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Best Equity House: Bank of America Merrill Lynch |
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Also nominated: Goldman Sachs and Deutsche Bank |
One year ago, investors, bankers and issuers in the equity capital markets were engaged in an intense and unusually public debate about how to fix the broken mechanism for initial public offerings, after so many had failed, been pulled or left investors nursing losses in 2011.
Then the worst thing possible happened. Market risk aversion completely closed the capital markets and a valuable debate petered out. However, not everyone forgot the lessons.
One of the most important was to ensure that investors get an early look at prospective IPO candidates so as to undertake fundamental judgements about their operations, managements and strategy, rather than get sucked into technical price discussions and relative value against comparables that are inherently antagonistic.
Bank of America Merrill Lynch put this into practice in April as joint global coordinator for the €174 million IPO of Brunello Cucinelli, one of the most prestigious players in the luxury apparel and accessory industry.
“Brunello Cucinelli is a visionary and a humanist who had created the company and intended to market his story in a way consistent with his world-view and philosophy. We needed to present that vision to fund managers used to seeing companies presented in their own way. We arranged well in advance for investors to make site visits, to go to his home in a small hamlet near Perugia and to visit the operation because to value this company you had to see it,” says Craig Coben, head of equity capital markets for Emea. “In the end we generated such momentum and interest that we were able to cancel the second week of the formal roadshow with the book many, many times oversubscribed. We priced the deal at a P/E ratio of 21 and it has since traded up to around a P/E of 30.”
This success follows the bank’s reopening of the European IPO market in January 2012 for Russian oil and gas exploration company RusPetro, hardly the easiest sell in a nervous market. BAML had worked on the deal since November 2011, secured some large lead orders from investors in December without attracting undue attention, and so was able to price and allocate the deal swiftly in January.
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“Total shareholder returns are becoming increasingly important to many investors who are looking at the income component”
Frank Maturo, head of cash equity capital markets for the Americas, BAML |
Similarly in the US market, amid a torrid time for IPOs, BAML showcased its capability by acting as lead-left bookrunner and stabilization agent on the $690 million IPO for Allison Transmission, a four-times-levered industrial company, issuing into a market abuzz with chatter about growth tech stocks. It was the largest IPO in the first quarter in the US.
Frank Maturo, head of cash equity capital markets for the Americas, says: “We did something highly unusual on that deal, which was a secondary offering by private equity sponsors, by including an undertaking from the company to pay a 1% dividend, starting straightaway in the quarter post-IPO. And we were able to increase the size of the deal after pricing in the middle of the range. Total shareholder returns are becoming increasingly important to many investors who are looking at the income component. Partly because of the heritage of Merrill Lynch brokers, we are the dominant player in equity yield product across Reits, utilities, energy companies and similar.”
BAML did some smart, bold and complex deals in Asia, including acting as sole bookrunner on a cross-continental zero-coupon guaranteed exchangeable bond for Temasek into shares of Standard Chartered, the first Asian exchangeable into a UK stock in a decade.
Rupert Hume-Kendall, chairman of global capital markets, says: “It required a coordinated effort to bring the investor bases together as the Temasek credit story is one better understood in Asia while the liquidity in the Standard Chartered stock is in London. We had to identify the key accounts, anticipate their sensitivities and address them swiftly to ensure early momentum and eventually smooth execution.”
BAML deserves this award for its work on rights issues for European banks in the middle of the storm and especially for holding its nerve on the UniCredit rights issue, which it underwrote, when the stock price plummeted after the terms were announced in January.
Coben says: “Often on rights issues, the discount sells the deal for you. But in this case there were a number of leveraged holders of the stock that could not finance take-up of their rights and so sold them. The UniCredit stock price fell around 40% in the four trading sessions after we announced the terms. But we held firm. We did not attempt any sub-underwriting. Rather we brought together a series of investors willing to buy those rights, showing that there were buyers for that stock as well as sellers. That’s what stabilized it.”
