IFR European ECM Roundtable 2013

To view the digital version of this report please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.   Craig Coben: BofA Merrill Lynch Craig Coben is the head of EMEA Equity Capital Markets for Bank of America Merrill Lynch. Craig joined the firm in 2005 from Deutsche Bank. Craig holds a Bachelor of Arts from Yale University and a Juris Doctor degree from Harvard Law School and speaks Spanish, French, Italian and Portuguese. He also serves on the Board of Governors of Tower Hamlets College.   Konstantin Dombrowski: SIX Swiss Exchange Konstantin Dombrowski runs European issuer origination efforts at SIX Swiss Exchange. Konstantin joined SIX in 2011, having spent six years at Bank of Scotland in London. In his current role, Konstantin is also responsible for developing the relationship with SIX Exchange Regulation and ensuring a competitive listing environment.   Reinout Koopmans: Jefferies Reinout Koopmans joined Jefferies as co-head of European Equity Capital Markets in September 2011, with 16 years of investment banking experience. He joined from Deutsche Bank, where he spent 10 years and was most recently head of ECM for the natural resources sector and previously co-head of ECM for emerging markets. Reinout holds a PhD in economics from the LSE.   Luis Vaz-Pinto: Societe Generale Luis Vaz-Pinto was appointed global head of Equity Capital Markets and deputy global head of corporate finance and in April 2012. Previously he was managing director in investment banking at Troika Dialog and earlier head of syndicate and corporate broking at JP Morgan for three years after 10 years at Merrill Lynch where he covered France, Belgium & Iberia.   Jens Voss: Commerzbank Jens Voss was appointed head of Equity Capital Markets at Commerzbank in July 2013. Voss has almost 20 years of experience in banking. Prior to joining Commerzbank, Voss was responsible for strategic equity solutions covering Germany, Austria and Switzerland at Citi, Societe Generale and Credit Suisse working in Frankfurt, Paris and London.   Owen Wild: Deputy Editor, IFR   Robert Venes: Assistant Editor – Equities, IFR     To continue reading this roundtable, click the relevant section. Introduction - Participants - Part 1 - Part 2 - Part 3

To view the digital version of this report please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.   IFR: The equity market has changed a lot in a year. The S&P is up 22%; the FTSE 100 is up 13%; the FTSE 250 up 27.5%. Looking around the rest of Europe, the rise is 19% in Switzerland, 19% in Italy, 23%in Spain to name a few. We have seen record inflows into European equity funds in the third quarter. Perfect timing for equity issuance. It couldn’t be easier. Is that correct, Craig?   Craig Coben, Bank of America Merrill Lynch:The market is as open now as it has been for at least five years. A lot of deals are getting done that many of us hadn’t thought were possible. But one of the consequences of this rally is that the discussions banks have with issuers about valuations quickly become obsolete, with valuations racing ahead as multiples have expanded. A particular challenge we face is ensuring our views are updated in real time so we don’t leave money on the table for our issuer and vendor clients.   Jens Voss, Commerzbank: I agree with that statement. We do see potential for more IPOs coming in the future, given the market environment and where valuations are heading. IPO discounts are heading back towards what we have been traditionally used to. But on the downside there remain macroeconomic concerns. There has been much talk about Fed tapering, for example, which could be harmful to the overall business going forward.   Reinout Koopmans, Jefferies: Absolutely right. If you look at what’s happening in terms of valuations, the IPO product in itself has become hugely competitive, relative to private equity. That’s obviously visible in the IPO volumes we see coming to market. Equally interesting are the deals we’re not seeing: M&A-related financings. M&A volumes clearly still have some way to go, it has not been the source of equity business we have been used to in the past. But that is another point. Public market valuations are, in terms of multiples, high, discouraging some corporate executives to go down the M&A route. At the moment, absolutely, global markets are very competitive in terms of the valuations and that’s been reflected in terms of the IPOs.   Luis Vaz-Pinto, Societe Generale: This time last year there had only been one US$1bn-plus IPO done in Europe, which was [Dutch cable company] Ziggo. Direct Line happened a bit later. I think we were at the worst possible point. Clearly there has been a step change, not just in terms of volumes, but to use an old expression, in terms of the ‘risk on’. When you look at the composition of the deals you are struck by the appetite for markets which were previously seen as being unsellable. When you listed the markets earlier you missed out the best performing market in Europe this year: Greece, which is up 32%. Ireland is up 29% and Spain is up 23% [as of Oct 21]. When you compare those figures to the FTSE and the DAX, clearly there’s a huge renewal of optimism. People want to buy into the periphery.  Equity-linked issuance displays some interesting trends. Last year 40% of issuance came from Germany. This year about a third of it is from Spain, Greece and Portugal. There is a huge appetite for trickier stories which a year ago we would have found very difficult to sell.   Konstantin Dombrowski, SIX Swiss Exchange: We have noticed that, especially in trading volumes returning to the exchange. Last year was horrible for the exchanges. We haven’t seen a massive recovery but volumes on the blue-chip side are up 20%. Interestingly the SME community has benefited from this and is returning to the market. Small and mid-cap trading volumes are up 22%. There has been plenty of debate about the opportunities for SMEs versus blue chips, but trading liquidity is absolutely there for SMEs as much as it is for blue chips. In terms of primary markets I agree with Luis. Last year we had the window opening up in

