An ability to source unique investor demand for sellers willing to be flexible marked out Jefferies in 2019. The bank created successes in a year littered with failures and is IFR’s EMEA Mid-Market Equity House of the Year.
The role of an underwriting bank in an IPO really isn’t that complicated. The intermediary brings together potential buyers with management of the listing entity and builds a shareholder register for the future.
But it has been made to look nigh on impossible at times in 2019.
Following the worst IPO in years – for Aston Martin Lagonda in late 2018 – European ECM delivered IPOs where shares opened on debut below the issue price, were cancelled, delayed and shrank beyond recognition.
It seems clear that extensive pre-launch meetings – broadly termed pilot fishing – are often a wasted opportunity.
“The deals that do get done are done in a mid-cap way,” said Rob Leach, head of EMEA ECM at Jefferies. “Getting the buyer and seller together early and getting them talking.”
When head of capital markets at Blackrock it was Leach’s concerns about European IPO flops that established pilot fishing as the market standard, but notably he eschews much of the terminology that has crept up in recent years: “early looks”, “deep dives”, “fireside chats”, and so on.
“It is about getting people together. We dig deeper asking how investors value the company; what are the comparables?” Leach said.
Luca Erpici, head of equity syndicate, said: “You can offer all the [pilot-fishing] meetings you want, but you need to find the right investors, and many banks do not do that. It needs to be bespoke on each transaction.”
Jefferies claims to have the most salespeople in the space, in part by being global (unlike many of their peers), but they also deployed the whole sales force on each of their 23 mid-cap deals.
Nothing illustrates Jefferies’ confidence in identifying investors as DWF Group’s main market IPO in London, the first major IPO in the region in 2019.
Working alongside Stifel, Jefferies priced the law firm’s float in mid-March, days before the UK was due to leave the European Union without a withdrawal agreement in place. The £95m IPO’s success rested on identifying a core group of investors that ultimately saw three institutions buy nearly half the IPO.
“We couldn’t just put an ITF [intention to float] out there; we had to find the people who wanted to be shareholders,” said Leach.
Flexibility on valuation and deal structure was vital to complete IPO, so they decoupled the roadshow from pricing with the final deal only defined a few days before the book closed.
The £250m IPO of Helios Towers was another challenge, with the African telecoms infrastructure company making its second attempt to list in London in a post-summer period littered with IPO flops. Jefferies had been promoted from bookrunner on the first attempt to a global coordinator with Bank of America and Standard Bank for mid-October’s float.
“It needed de-risking,” said Erpici. “It was about sourcing the right investors, giving them what they needed to make a decision – and at the end I want an order.”
The preparatory work meant there was a US$150m order in the book on day one.
A trip to Kinshasa showed investors that while Helios operates in some risky areas, it is often a monopolistic business and visitors could see first-hand the importance of telecoms infrastructure.
The £443.7m accelerated bookbuild in London-listed Czech software company Avast and a €119m block in Italy’s Banca Farmafactoring, both sole led by Jefferies, were good examples of the bank taking more senior roles when a company revisits ECM.
CVC ended its investment in Avast through the sale representing 12.4% of the company and 75 days’ trading. The sale mandate was awarded through an auction, but Jefferies won because it was well prepared. One part of that is shadow broking – not holding a formal mandate but still setting up meetings to introduce management to new investors on the back of research and trading coverage.
“We were not leads on those IPOs, so how can you get these right? By sourcing demand rather than waiting for it to come to you,” said Leach.
The commitment to ECM was shown with two raids on competitors this year. Jefferies poached Oliver Diehl and several of his team from Berenberg to build Continental European ECM. Diehl is credited with much of Berenberg’s success in recent years that saw it overtake Deutsche Bank in its home market. Jefferies also recruited Deutsche’s equity-linked sales and trading team.
“The culture of putting deals together has changed. Investment decisions take a long time and we need to treat investors individually. Cutting corners doesn’t work,” said Leach. “We are intermediators bringing people together.”
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