A new dawn
Advising on two US$50bn-plus acquisitions, providing advice that saved US$1bn, and assuming a dominant role in European IPOs is quite the list of achievements in one year. For taking its business to the next level, Evercore is IFR’s Capital Markets Adviser of the Year.
Evercore’s debt capital markets advisory team came of age in 2019, advising Takeda Pharmaceuticals on financing its €50bn purchase of Irish drugs producer Shire, the largest ever outbound takeover by a Japanese company.
Evercore got the mandate for this landmark transaction thanks to Francois Maisonrouge, a highly experienced healthcare banker, who also this year advised Nestle on the SFr10.2bn (US$10.5bn) spin-out of its skin health business, and Bristol-Myers Squibb on its US$74bn purchase of Celgene.
However, the input from the debt advisory team, led by Swag Ganguly, in structuring Takeda’s deal financing proved vital. Evercore has a Tokyo office but Ganguly was based in London and Maisonrouge in New York. This did not affect the advice given.
“Shire was listed in London, Takeda in Japan and the business was mainly in the US,” said Ganguly.
The Evercore team worked closely together, with the M&A side advising on strategy and potential disposals after the deal was completed and the debt side on what was feasible financially.
“I was able to advise on whether it was wise to take debt from two to five times Ebitda, because there were enough disposals in the pipeline. And others at Evercore could advise the CEO of Takeda on whether rare diseases, in which Shire specialises, was the right segment to focus on.
“That expands the conversation you can have and actually means you can have a wider set of conversations with Evercore for a longer period of time.”
Ganguly was ultimately able to pull together a syndicate that was willing to sweeten Takeda’s offer for Shire with a higher proportion of cash. That was enough to squeeze out competition from rival bidder Allergan.
Overall the bridge financing for the deal amounted to US$31bn, provided over four tranches by JP Morgan, SMBC and MUFG. Of this, US$14bn was subsequently refinanced in 10 separate bonds, split between euros and US dollars.
Creating this structure also enabled Evercore to prevent one of the banks from dominating the syndicate and imposing more punitive terms on Takeda. Evercore’s integrated debt advisory team was also able to save Takeda significant costs by providing advice on FX and interest rate hedging.
Savings came from advising Takeda to break convention and bid in US dollars, rather than sterling for the London-listed company. Simply using dollars reduced the acquirer’s FX exposure by US$3bn and cut out US$1.1bn of hedging costs.
Takeda may have been a highlight, but Evercore’s debt team advised on more than US$100bn of transactions during the year. The franchise has a strong presence in infrastructure – for example advising Thames Water on refinancing its holding company debt at a politically sensitive time.
The UK water regulator is currently carrying out a review of pricing. Thames is the largest operator in the UK and is owned by financial sponsors. Evercore evaluated a range of capital structures ahead of this and plumped for refinancing holdco debt enabling it to reduce operating company gearing too.
EXPORTING EUROPE
Ganguly led on the deal. His experience in the sector was largely picked up at Rothschild, which pioneered debt advisory work. Ganguly moved to Evercore to set up the business five years ago and the team is now 15-strong and is moving into the US, where there has been traditionally lower demand.
“Normally if a product doesn’t work in the US it won’t work anywhere else, but this is different. We have a team exporting European products to the US,” he said.
And the need for independent debt advice is clear.
“Big cap acquisitions are being done where Double A companies are deciding to go to Triple B plus. That is a big decision. They have spent 100 years saying they will never go below Double or Single A. So taking a company like Takeda to Triple B takes a lot of advice.”
GOING THE OTHER WAY
By contrast, Evercore’s equity advisory business was established in the US in 2010 and exported to Europe in 2016. The US operation is a little different as it acts as both underwriter and adviser – often because companies prefer to pay out of the bookrunning pot – but this award considers only roles where advisers are independent and therefore not underwriting.
In Europe the team came of age in 2019, working on three IPOs and making it as busy as any other adviser. The three were all in the payments-related space, and represented complete dominance of this sector.
“We focus almost entirely on businesses that Evercore knows through industry teams,” said Jim Renwick, head of the ECM advisory group in EMEA. “We can be more effective if we've got a strong relationship with the corporate and therefore, if we're doing M&A for them, giving them general advice or balance sheet advice, that is debt or equity, we can leverage more out of our relationships. If I do a one-off we won't necessarily see anything again from it so we prefer to be hunting together.”
While Network International, Nexi and Finablr are broadly in the same sector, the companies and their IPOs were very different. Network and Nexi do the same thing but while Nexi is 100% Italian, Network’s payments business is spread across Africa and the Middle East. For Finablr, payments is a small but growing part of a business more familiar to investors for its Travelex foreign exchange operations.
In addition to advising on Network International’s £1.2bn IPO, Evercore was asked to find a strategic partner. Bringing in Mastercard to buy a 10% stake in the company moved the valuation and changed the discussion with investors.
“It added US$500m to the valuation and turned it from being where people were unsure about Africa risk to endorsing the real growth opportunity,” said Renwick.
The Nexi float came at the same time as Network’s but was a very different proposition. The company is the result of several mergers and divestments so its accounts were littered with Ebitda adjustments. The deal also came together incredibly quickly with Evercore starting work in February and the deal done in April. The rapid trip to market was smoothed by streamlining the syndicate to work with Bank of America, one of three global coordinators, to lead the execution.
At €2bn it was the largest sponsor IPO in Europe since 2016 and the largest IPO in Europe in 2019. The latter stat was something of a surprise considering other deals were expected to be larger, in particular VW’s trucks spin-off Traton that was due to top €5bn but came in below €1.4bn.
The London-listing of Finablr resulted from a long-term relationship with founder BR Shetty, including advising on his 2015 acquisition of Travelex. The Finablr float was Evercore’s fifth mandate from Shetty and involved equity and debt teams on the corporate reorganisation ahead of the IPO.
The IPO itself had to survive a 3.4% fall in the FTSE 100 index while it was in the market before pricing in mid-May. Survival involved cutting the valuation.
Network blew the lights out as soon as it started trading but the other two took a while to find their feet. In fact, Nexi and Finablr committed the ultimate crime in ECM of opening below IPO price on debuts. They did, however, turn the corner with Nexi shares moving into profit after a seven-week wait and Finablr’s first-half results in August providing the necessary momentum for its shares to do the same.
By late November, Network International was up a little over 30%, Nexi 18% and Finablr nearly 9%.
Big banks can get away with selling investors a dud as they have so much more product following behind. For advisers one misstep can have dramatic consequences, and Evercore is ever alert to that risk.
“The important thing for us is that we do deals well. So that not just the issuers and sponsors see that we've done good business but also investors because we have a lot of dialogue with them and they do look at who's advising,” said Renwick.
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