To view the digital version of this report please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.   IFR: We mentioned earlier about how active sponsors have been this year and to what extent that is driving IPO volumes, and providing everyone with the opportunity to lose money on blocks. Are investors differentiating between the sponsors they consider to be the best run? And which understand ECM best?   Craig Coben, Bank of America Merrill Lynch: No.   IFR: Shouldn’t they be?   Craig Coben, Bank of America Merrill Lynch: No. The market knows what the interests of sponsors are. It’s actually very difficult to generalise about sponsors, particularly when each one has a number of different partners. But often the success or failure of a deal has nothing to do with the sponsor and everything to do with the company and the market conditions prevailing at the time. The fact is banks and investors approach these placements on their own merits.   Luis Vaz-Pinto, Societe Generale: It’s an old chestnut but we all analyse the performance of sponsor IPOs versus other IPOs and generally sponsor IPOs seem to perform better.   IFR: They always have – but that’s never changed the fact that sponsor IPOs often seem to get a harder ride.   Craig Coben, Bank of America Merrill Lynch: It‘s because they tend to be the better companies. Many of the low-quality companies that IPO would not have been held by a sponsor. So there’s a selection bias in the data.   IFR: You’ve been winning the battle in the dual-track this year. It’s been a long time since ECM was preferred for a partially exit compared to a full exit through a sale.   Reinout Koopmans, Jefferies: Multiples are high and sponsors, from a financing perspective, are typically backward looking while the earnings are not there yet. So this is the ideal window. That puts IPOs on the best footing we have seen for a decade, in terms of the attraction of public markets versus private equity. That is going to change. Earnings are going to pick up and we see broad economic recovery, so private equity will again become more competitive. But for the time being it is clear that in any dual track, the public markets have the upper hand because of the high multiples and the forward-looking nature of public markets.   IFR: When it comes to sell downs, accelerated activity has clearly dominated. A portion of that has been on risk, and not necessarily the majority, and some of that has come through auctions. The risk portion is getting disproportionate attention, despite so much being done on an agency basis, but why are banks so keen to run risk business?   Craig Coben, Bank of America Merrill Lynch: First of all I think it says more about the editorial policy at IFR! You probably pay a little bit more attention to it than it deserves. But second, we want to do blocks because our clients expect it of us, sometimes they want us to commit capital. We do it because if we think we know the stock well we think we can achieve an acceptable return on the placement. Sometimes we do it for league table credit, although I for one don’t fetishise about the league tables the way others do, including members of the media. We want to remain active in the block trade business but like everything else you have to choose your priorities and show measured aggression when you think you have a competitive advantage.   IFR: It is a very efficient process for distributing stock in a listed company.   Luis Vaz-Pinto, Societe Generale: Particularly in volatile markets which we’ve seen recently. We expect to see fewer of those transactions as markets consolidate. There should be better value for sellers doing fully-marketed offerings, or deals on a best efforts basis, as opposed to a risk basis. The truth is that some investors are completely fed up with blocks. Deals are getting shoved down their throats which shouldn’t be. With a bit more care and attention it sho

To view the digital version of this report please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com.   IFR: Can uncertainty play into your hands in terms of ECM? One thing you can be sure of is equity is equity.   Craig Coben, Bank of America Merrill Lynch: Yes, but again, what’s uncertain is how much equity they need. The big change this year was actually the regulator moving in fairly short order towards leverage ratios. A lot of banks that looked pretty good on a CET1 basis suddenly had problems with their leverage ratios. The banks all of a sudden had to judge things on the basis of ROE but also on the basis of ROA, which really caught a lot of them off guard. Clearly, in our own private little world yes, we benefit as ECM practitioners from more equity issuance. On the other hand we shouldn’t be quite that selfish. We need to look at the broader picture. It‘s vital that the AQR is perceived as credible. If it gives a clean bill of health to a lot of European banks it will lose credibility, those banks will eventually have to raise capital anyway, but probably from a lower price level than would be optimal. On the other hand some governments are concerned that if it’s too tough some banks won’t be able to recapitalise in the market and will turn to the taxpayer. It will be interesting to see which banks need to be recapitalised according to the AQR, and which of them can do that in the market. Those will be the ones that we, and I’m sure our competitors, will be hovering around very actively.   IFR: There’s normally a queue of banks wanting to do these recaps, however complicated and unusual the risk. But outside of FIG, which sectors do you expect to be most important in 2014?   Craig Coben, Bank of America Merrill Lynch: Retail.   Reinout Koopmans, Jefferies: As far as IPOs are concerned specifically it’s certainly retail and consumer, which reflects the portfolios of the financial sponsors. There’s certainly an element of tech as well. Again, there is the clear divergence with tech, so the more complex tech stories will typically go to the US, but we will see some of the tech stories come to the markets here in Europe too, no question about that. There are some very interesting consumer finance plays, we’ve seen it with Cembra and some of the insurance stories that have come to the market. We’ll see a continued flow there as well. Some of the smaller telecom opportunities are really broad based. But the biggest deals will be the retail and consumer stocks.   Konstantin Dombrowski, SIX Swiss Exchange: I agree, we see retail as the main target, supplied by sponsors.   IFR: It is fortuitous that those two marry up well. What the sponsors have got in their portfolio is exactly where market demand is. We were talking earlier about the size of deals, and how hard smaller deals can be. Do you expect that to get any easier in the coming year?   Reinout Koopmans, Jefferies: If there’s a small, illiquid deal with an exciting story, no problem. If it’s a small and boring deal, that’s a challenge. But yes, we do some smaller deals and we’re very excited when they’re differentiated. That is, quite frankly, what the buyside is looking for, something that’s really differentiated. Those deals have worked very, very well, even if they are less liquid. You have to be selective.   IFR: It seems to be harder to create the same momentum behind those transactions.   Luis Vaz-Pinto, Societe Generale: That is also a function of how the buyside is structured. As they get more consolidated it’s more difficult for a 10% investment in a small IPO to have the kind of impact on a portfolio as 10% of a large IPO does. But if you look historically, small caps have always been a very strong performing asset class. We have dealt with some very exciting stories that we’ve had very little difficulty in placing. But it’s true that sometimes the audience is slightly different from the mega large