Winner winner, chicken dinner
Advising private equity firms, family offices and other financial sponsor clients required the full range of talents in 2020 as activity was turned on its head by the Covid-19 crisis and then rebounded almost as sharply. For its ability to stay nimble and advise on the biggest deals, Morgan Stanley is IFR’s Bank of the Year for Financial Sponsors.
2020 went through three phases for financial sponsor bankers: a lively start to the year as private equity firms and other clients put their war chests to use; a sudden stop as clients tried to protect their investments as the Covid-19 crisis erupted; and then a return to activity as confidence returned and “winners” started to emerge from the ongoing pandemic.
It made for an eventful year and played to the strengths of those banks with global reach, ability to move quickly, willingness to finance deals – not to mention an ability to get to grips with Zoom and other remote working platforms as everything shifted online.
“We had a very large pipeline of business going into the first quarter of the year. That got put on hold during Covid, but I would say that since June, our business has absolutely been on fire,” said Bill Sanders, global head of financial sponsors. “We'll have a record year and one for the history books, despite a lot of the issues that are happening around the world.”
One of last year’s landmark deals was the €5.3bn purchase of Spanish telecoms company Masmovil by Cinven, KKR and Providence in June. It was not only one of the biggest deals of the year, but the first underwritten LBO financing after the Covid-19 halt. Morgan Stanley advised Cinven and KKR on the deal,was joint global coordinator in July for a €2bn term loan for the take-private, and lead-left bookrunner in September on €720m of senior secured notes financing.
“That was a watershed moment – that deal gave investors and sponsors the confidence the market, both on the equity and the credit side, were reopening and were normalising,” said Massimiliano Ruggieri, head of Morgan Stanley’s financial sponsors team for Europe, the Middle East and Africa.
Ruggieri said much of the work was done during the first lockdown across Europe. “It was a testament to the good work that we had done during the quieter period where we stayed close to our clients, we showed commitment and we showed appetite. Then we leaned in to help make this deal happen.”
Getting busy
There were plenty of other highlights for Morgan Stanley’s financial sponsors team – during each phase of the eventful year.
The bank was particularly busy in the US, where the year started well. The bank led work for Digital Colony and long-standing client EQT on their US$14.3bn purchase of bandwidth firm Zayo Group, which completed in March. Months of work culminated in a US$8.1bn debt financing, one of the biggest ever for a public-to-private deal.
In August the bank was lead adviser to US online genealogy firm Ancestry on its US$4.7bn sale to Blackstone from a consortium of private equity firms. Three months later it advised cable operator Astound Broadband on its US$8.1bn sale by TPG Capital and Patriot Media. Both deals will close in 2021.
The sponsors team was busy in Europe too. Morgan Stanley led the Z10.6bn (US$2.7bn) IPO of Polish retailer Allegro for private equity owners Permira, Cinven and Mid Europa Partners in September. It was the largest listing ever seen in the country and the largest technology IPO in Europe since 2015.
A month later it advised TDR Capital and entrepreneur brothers Mohsin and Zuber Issa on the £6.8bn purchase of a majority stake in UK supermarket operator Asda from Walmart.
In Asia, the bank advised China’s Tencent on its purchase in March of a 10% stake in Universal Music Group from Vivendi, and advised Jio Platforms and Reliance Retail in India on a series of bespoke private fundraisings, raising US$8.6bn and US$6.1bn, respectively.
Finger lickin’
Long relationships are crucial for financial sponsor teams, where there is a lot of repeat work from the private equity, family offices and pension, infrastructure and sovereign wealth fund clients. Deals are often complex, secretive and span all areas of advisory, restructuring and risk management, and are often backed up by the use of balance sheet.
“All the strategical alternatives are on the table … and then we put a fully financed staple on every single one of those deals,” Sanders said.
That’s shown by Morgan Stanley’s work on both sides of many big deals in 2020 – often it advised a sponsor on a sale, and then financed the deal for the winning buyer.
It advised Vista on the sale of a US$3.4bn stake in US networks firm Infoblox, and then provided financing for buyer Warburg Pincus, for example. On the Ancestry deal, it advised the Silverlake consortium of owners on the sale and provided financing for Blackstone. For online contact lens retailer 1-800 Contacts in October, it was lead adviser to the firm and lead-left arranger on a US$1.4bn financing for KKR’s buyout, one of the fastest ever in the LBO market.
So too on a deal involving a big rival – Morgan Stanley advised US chicken restaurant chain Zaxby’s on its sale to Goldman Sachs merchant banking division and was lead-left on the US$1bn financing package in December that followed. By offering a 100% committed staple financing package alongside the M&A process the bank allowed its rival to move quickly and win the auction.
Providing the whole package can be lucrative work for banks, which rarely break out how much revenue their sponsor desks bring in. But advisory work can be high margin, and potentially topped up by financing fees and derivatives hedging requirements. It’s often not reflected in league tables, where it can be difficult to track sponsor-to-sponsor or other private deals.
Zoom and more zoom
Morgan Stanley’s sponsors team benefits from its deep bench in many industries – especially its technology and healthcare bankers – and its global platform.
But 2020 was not a year to be flying bankers around the world to pitch and advise. That had to be done mostly remotely.
A private placement and subsequent US IPO for Chinese data centre firm Chindata in August and September were all done over Zoom. Morgan Stanley led the deals, which raised US$1.6bn for Bain Capital and Chindata.
In November, the bank, acting as lead-left bookrunner, priced and upsized the US$1.9bn IPO for life sciences firm Maravai – after a five-day fully virtual roadshow that reached more than 200 investors.
And Morgan Stanley was joint lead bookrunner and sole stabilisation agent on the US$1.1bn June IPO of the company that captured the mood of 2020 best of all – Zoominfo. The bank followed up with a US$636m sell-down in August for Zoom’s sponsor owners.
But even that was eclipsed by Allegro’s IPO – where the roadshow looked nothing like deals of the past, but, if anything, that just seemed to swell appetite.
“We did it in less than 100 days from kick-off to pricing and there was not a single physical meeting,” said Ruggieri. “And this was a US$2.7bn IPO and it's been a tremendous success. Investors couldn't get enough of it.”
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