Capital Markets Adviser: Rothschild

IFR Review of the Year 2016
8 min read
Christopher Spink, Robert Venes

Worth listening to

New advisory firms have sprouted like weeds since the global meltdown, jostling to show that they can help companies save money – and avoid very costly mistakes. But one firm has repeatedly shown that its long experience in the space is invaluable. Rothschild is IFR’s inaugural Capital Markets Adviser of the Year.

Advisory now plays a larger role than before the financial crisis, and countless firms have opened up shop since then, offering far broader services than previously.

Debt and equity advisory alike have been expanded, and for many clients having a non-bank provider of independent advice is now the norm.

Yet despite the raft of new competition, Rothschild continues to be a leader in the field, and the house proved its credentials again this year despite a weaker ECM market.

“Financing advisory – IPOs, restructuring or debt advice – accounts for 35% of our revenues,” said Philippe Le Bourgeois, managing director of global advisory at Rothschild.

“We are not siloed at all. Restructuring and M&A are not different businesses for us.”

That organic approach has helped Rothschild to a position of dominance in Europe, where it advised on 14 IPOs during the awards period.

That was a result no bank could compete with, based on equivalent global coordinator roles, and underscored how effective the approach has been.

“IPOs for instance always have some form of refinancing and balance sheet repair,” said Adam Young, global managing director of equity advisory.

Indeed, being in the flow is essential as it provides invaluable knowledge that enables understanding of investor behaviour patterns as well as potential hazards, he said.

“Having lots of current deal experience allows for an understanding of the seller, the story, where they are in the calendar and how to judge what that means in terms of investors,” said Young.

“Knowing how investors have behaved in the past is crucial when the book of demand rises to a certain size and quantity.”

He also stressed that advice to clients is “not just about demand” but rather an aggregate of all a firm’s experience with deals in the market.

“What kind of allocations you get at a certain price range, what kind of price discipline that involves – you can’t get that from one deal,” Young said. “But you can get it from 10 or 20.”

Rothschild’s debt advisory department is very active as well, doing much of the work once handled by syndicate desks and allowing it to get a fairly accurate gauge of buyside appetite.

“We carry out 170 completed transactions each year and work on other deals that don’t happen,” said Paul Duffy, managing director of debt advisory.

Duffy said many syndicate desks have specialised in particular areas of the market, meaning Rothschild is more aware of the wider financing options available to credits.

“We go through the options, two or three, that could be followed,” he told IFR. “This is what a typical syndicate desk would have been doing 15 to 20 years ago.”

Public and private

A significant and high-profile part of Rothschild’s work is for governments, advising on privatisations and other sensitive matters.

In the past year, Rothschild advised the Dutch government on the US$4.1bn privatisation of ABN AMRO and the Danish government on the US$3bn IPO of Dong Energy.

It also advised Greece’s public debt agency on negotiations with Eurogroup creditors – the country’s fellow eurozone members who are shareholders of the European Stability Mechanism.

In a show of its full-service approach, Rothschild was in Brussels during the Eurogroup meetings in May to advise the Greek government in real-time negotiations at this summit.

The firm also advised the Hellenic Financial Stability Fund on the remarkably successful €14.4bn recapitalisation of the four systemically important Greek banks at the end of 2015.

In the private space, meanwhile, Rothschild was on a number of high-profile and big-ticket transactions that resonated across the markets.

The firm had a debt advisory mandate for Teva Pharmaceuticals on a US$20bn financing to support its acquisition of Allergan’s generics business.

Rothschild also carried out a comprehensive restructuring of the US$3.9bn liabilities of troubled US coal producer Alpha Natural Resources.

The distressed company ended up in a consensual Chapter 11 process that saw it split into two, most debts turned into equity, new US$692m financing raised and some assets sold off in a torturous series of deals.

Advisory work related to the equity-linked market is still rare, although Rothschild managed combo equity and equity-linked issues for Airbus, using its Dassault Aviation stake, as well as Teva.

With so many deals in a difficult market, the occasional miss was inevitable and – in Rothschild’s case – spectacular.

Telepizza’s IPO crashed and burned, damaging the float of Parques Reunidos two days later.

The Spanish pizza company had been seen as a hot prospect. But the tightly allocated book fell apart in the aftermarket, with shares dropping over 19% on their debut and losing nearly half their value at the lows.

Rothschild also advised German wind turbine company Senvion, which gave a Telepizza a run for its money as the worst-performing IPO of the year until a company buyback spurred a recovery.

There is no succinct explanation of the missteps, though the multiple-times covered book on Telepizza was clearly driven by hype rather than conviction buyers.

Even so, Rothschild’s flubs were the exceptions that proved the rule, as the house demonstrated time and again a real feel for timing and execution.

That was perhaps best illustrated by Innogy in October, which at €4.64bn was the largest European IPO since Glencore in 2011.

The deal came in the wake of Nets, which was priced a couple of weeks ahead of the RWE spin-off and quickly lost investors money.

September and October also saw several IPOs cancelled, validating the earlier decision to bring in BlackRock as a €940m cornerstone, the largest single cornerstone investment to-date for a European IPO.

Rothschild also advised on the €862.5m float of Philips Lighting, including advising Philips on the carve-out and dual-track sale process.

“If we were asked to advise on the sale of a private equity portfolio of businesses, we would bring four MDs into the first meeting: a corporate adviser, a sector specialist, an equity and a debt adviser,” said Le Bourgeois.

“We can then advise on the dual-track sale process and say how much debt a business can raise.”

Rothschild also successfully guided the IPO of Italian air traffic control group Enav, completed in the days immediately after the UK’s referendum on membership of the European Union.

Despite the difficult circumstances, the deal held together, with pricing above the mid-point of guidance and trading up 9% on debut.

The experience of working with Rothschild has convinced even many of those bankers who railed against the presence of advisers in the past – especially on IPOs – but who now see the benefit of having experienced capital markets professionals on the client side of the table.

And for Rothschild, that means continuing to offer clients a unified and fully integrated force across all businesses.

“There are no departmental walls in the office,” said Young. “Advisory is the product.”

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Capital Markets Adviser: Rothschild