European ECM Roundtable 2012
IFR’s European Equity Capital Markets Roundtable was held in late October with representatives from the buyside, sellside and a stock exchange. The conversation came at the end of a full-day conference covering all matters related to European ECM.
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Timing was critical to the nature of the conversation. Only a few weeks earlier and sentiments would have been a mixture of disappointment and frustration, largely blamed on the macroeconomic and political outlook.
By mid-October the promise by Mario Draghi to do “whatever it takes” to save the euro was the trigger for US investors to reallocate to the region. ECM bankers were quick to move and use new issues to capture this flow, most notably with the £906m IPO of Direct Line Group and US$5.2bn secondary sale by the Russian Government in Sberbank.
Yet the year had been a frustrating one – IPOs were still scarce and banking costs were high. The sight of several European companies giving up on Europe and heading to New York to list was especially painful and gave rise to prominent discussion of regulatory changes. As the following pages show, bankers are not clear on the extent to which regulatory change may help in Europe. Certainly it makes the US more attractive than it was, but the key difference between the regions is the size of the demand pool.
European bankers must now do all they can to make their markets attractive and convince companies to float. This means introducing companies to investors as early as possible and considering options to accelerate the process of starting an IPO and reducing the amount of time it is in the market. Legal restrictions on timing were a flashpoint in the conversation. The superhero Captain Hindsight also warranted a mention when pondering why so few companies are exploiting the IPO windows when they open.
Deal flow across European ECM remains very light with volume set to total around US$100bn for 2012. This is the third year of very depressed volume and banks are grappling with the high cost base of ECM and equities. Several have made dramatic cuts, with others expected to follow.
However, in 2012 there were opportunities for second-tier banks to take leading roles when the top tier was noticeably absent, leading to speculation of whether there are niches that firms outside the top five can fill. Clearly investors would not mind seeing a reduction in active banks and a focus on core competencies in syndicate construction.
Ultimately the correlation between equity issuance and broad economic confidence is little short of perfect, leaving bankers beholden to politicians, and so the conversation concludes: cross your fingers.