Into the fast lane
It was a breakthrough year for diversity and inclusion firms as issuers sought to ensure that more than the typical Wall Street banks benefited from their corporate finance strategies. For its work on big deals and making sure a unique opportunity for inclusion is more than fleeting, Siebert Williams Shank is IFR’s inaugural US Diversity and Inclusion House of the Year.
Momentum is building in the area of diversity and inclusion with an ever increasing number of companies hiring D&I firms for debt and equity transactions in 2021. Those firms are embracing the opportunity given to them, earning promotions to more senior roles and an increasing share of the fees.
Black and women-owned Siebert Williams Shank was often the choice of companies that included a D&I component in their syndicates for the first time. Electronic Arts included SWS as the sole D&I firm – in a syndicate of 10 – for its US$1.5bn two-tranche bond and it was also the only D&I firm on Boston Properties' US$850m green bond. Airbnb's first visit to capital markets since its IPO was a US$2bn zero-coupon convertible bond in March, with SWS included as a co-manager, along with other D&I firms Academy Securities, Ramirez and Tigress Financial.
Verizon has been one of the leaders in hiring D&I firms and in 2021 took it a step further. When the communications giant launched a US$25bn transaction to fund its acquisition of C-band spectrum it used nine D&I firms on the deal, setting a record for the fees paid to diversity firms in a single transaction at US$14m.
When Verizon returned to market later in the year with a US$1bn 20-year green bond the syndicate comprised D&I bookrunners Loop Capital Markets, Ramirez and SWS, with Morgan Stanley the only bulge-bracket firm involved. SWS had also been involved in Verizon's previous green bond in 2020.
As well as corporates embracing D&I firms, major banks also built relationships. SWS worked as a co-manager on JP Morgan’s US$5bn offering and was a co-manager on a US$5.5bn offering from Goldman Sachs. It had roles on several issues by Morgan Stanley during the year, part of the bank's commitment to include several D&I firms on every deal, with SWS the third-largest underwriter on a US$3bn issue by the bank in May (behind Morgan Stanley itself and MUFG).
Climbing the ladder
Under president and CEO Suzanne Shank's leadership, SWS ranked as the top D&I firm in co-manager roles on US investment-grade transactions in 2021 after working on 173 deals, according to Refinitiv data. It was second in the D&I bookrunner table behind Loop Capital, a Black-owned firm.
The firm also ranked as the top D&I firm acting as co-manager on high-yield transactions. In global equity and equity-related transactions, SWS ranked at the top of the D&I firm table, and was second in global IPOs behind Loop Capital.
As usual, SWS topped D&I US municipal bank rankings in 2021 as well.
“We are climbing the syndicate ladder and becoming more involved in a senior capacity,” said Jonathan Levin, head of corporate finance at SWS.
Indeed, the firm participated in four IPOs in 2019, which increased to 28 a year later and jumped to 66 in 2021. “This is a part of our business which has exploded,” Levin said.
One of the biggest deals for the firm was the US$2.7bn fundraising from ViacomCBS, which issued equity and convertible bonds to help fund investments in its streaming service Paramount+. SWS was a bookrunner alongside Morgan Stanley, JP Morgan, Citigroup, Goldman Sachs and Mizuho, and ahead of 15 co-managers.
SWS also picked up a bookrunner role from Apollo Global Management for its US$300m NYSE IPO of SPAC Acropolis Infrastructure Acquisition, again the only D&I firm.
“We were the first diversity joint lead manager ever on any equity offering of size,” said Gary Hall, SWS’s national head of public finance and infrastructure.
SWS appearing in syndicates alongside only major banks shows how the firm's reputation has grown to the point that it is winning mandates on its own merits, not just junior roles among many D&I firms – though as an emerging space the latter remain important.
SWS was also joint lead on a US$600m note offering from John Deere, which achieved one of the tightest spreads ever in the US high-grade bond space. That was an all-minority-led and underwritten transaction – just the second ever transaction from the corporate space to forgo the use of bulge-bracket banks in order to elevate the work done at Black, Hispanic/Latino, women and veteran-owned firms. SWS was joined by Ramirez, Loop and Academy Securities.
“The evolution and focus on diversity, equity, and inclusion in our space has been remarkable,” said Chris Gilbertson, global funding vice-president at Wells Fargo, which appointed five D&I firms as joint bookrunners on its inaugural sustainability bond in 2021. “Over the years we’ve developed long-term relationships, and focused on growing these relationships so that our partner firms have meaningful involvement on transactions.”
Conservative strategy
In corporate finance the firm has executed transactions for 75 of the Fortune 100 companies. It is a named dealer on 44 blue-chip corporate paper programmes, including for Alphabet, IBM, Microsoft and Coca-Cola.
Its 25-year history in commercial paper programmes remains evident, Levin said. “We have tremendous longevity within the firm – the person who started the programme is still at the desk,” Levin said. “We are calling on the same companies with the same people for years and years.”
Levin added: “We are the only broker-dealer in the US that is majority woman owned and African American majority owned … about 90% … and more than 50% of our employee base is made up of women and minorities.”
SWS is also one of the best capitalised D&I firms, with a net capital position well over US$50m.
“Without a strong capital base you are very limited in your ability to execute underwritings,” said Hall.
Building that position has meant making its capital base a priority over employee pay, which can be tough during a war for talent.
“It’s a very conservative strategy the board and partners have used to grow the business,” Hall said. “We are competing for talent like everyone else, but it’s something we have to be prudent about.”
Adding value
While 2021 may have been a watershed year for D&I participation, SWS and its rivals have had to fight to make sure their participation is meaningful by delivering valuable results for their clients.
“Whenever we get into a deal, we are a broker-dealer focused on adding value to the transaction in whatever way we can,” said Levin.
Issuers are expecting more from D&I firms as well. They want them to be active in the transactions and for bonds to be allocated fairly. “It doesn’t always happen, but we are seeing it happen more,” said Levin.
When Verizon chose lead underwriters on its US$25bn transaction, it required that the D&I firms receive meaningful allocations so they can grow their franchise, according to Scott Krohn, Verizon’s treasurer.
The breadth and scale of roles clearly show D&I adding value to deals, bringing access to new clients that may not be on the radar of bulge-bracket banks. And yet the increasing competition among D&I firms from multiple backgrounds – including Black, Hispanic, women, veteran and disability-owned and run firms – shows they need to be able to deliver or will be overtaken.
“We have seen, perhaps more than any other company, how these firms can add value. So our philosophy is both meaningful economics and meaningful opportunity,” said Krohn.
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