Being an ECM banker in the European region has been a chastening experience in 2011. After a tough 2010, banks entered the New Year with pipelines bulging with IPO candidates. As 2011 comes to an end those pipelines are still fat with promise from sadly having delivered little.
IPOs totalling US$36bn priced in EMEA in 2011, but deals set to raise US$26bn launched and cancelled. And that doesn’t take into account the many deals that never even got off the starting blocks.
The macroeconomic environment has not been helpful, and the volatility has been a killer for many deals. However, there has also been plenty of criticism thrown between the various constituents in the market – issuers, investors, banks and independent advisers.
Investors have criticised issuers for the wildly ambitious valuations they put on their own businesses, with bankers cited for encouraging their crazy views.
Bankers have turned on issuers for making their job more difficult by appointing such large syndicates that the IPO process becomes like herding cats. Bankers also argue that while they might have once have promised issuers sky-high valuations, the sellers need to get real and listen to what they are saying now when that level is far lower.
The sell-side is also critical of the buy-side’s failure to show commitment to trades and the obsession in 2011 with the ’book covered’ message. If an IPO was not covered with several days of bookbuilding to go they didn’t get done. Several trades ended with books 90% covered but were a million miles away from completing.
Advisers have become the easy target. When a wealth of banks fails to bring a company to market they are quick to gang up on the adviser, if there is one. They claim miscommunication of messages to the issuer and suggest they simply bully banks into securing higher valuations.
Yet investors complain about the quality of some companies that banks bring to market and whether they have been adequately prepared, but this same criticism is incredibly rare if an adviser has been involved in advance of a launch.
The debate over blame developed into one over the IPO process itself and whether the European market could adopt practices from abroad to improve the success rate.
In early November, IFR hosted its third annual ECM conference in London and explored many of the issues around IPOs.
At the end of the day representatives of each constituent in the market sat down and discussed the issues.
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