Three Can Be a Crowd for Independent IPO Advisers

Financial News

As the IPO market warms up, three independent are often bumping up against each other. Richard Partington looks at the triple issue.

With the return of the market for initial public offerings in Europe this year, so also comes a heightened level of competition among its participants.

In London, three independent capital markets advisers have been going head-to-head more than others for the rising number of deals: Lazard, Rothschild and STJ Advisors. Each has been trying to make a pitch that it’s uniquely suited to help on the deal – and there’s little love lost between them. Adam Young, head of equity advisory at Rothschild, said: “It’s very competitive – in the trophy transactions in particular.”

Lazard is currently working to float the Royal Mail, the UK postal operator, for the UK government and recently helped UK Financial Investments, the body which manages the country’s stakes in bailed out banks, on its £3.3 billion sale of shares in Lloyds Banking Group. Meanwhile, Rothschild recently helped list Foxtons, the London estate agent, and was also on the float of Moleskine, the Italian stationer known for its little black notebooks and diaries.

STJ Advisors is the new kid in town, in existence for just five years versus the more than 350-year history of Lazard and Rothschild combined. It is currently advising on the London float of Stock Spirits Group, an eastern European vodka maker, and recently helped list bpost, the Belgian postal operator.

Bankers at each of the firms say there is increased demand for their services rather than bigger banks.

Charlie Foreman, head of equity capital markets advisory at Lazard, said: “The financial crisis threw up a lot of question marks about big banks. While companies see big banks as playing a very necessary role, particularly in terms of distribution, they also want people with deep experience of the capital markets, who are independent of the banks, to sit alongside them.”

However, independent IPO advisers have proven controversial in the past with those who run the books at big banks on stock market listings. Some bankers at bulge-bracket firms say they still do not see any additional economic benefit for companies or selling shareholders who bring in independent advisers.

One head of equity capital markets syndicate at a top global investment bank said: “They don’t really add the value they suggest to their clients that they do.” But IPO advisers say the difference is plain for clients to see and has resulted in repeat business with private equity companies, which list multiple portfolio firms thanks to their services. Foreman said: “The economic benefit of having us as an extension of a client’s workbench is huge. Making sure that fees are in the right place, not a low place, but in the right place, is another huge benefit.” He added: “As people are facing game-changing situations, particularly if you think about IPOs, it’s a new chapter in a company’s evolution and they want to make sure they’re not getting it wrong.”

Relations between bookrunners and independent advisers have thawed as markets have picked up again. Ken Brown, global head of equity capital markets at Nomura, said of the independents: “Clearly they fill a role, otherwise they wouldn’t exist.” Independent advisers also say they do not want to get in the way of big banks on IPOs or steal their business.

Marcus LeGrice, partner at STJ Advisors, said: “We are very categorical, we don’t compete with the banks in anything we do. All we do is give independent capital markets advice and we’re not replacing the advice from the banks.”

Unique selling points

So what is the pitch that each independent makes?

Lazard has deep government connections and has advised on some of the most high-profile deals of the year involving state entities. Foreman said: “There is no client that requires greater quality, depth, audit, than the UK government. That’s a testament to the differentiation of the Lazard platform compared to anyone else out there.” He also said another differentiating factor was its US presence. He said: “Our US platform gives us a massive visibility on the deepest pool of capital.”

Rothschild also has close ties to government. The firm is advising HM Treasury on a potential split of Royal Bank of Scotland into a good and bad bank. However, its broad sector coverage and heritage is a key selling point. Rothschild’s Young said: “In London, Rothschild is much larger and has industry sector teams in the way that our rivals do not. It does make a difference to the type of the advice that you are able to give.

STJ Advisors is carving out a niche as a boutique with a fierce reputation on IPOs in particular. Unlike Rothschild and Lazard, it does not advise on mergers and acquisitions. LeGrice said: “When you look at what IPOs we have done, we think we’re able to credibly hold our head up and say we’re the specialists around IPO advisory.”

Winning business often comes down to relationships. Lazard’s Foreman said: “What’s fundamental is sitting alongside a company for months, maybe years, working with them to help develop their equity story and to make them PLC ready.”

The hardest part of winning a place on a deal can be convincing a client to use an independent adviser at all, according to STJ’s LeGrice. He said: “One of the hardest things for us is not necessarily pitching against competitors but pitching against the fact of no IPO adviser. “In one sense, the more that Lazard and Rothschild are doing, the better it is for us. We’re not going to win every deal, by definition you can’t. So the maturing of the market is good as a whole.”

7 October 2013

Expert advice to the most sophisticated issuers.