Bank for Financial Sponsors: Morgan Stanley

IFR Awards 2021
9 min read
Steve Slater, Gareth Gore

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A record year for the private equity industry as firms bought assets, sold or listed portfolio companies and made changes to their own capital structures kept banks busy on multiple fronts in 2021. For its work on repeat deals and moving into new areas, Morgan Stanley is IFR’s Bank of the Year for Financial Sponsors.

Advising companies from their early years through to when they are sold or publicly listed is the holy grail for financial sponsor bankers – in a fiercely competitive industry it shows the client is happy, and it can bring in years of fees from capital raisings, advisory and financing, all topped off with a sale or IPO at the end.

In a banner year for financial sponsor activity for banks, the level of repeat deals won by Morgan Stanley stood out. Showing the strength of the franchise, the Wall Street firm is IFR’s Bank for Financial Sponsors for the third year in a row.

Morgan Stanley advised on many of the biggest private equity deals of the year, and in the hottest areas, such as healthcare and technology. It was on the US$9.6bn sale of biological science company Aldevron for longstanding client EQT, and the US$6bn sale of Culligan International, its 13th deal in five years for the Advent-owned water treatment firm. It was joint global coordinator on the IPO of AutoStore in Oslo, the largest Nordic listing for five years and more repeat work for the bank.

2021 was a lively year for PE firms, family offices, infrastructure funds and other sponsor clients. The economic recovery that started in mid-2020 picked up pace and the bounceback from the coronavirus pandemic opened opportunities for cash-rich firms to take advantage of industries disrupted by digitalisation, as well as the impact of the push for sustainability.

Morgan Stanley had the client roster, global reach and product expertise to reap the rewards, aided by its strength in the hot areas of technology and healthcare, plus M&A and equity capital markets. But it also targeted and expanded in new areas, particularly the evolving alternative asset management industry.

It created a new private capital advisory group within financial sponsors to advise on the rise of continuation funds and other structural shifts, and built the team with hires from outside and tenured bankers.

“We are not living and dying by what we did yesterday. We're trying to chase the puck. There are a lot of opportunities around the world if you're willing to pursue innovation and do what you do well, but keep moving forward,” said Bill Sanders, Morgan Stanley’s global head of financial sponsors.

Continuation funds are part of the changing landscape, allowing a buyout shop to transfer one or more portfolio companies from an existing fund to a new vehicle to allow general partners to stick with a favourite asset for longer and give other investors a chance to cash out.

The benefit was shown with US security firm Allied Universal’s US$5.1bn cash takeover of UK rival G4S, which completed in April, after the firm had been moved into a continuation fund. Morgan Stanley was lead financial adviser to Allied Universal and its owners Warburg Pincus and CDPQ on the deal.

Infrastructure funds are also widening their reach into new areas. And the rising scrutiny on ESG issues saw funds and portfolio companies keen to show off their sustainability credentials in 2021.

“The industry itself is evolving and within that the playbooks and the weapons in the arsenal are developing,” said Massimiliano Ruggieri, head of the financial sponsors team for EMEA.

2021 boom

Banks pulled in US$19.5bn in fees from financial sponsor clients in 2021, up 52% from 2020 and the best ever annual tally, according to Refinitiv data. It is estimated Morgan Stanley brought in US$1.4bn from financial sponsors, up 55% on the year before.

But PE firms are secretive about deals and fees, and banks rarely disclose what revenues they bring in across their sponsor clients, let alone how profitable the business is, and fee estimates almost certainly underestimate the importance and reach of sponsor clients. Morgan Stanley also gets much of its sponsor revenue from M&A and equity capital markets advisory work, which is higher margin than the financing of deals – and M&A and ECM were both on fire in 2021.

There were more than 14,500 PE-backed M&A deals in the year, worth US$1.2trn, more than double the year before, Refinitiv estimated. PE exits also helped drive a record year for IPOs and ECM activity.

Morgan Stanley was involved in many of the biggest deals. It was co-adviser to Asia rideshare firm Grab on its combination with AGC, a publicly listed SPAC, which valued the firm at US$40bn and included US$4bn of PIPE financing, which the bank was lead placement agent on. It also advised on Indian firm ReNew Power’s US$7.8bn deal with RMG, and the PIPE alongside the deal.

The bank took a slew of household names public, including as lead-left arranger on the US$2bn IPO of iconic boot maker Dr Martens for Permira.

It helped raise US$405m for US hot dog chain Portillo's IPO for Berkshire Partners and US$424m from the listing of upmarket grills firm Traeger, all washed down with the US$1.6bn IPO of drinks firm Oatly Global for investors including Blackstone.

It also put its balance sheet to work, often alongside its advisory teams. That was the case for Culligan – after its role as lead financial adviser to Advent and Culligan on the sale to BDT Capital Partners, it was lead-left arranger on the financing package for the purchase.

That repeat work for Culligan was echoed elsewhere. Its work on the IPO of AutoStore in October followed its role advising Thomas H Lee on the purchase of AutoStore in 2019, and came just six months after it advised on the sale of a 40% stake to Japan's SoftBank for US$2.8bn.

“It’s another example of Morgan Stanley helping them buy the asset, doing a minority stake sale and then helping them on the exit – with a US$2.4bn IPO, which was huge for that part of the world,” said John Dickinson, another senior financial sponsors executive and veteran of the bank.

That repeat advisory and financing work has also been on show for the likes of Ceramtec, the medical technology ceramics firm, and Aldevron, which was sold to Danaher.

Aldevron and AutoStore were two of multiple deals the bank did for EQT, one of the world’s biggest PE firms. It also advised EQT on the US$4.6bn purchase of US transportation firm First Student and First Transit; the US$769m IPO of Certara, a technology healthcare company; the €1.1bn Frankfurt IPO of IT infrastructure outfit SUSE; the US$7.2bn purchase of pest control company Anticimex; and the €1.3bn sale of molecular genetic diagnostics firm Igenomix.

Talk to the parents

The bank was also at the heart of advising founders on not only portfolio companies, but changes affecting the structures of their own firms and in the alternative asset management space itself.

It helped clients raise strategic capital and find strategic M&A partners.

In July, the bank was lead-left on the US$300m listing of Bridge Investment Group, which was the first US-based alternative asset manager to file for an IPO since 2014.

There were several deals for Ares, one of the world’s biggest alternative asset managers with US$225bn in assets, including its first ever SPAC transaction in February, a US$590m equity raise, and in September as sole structuring agent and lead underwriter on a US$1bn PE-backed note.

That was one of three financing transactions backed by PE assets it worked on in 2021. In Asia, it advised on four transactions to sell minority GP stakes in alternative asset managers, and in Europe it was joint global coordinator on the £907m London IPO of Bridgepoint

“That’s given us a lot of insight into where we think things are going, and we’ve tried to leverage that insight on what the founding partners think is the future,” said Sanders.

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