Titan of advice
Rothschild has scale on its side. It has more people scattered around the world than its rivals and leads more deals. When banks were buckling under the strain of deal flow, Rothschild's knowledge and resources were vital for clients and it is IFR's Capital Markets Adviser of the Year.
Rothschild is well established while many advisory competitors are in their infancy. One result is that few can compete on the number of deals completed. However, it isn’t just the case that deals beget deals beget awards. Rothschild is also leveraging its wider experience to help clients in choppy markets and expanding its services to reflect changing needs.
The firm’s total revenues across global advisory, which includes M&A advice, were up 64% to €1.3bn in the first nine months of 2021. This was largely due to enhanced activity in M&A. But financing advisory revenues specifically rose 23% to €342m.
The equity advisory business has handled a multitude of IPOs, capital raises, monetisations, equity-linked trades, SPACs and spin-offs. Those include some of the most significant and successful deals of the year, including the largest Swiss IPO in three years (for Polypeptide), a real estate IPO coming at a premium to net tangible assets (for CTP), the first fully marketed follow-on ever in Hong Kong (for Prudential) and the Vivendi/Universal Music Group spin-off.
The range and depth of the equity offering is replicated in the debt advisory business.
Christian Savvides, global co-head of debt advisory, said the firm was set up like one of the big banks with significant teams covering various areas of the debt landscape, such as leveraged, investment-grade, high-yield and others. “We are now nearly 200 people across debt advisory,” he said. “That means we have the depth, specific market intelligence and experience that no one else can match.”
Trusted
The debt advisory team does 250 deals a year and is the retained debt adviser to more than a third of companies in the UK’s FTSE 350.
The year was particularly busy with over US$70bn raised for clients via over 30 individual high-yield bond or term loan B issuances and 25 other bond issues. Highlights include financing the take-private deals of Arrow Global and Aggreko by TDR Capital for £1.5bn and £2.3bn respectively.
“It is a very resilient business. Our model is to make sure people are aware that we have a franchise that no one else has,” said Savvides. “We don’t have capital to sell, but the trust that we can give impartial advice.”
The firm was involved in helping companies whose businesses had prospered during the coronavirus pandemic, such as makers of cooking utensils or garden tools that had seen sales surge. It acted for Waterland on its buyout of Cookware for instance.
“We ran into the challenge of convincing people that earnings were sustainable,” said Savvides. “Normally, investors are happy to look at numbers going backwards but this year they struggled to work out what would have happened without Covid.”
Starting earlier
The equity advisory offering has broadened in recent years, as Rothschild added a team focused on private capital for growth capital and another dedicated to sponsor-led secondary transactions (the latter team was hired from PJT Park Hill in early 2021).
“The link between private sales and potential capital market deals means that you need to provide synergetic advice with people who have strong capital markets expertise, as well as strong private equity expertise,” said Francois Wat, who leads the equity advisory practice globally.
Companies have a plethora of funding options that may ultimately include IPOs, but also additional funding rounds, SPAC mergers or M&A. The rapid growth of cross-over funds that span both public and private equity has emphasised the need to take a broad approach that supports companies from Series B onwards.
“That argues for having everything under one roof, because then you can ensure that as you're positioning a private capital raise, it's being done with a view to a subsequent listing, which will maximise the chances of success,” said Chris Hawley, head of strategic capital.
High-profile mandates in 2021 included challenger bank Starling’s £325m private capital raise at a £1.1bn valuation, Sequoia Capital China’s minority investment in Canadian fashion retailer Ssense and advising Saudi Arabia’s Public Investment Fund on its acquisition of a minority stake in hypercar maker Pagani.
A measure of the success of the traditional advisory business is that Rothschild advised on IFR Award winning deals for Allfunds (EMEA IPO) and Prudential (Asia-Pacific Secondary Equity Issue).
The six equity-linked mandates, including on the €1.25bn dual-tranche CB from Delivery Hero, stand out in a year when issuance was strong, at least in the first half.
Such was the intensity of ECM activity in 2021 that banks found their operations stretched to the limit. That gave increased importance to advisers to ensure clients were getting the attention needed, that banks were supported and potential issues identified early. It was another area in which the expertise of Rothschild was vital.
“It's not just about how we help our clients to manage a process,” said Claire Suddens-Spiers who leads equity advisory in London. “Earlier in the year when markets were all moving forward swimmingly the cracks that appeared in terms of the bank's execution were less damaging to clients, but in recent months, this has become critical. Clients need to make sure that they've got the focus and attention from their banks and that's all part of what we bring.”
Wat added that with 20 managing directors in equity advisory Rothschild had the capacity and knowledge to brainstorm problems in addition to banks. A vital part of that knowledge base is the investor advisory franchise that was established in early 2019.
Rothschild now has a team of 25 who are supporting companies with investor engagement. In 2021, they organised over 300 roadshows and more than 1,500 meetings for 90 clients. Those corporates are primarily in the UK but also the US, Australia and Brazil.
A particular area of differentiation is to connect companies with passive and index investors and also the long tail of long-only investors that are too small to be viable for banks to cover.
“This gives us tremendous intelligence and insights into what investors are thinking and what they're looking at,” said Alice Squires, who has led the practice since its formation alongside James Laing. “We can then support the teams in Rothschild to help companies understand and navigate issues to de-risk transactions.”
This feedback, combined with the experience of working on many transactions, meant the firm was able to keep up with the changing mood of investors as they lurched from being hot to trot to pulling down the shutters during the year.
ESG winners and losers
ESG was another major theme in 2021. Rothschild was active in new sustainability-linked financing transactions and also raised significant funding for renewable energy projects. “We are right at the forefront of this,” said Savvides.
“Less talked about is mandates from companies on which the financial markets have turned their back as they are in the ‘wrong sector’ such as tobacco. It’s an interesting challenge to refinance such businesses.
“They may be only one or two times levered and have always hit their forecasts but nowadays they still run into the issue that 90% of the market can no longer simply lend to a company in a particular sector as it breaches their fund’s ESG criteria.”
The solution Rothschild has found is that the US high-yield bond market remains happy to finance such businesses. “You might need to find 150 investors to raise around US$250m but it is possible to do so,” he said.
It is an important area. While sectors such as oil and gas are yet to experience these problems the trend is only one way.
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