Equity-linked: Converts make a comeback
Convertibles have regained popularity in M&A because of the types of deals being done.
According to Martin Fisch, head of ECM structured solutions for Deutsche Bank in EMEA, the big theme of the convertibles market now is M&A activity. “You can access the market quite quickly as they can be put together in less than a week and placed into the market in a single day. It offers cheap funding, and with M&A on the rise, usage will only increase. Also M&A naturally makes a market more volatile, and that translates into better pricing for converts.”
However, Julian Hall, global head of equity-linked origination at ABN Amro, notes that convertible issuance in M&A transactions is not yet nearly as buoyant as many predicted it would be. “Europe has actually recorded a 91% increase this quarter in convertible issuance, but if you go through the 13 issues that have come out in the first three months, only three are M&A related, and two are monetizations. So we are not seeing the wall of M&A financing that everyone predicted.”
Early in the cycle
Hall continues: “That is because the EU bank market is so liquid that people will put a bank bridge in place first, and then look down the line to refinance that.