CITY AT WAR
Advisers blame each other for seizure of IPO market
FEUDING has broken out between all the key players within the City of London’s crucial fundraising business, in a development that threatens to devastate confidence in London’s faltering flotations market. Key advisers, investors and bookrunners are at loggerheads and briefing against each other, in the worst breakdown in relations in the City in living memory.
According to numerous sources who have spoken anonymously to City A.M. banking consultants such as STJ Advisors, hired sometimes secretively by private equity groups wishing to off-load companies on the London market, are clashing with the bulge bracket investment banks that are responsible for bringing flotations to the market.
Meanwhile, another key group of City financiers – the buy-side firms that invest in newly floated firms – are continuing to warn that new shares are being offered at too high a price.
BlackRock, traditionally one of the big takers of new issues, issued a scathing statement recently about the state of the London IPO market, saying recent events had been “frustrating”.
It argued that companies should expect to float at a discount to their peer group, that bookrunning syndicates of investment banks have grown too large and, crucially, that advisers were being appointed “on indications of valuation that are unrealistic”.
However, one banker said that the bookrunners are caught in the middle of an unholy row between the investing institutions, the private equity groups that are wanting to sell out and their advisers. These people are accusing them of trying to sell stock too cheaply.
The banker told City A.M: “People like STJ accuse the banks of misleading clients over valuation. They say we’re too partisan and too close to the investment community.”
The banker said that the investment banks feel they are constantly being “second guessed” by private equity groups’ advisers, whose main objective is to achieve as high a valuation as possible for the selling company.
“Their goal is to have large syndicates so that they can take control of things. They try to make the banks compete against each other and it is carnage.
“We have always brought together buyers and sellers in the market but now we are being trashed,” said the banker. “But we are always trying to get deals done.”
Documents seen by City A.M. show that STJ, in particular, has aggressively marketed its services as being able to add up to 30 per cent in valuation for a company wishing to float.
In the documents, STJ accuses the bulge bracket investment banks, who traditionally occupy the bookrunning roles during a flotation, of talking down investor sentiment in order to drive down valuations.
Yesterday STJ’s John St John declined to comment on the charges made by STJ in the documents.
Adam Young of independent advisory Rothschild agrees that syndicates have grown in size in recent months: “It’s crucial to co-ordinate and counter-balance joint bookrunners who are always fiercely competitive with each other, but ultimately responsibility and accountability for getting deals sold well must lie with them,” he said.
Despite nervousness about the commodities market, Glencore recently succeeded in getting its $11bn flotation away, but other smaller high-growth companies such as Edwards and the payments service group Skrill failed to float amid talk of a buyers’ strike. There are fears that unless conditions improve and relations between the different vested interests thaw somewhat, London will lose out to markets such as Hong Kong.