Bookrunners and Independent Advisers Start to Get Along

Financial News

Two years ago this week a Financial News survey found one of the biggest concerns among equity capital markets bankers was the poor relationship between investment bankers and initial public offerings advisers.

One firm in particular, STJ Advisors, the boutique founded by former Nomura banker John St John, was repeatedly mentioned by investment bankers as being in the thick of the conflict.

Today, a tentative peace appears to have been established between the warring parties amid improved market conditions.

One banker said: "There's been a softening of views." 

Marcus LeGrice, a principal at STJ Advisors, said one reason behind the cessation in hostilities was that investment bankers were getting used to working with independent advisers on deals and had learnt more about the way in which they operate. The advisory firm last month worked on the $1.1bn IPO of bpost, that Belgian postal operator, and had also worked as an early adviser to the UK government on its privatisation plans for Royal Mail. It is no longer working on the deal. LeGrice said: "Against the background of more positive markets, there's a change of understanding across all market participants concerning both the role of an independent adviser and what they can do in terms of adding to the process."

This market improvement has seen the share price of 16 companies listed between January 1 and June 27 on the London Stock Exchange rise above each firm's IPO price by June 27, according to Dealogic, compared with six companies' shares trading below their offer price. However, equities have fallen in recent weeks and the Stoxx 600 Europe Index was down 8% at the end of last week.

Reinout Koopmans, co-head of European equity capital markets at Jefferies, agreed that there had been issues between IPO advisers in the past but said relations had improved. Speaking at a City AM event earlier this month he said: "Having IPO advisers that have a good understanding of what the real strength of certain institutions is and how you construct complementary skill sets within the syndicate can be tremendously valuable."

However, some tension remains, with many investments bankers still sceptical of the notion that independent IPO advisers add value for clients. One banker said the difference between the aftermarket performance of a company listed with the aid of an independent adviser and one floated without would be negligible.

Adam Yong, head of equity advisory at Rothschild, said investment banks preferred to do a deal without an independent adviser acting for a client.

He said: "Investment banks always prefer to do a deal without advice from the outside. They usually argue that it costs the issuer extra money and slows the process down and it's not clear, in their view, what extra value you get out of it. The reality of the situation is that we fill in the gaps - and there are usually a lot of them - make the process work properly and help vendors and management teams really understand what an IPO process is actually about, especially around investor behaviour, bookbuilding tactics and the implications of those factors for value."

STJ's LeGrice said: "As long as clients keep employing us, they obviously see value. We have a lot of repeat business with clients that see value added."

Meanwhile, there has also been a growing level of disquiet over block trade auctions orchestrated by independent advisers.

Two senior investment bankers said independent advisers had pushed bookrunners on price in transactions this year. One said: "The risk-reward has become very unbalanced." 

But independent advisers said the process helped clients to sell blocks of shares at a fair price. One boutique banker said: "If the banks are to bid aggressively, it's caveat emptor."

1 May 2013

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