IFR European ECM Roundtable 2015
IFR’s Europe, Middle East and Africa ECM Roundtable was held on June 25 just as Greece had caused European debt issuance to slump. Yet this was an upbeat discussion held amid a flurry of issuance.
It would be easy to deduce that the macro problems affecting debt markets in 2015 had similarly infiltrated equity capital markets in EMEA considering the year-on-year drop in issuance. Volume figures for the first half of 2015 showed a 17.8% drop in ECM issuance in EMEA versus the same period of 2014, and a 20.5% fall for IPOs. Rights issues and equity-linked volumes were both down over 40%.
However, speak to any ECM banker, investor or issuer and the picture they paint is quite different – and the most vibrant it has been for years.
Investor engagement is high, deal syndicates are less bloated, high valuations mean issuers can leave something on the table and, as a direct result, primary equity investments have delivered alpha.
Issuers are happy as few deals have failed and they have secured a good price for the businesses; investors have been able to agree on those valuations and have then seen stocks outperform in the secondary market; and bankers, sitting in the middle, are a major beneficiary as success begets success.
Volume was a little higher in the exceptional 2014, but not all deals delivered returns and there were periods when markets froze. This year could easily have been a struggle after the best assets were floated last year while Greece, and to a lesser degree China, have at times cast everything else into their shadow.
Equity-linked issuance may have been slightly disappointing, but there were still weeks where activity matched those of European corporate straight debt. While debt syndicate bankers have had periods of inactivity, in ECM there has always been at least one product – IPOs, accelerated bookbuilds, rights issues or equity-linked – in favour, leaving equity syndicate bankers thankful for their imminent summer break.
Far more banks are leading ECM deals, particularly IPOs, than has been for several years. At one point in early June, 44 banks were working as bookrunners on 32 flotations in EMEA. It is hard to even name so many banks active in ECM. Yet just about everyone was an active member of its deals. It is equally encouraging that – much to the top tier’s chagrin – the employment of so many ‘novices’ had no discernible negative impact on outcomes.
The roundtable also touched on the challenges that such active markets create in terms of managing staff suddenly overloaded with work. Banks as a whole are also still getting to grips with a new generation of junior bankers who do not consider all-nighters to be a badge of honour and all business lines are having to adapt to their different needs and desires.
One veteran ECM banker insists that the only qualification required in ECM is that one ‘smells of deals’. Our panel of ECM experts were certainly fragrant, with one (Societe Generale’s global head of ECM) stepping in a few minutes late having launched an overnight sell-down. And yes, illustrating that these are good times, it was covered by the time our discussion ended. Chapeau!