Awards for Excellence 2005
Merrill Lynch
Merrill’s management has turned round the firm’s equity business to make it once again a market leader
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| Rupert Hume-Kendall |
Merrill Lynch’s equity business has had a remarkable year. The firm has always boasted one of the biggest and broadest equity franchises, but this year it can also boast of having the best.
Over the past 12 months Merrill has been a leading underwriter in north America, Europe and Asia. This year it is the best equity house in the US and north America and had a very strong case for the award in western Europe. It has also strengthened its position in the Middle East and north Africa, leading large deals such as the $1 billion IPO of Maroc Telecom, the second largest Middle East and north African deal ever.
The turnaround has been pronounced, particularly in Europe, where the volume of ECM deals has now overtaken that of the US. Last year it ranked just seventh for ECM and fifth for both IPOs and block trades. This year it ranks number one for ECM and IPOs and third for block trades. Its name is on nearly all the successful headline-grabbing deals.
The turnaround coincides with a change of leadership in the ECM business in Europe. Rupert Hume-Kendall and Flavio Valeri have a total of 13 years’ experience at Merrill in driving the ECM business and took over as co-heads for Europe the Middle East and Africa in December 2004 after the departure of Dante Roschini.
“Over the year’s we’ve cultivated our team to the point where there just isn’t any room for underperformers,” says Hume-Kendall.
Merrill now has five managing directors in London in their forties, a bigger and more-experienced group than most. “We all act as checks and balances on each other,” says Valeri. “We complement each other too and are constantly pushing ourselves to do new and interesting things for clients. If we see something working in one market we’ll transplant it in another market.”
The greater number of senior ECM bankers has also helped Merrill to strengthen its relationships with investors. Although other banks will send less experienced team members “pilot fishing” (feeling out the market’s sentiment towards a particular deal) at Merrill only MDs are trusted with the task.
Like UBS, which Euromoney picked twice in a row for the global award for best equity house and which was a strong contender this year, Merrill has been one of the very few houses to avoid getting its fingers burnt by badly executed block trades. Back in December 2004 Merrill took a hard line on the risky block trade business. After a consultation between the origination and syndication desks as well as traders and analysts, Merrill decided that it would focus on just the top 10 stocks across Europe that it knew and liked the best. The strategy paid off. Merrill led three accelerated deals for RBS shares worth a total of $9.5 billion, twice as sole bookrunner.
Merrill has also tried to differentiate itself by being strong in marketed offerings, making use of its retail and private client networks. In the $9.5 billion fully marketed global privatization offering for Enel, in October 2004, the private-client business in Italy and Japan helped double the planned allocation to retail investors to 41%.
The strength of the worldwide distribution network gave the bookrunners and the issuer the luxury of being able to ignore the US retail market because its relatively slower reaction time did not suit the fast pace of the deal. “Some houses have become too reliant on hedge funds and their prime brokerage businesses for secondary transactions,” says Hume-Kendall. “On the secondary side we’ve really tried to stick to our stockbroking roots.”
In North America Merrill Lynch is the leading bookrunner for IPOs where it also distinguished itself by doing more to stabilize joint deals than its co-bookrunners. Merrill Lynch acted as the stabilizing agent for 29 out of the 39 IPOs it worked on.
Although Merrill is weak in prime brokerage, its traditional broking business is very strong. It is the largest trader of stocks in the US and a leading trader in many other markets. Its research is also highly ranked in the US, across Europe and in India.
The firm is sustaining its momentum. It is the leading bookrunner for the first six months of 2005, just ahead of UBS by volume, though not number of deals, with what the firm describes as probably its strongest pipeline ever.
