The good shepherd: By doing whatever it takes to get deals done, Morgan Stanley survived a difficult year with a higher success rate than its peers. Giving clients honest advice and finding the right investors, Morgan Stanley shepherded its clients to market, making it IFR’s EMEA Equity House of the Year.
“This year it was crucial to know how to navigate volatility, be creative, be unafraid to do things differently and find a path to distribution,” said Martin Thorneycroft, head of EMEA ECM at Morgan Stanley.
By being on the top line on the vast majority of its deals Morgan Stanley was able to drive the direction of trades in difficult times – sometimes taking the helm when its peers were advising to cancel.
On IPOs in particular it was easy to cancel in 2018 with many reaching for the “poor market conditions” excuse. But the reality is that few failed IPOs ever return and it wastes the huge investment of time by management.
Morgan Stanley had more than its fair share of trophy deals – it ran half of the 10 largest trades – but it was on the smaller deals where every order was hard fought that the value of hiring the US bank was illustrated best.
Around 30 EMEA IPOs were cancelled during the review period, with Morgan Stanley having the lowest number of pulled floats at just two – German publisher Springer Nature, in a week when three other IPOs were cancelled, and Spanish oil and gas group Cepsa, which witnessed a sizeable discount to its peers evaporate during marketing as stocks fell in late October. “They pain me every day,” said Thorneycroft.
When it felt like some banks were throwing deals at the wall to see if they would stick, Morgan Stanley was sniffing out every last investor and shepherding them into the book.
That was evident from the first float of 2018, with Spanish homebuilder Metrovacesa targeting a €3bn valuation in February. It soon became clear that investors were extremely price-sensitive, with other early floats also struggling.
The solution was the still relatively rare decision to restructure an IPO, with new pricing below the original range for a €2.5bn valuation. Up against a falling market, the stock traded poorly, but the leads had found a deal that worked for owners Santander and BBVA. “We were out there with some of the toughest assets in the toughest markets. They wanted it done,” said Thorneycroft.
On the final day of bookbuilding for the London listing of Israel’s Energean Oil and Gas, the deal was still US$150m short of coverage. The IPO was always going to be a tough ask as positive cashflow generation was only predicted in 2021, but the leads felt there was a deal to be done. So the valuation was cut, with primary shares increased to secure necessary funds for investment.
Despite a tough early aftermarket, and no stabilisation as shareholders would not sell at the new valuation, the stock was trading more than 31% above pricing (and above the top of the original price range) by the end of the awards period.
The bank also got container shipping group CMA-CGM to commit as a cornerstone investor for the all-primary float of Switzerland’s CEVA Logistics 24 hours before the prospectus was due and in the process slashed the challenging SFr1.3bn proceeds target to a more manageable SFr821m.
Even banner deals such as Knorr-Bremse’s €3.44bn float, priced against market and IPO cancellation carnage in October, required bankers to dig deep. Given the timing and sizing, demand had to be drawn from all corners, with Morgan Stanley bringing in accounts in the top 10 of the book that the bank had never spoken to before.
With markets trending downwards, Morgan Stanley still put money to work on accelerated sales with about a third of the more than 30 of its ABBs on risk.
A firm commitment was key on a SKr3bn (US361m) dual-class selldown by Industrivarden in steelmaker SSAB. Without Morgan Stanley backstopping the A shares for the client, the deal would not have gone ahead. The execution was exemplary and backed up the risk decision with the first three orders covering the A share tranche.
The ABB haul included three of the five largest selldowns, comprising a £2.5bn trade in RBS and a €1.24bn deal in Safran on behalf of the UK and French governments, respectively, and a €1.65bn sale in Adyen that eclipsed the €946.9m float, IFR’s EMEA IPO of the Year.
There were also first post-IPO selldowns in Delivery Hero, HelloFresh, TCS, Basic-Fit and Banca Farmafactoring.
“Ultimately, it comes down to good judgement and doing what it takes,” said Thorneycroft. Whether that involved navigating the first test of the UK registration document with Funding Circle, or being on risk for an unheard of Friday afternoon ABB in Delivery Hero, Morgan Stanley left no stone unturned.
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