themselves: Peel Hunt deals (with the odd exception) rise in the aftermarket from day one onwards. US mobile payments platform Boku and UK financial adviser platform Integrafin, the two best performing UK floats of the awards period, were trading 97% and 51% above their IPO pricing respectively as of the close on November 23.

Peel Hunt put its ability to discern sentiment in the UK mid-cap investor base on full display this year.

Accurately detecting appetite for a niche US tech stock in London, the broker convinced San Francisco-based Boku to defy convention and list in the UK. 

While Boku was tiny with just 40 employees, its clients – Apple, Google, Facebook, Microsoft and Spotify – were anything but. Yet UK investors were cautious about the loss-making firm when a peer wasn’t delivering growth. An initial round of meetings aroused interest but the bank opted to put the IPO on hold.

Six months later the company went back to investors with new numbers showing strong growth and quickly built momentum. Their judgement was vindicated when huge demand saw the deal upsized from £30m to £45m.

CROSSING THE ATLANTIC

Peel Hunt has subsequently hosted events in Seattle and California to promote the opportunity for other “swimmers” to cross the Atlantic.

Research is at the heart of Peel Hunt’s offering and, while an implausible number of banks claim to be beneficiaries of MiFID II unbundling, the broker can prove it. Peel Hunt is now selling to 844 accounts, up from 450 last year, and downloads have more than doubled. On a like-for-like basis, revenues are up an estimated 10%.

In the small and mid-cap space highly rated analysts are sought after. On the IPO of Bakkavor in November 2017, Peel Hunt was a junior in a six-bank syndicate, yet its analyst completed more than half of the 180-plus meetings in pre-marketing.

Bain Capital hired Peel Hunt to work alongside JP Morgan on its first post-IPO sale of shares in TI Fluid Systems. Peel Hunt hadn’t worked on the IPO and four global banks that did were overlooked.

“The quality of the analysts is crucial. We want to be number one in each sector as that attracts the best institutions and that brings the best issuers,” said Alastair Rae, co-head of ECM syndicate.

Peel Hunt faced an additional challenge on Integrafin’s £178m IPO in terms of keeping the deal going when it was unclear if there was going to be any stock available. In the end, enough of the 630-strong shareholder register was convinced to sell 27% of the company but there was no certainty and still the sole bookrunner was able to build a multiple times covered book. When shares popped 29% on their debut, trading volume represented only 13% of the deal, showing how well allocated it was.

Brightening up a dull August, Peel Hunt single-handedly raked in £60m for University of Oxford spin-off and NHS data partner Sensyne Health, despite its negligible turnover, lack of peers and complex story. Securing a £225m market cap off revenues of £800,000 required a remarkable feat of story-telling.

The bank was clearly emboldened by earlier heroics as the first day of IFR’s review period marked the debut of ready-meal supplier Bakkavor. The bank resurrected the £261m IPO days after it was cancelled, going so far as to offer hard underwriting for the full deal size.

Peel Hunt could make that offer because it reached investors the more senior banks couldn’t. Three meetings with investors not in the original book delivered orders of £51m, and it was downhill from then on.

Even during this year’s bloody October, when a deluge of deals were killed off amid an investor retreat, Peel Hunt brought LXI Reit’s primary placing to the market. Together with Bank of America Merrill Lynch, the bank gathered £175m for the fund, overshooting the £100m target and scaling back orders.

“You have to prove to institutions that you put them first and bring companies that you think will make them money,” said Rae. “That trust is very difficult to win and very easy to lose.”

To see the digital version of IFR Awards 2018, please click here.

To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

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