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In Mizuho | Greenhill’s Beyond The Obvious podcast channel, we uncover the value that others miss.
Our podcast is a source for the latest discussions on topics related to capital markets, dealmaking activity, business leadership and more.
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00:00:18:17 - 00:00:20:18
Hi, I'm here with my colleague, Mariano Gaut.
00:00:20:19 - 00:00:25:08
And Mariano, originally this conversation was going to be completely about the convertible market,
00:00:25:08 - 00:00:30:16
but over the last couple of weeks, we've seen a rebound in activity across all of equity capital markets.
00:00:30:17 - 00:00:33:07
And I'll start by talking about the IPO market,
00:00:33:07 - 00:00:36:10
and then we can talk a little bit about the other products on our desk and what we've been seeing.
00:00:37:06 - 00:00:41:04
And over the last couple of weeks,
we've seen just a ton of activity.
00:00:42:01 - 00:00:46:05
We've seen 23 transactions priced to
raise close to $12 billion,
00:00:46:05 - 00:00:51:12
but importantly, from a broader ECM perspective, we've seen some signs of life in the IPO market.
00:00:51:17 - 00:00:56:02
Two weeks ago, we had two insurance deals, which priced well and traded up well in the aftermarket.
00:00:56:05 - 00:01:00:14
And then we had the eToro transaction,
which priced earlier this week,
00:01:00:14 - 00:01:03:20
launched at $480 million at the midpoint,
00:01:03:20 - 00:01:09:20
ended up upsizing the transaction and pricing $2 above the high end of their range at $52 a share
00:01:09:20 - 00:01:11:12
to raise $620 million.
00:01:11:12 - 00:01:14:13
It traded up in the aftermarket almost 29%.
00:01:14:19 - 00:01:16:02
And more importantly,
00:01:16:02 - 00:01:20:01
what we saw was that fundamental buyers showed up in force to participate in this transaction.
00:01:20:08 - 00:01:24:02
The top five was a "Who's Who" of your traditional long-only buyers.
00:01:24:19 - 00:01:28:23
And what we've seen from that
is a number of other IPOs
00:01:28:23 - 00:01:32:10
come off the sidelines and look to go
public in the next couple of weeks.
00:01:32:18 - 00:01:37:10
Hinge Health, MNTN, Chime all have filed publicly or launched transactions.
00:01:37:23 - 00:01:40:11
And we're seeing a lot of activity in the TMT sector,
00:01:40:11 - 00:01:44:18
a lot of clients getting processes started again, selecting banks and moving forward
00:01:44:18 - 00:01:46:15
with org meetings and drafting sessions.
00:01:47:00 - 00:01:49:13
What have you seen on the convertible side over the last couple of weeks?
00:01:49:13 - 00:01:53:02
And how do you think things are going to play out as we move forward here?
00:01:53:23 - 00:01:56:06
Yeah, we've been equally as busy on the convertible front.
00:01:56:09 - 00:02:01:03
We saw a very slow April in terms of issuance
00:02:01:03 - 00:02:05:05
given all the volatility in the market and
the sharp decline in equity prices.
00:02:05:05 - 00:02:09:18
But we knew that the moment
that equity prices recovered
00:02:09:18 - 00:02:16:03
and volatility subsided even slightly,
we would see a flurry of convertibles hit the market.
00:02:16:08 - 00:02:19:21
So we saw a deal about 10 days ago,
00:02:20:05 - 00:02:24:01
basically reopen the market with the deal being
00:02:24:01 - 00:02:29:20
upsized roughly 2x and pricing way through the marketing ranges.
00:02:30:12 - 00:02:34:08
This week, our client, Alliant Energy,
came to market
00:02:34:08 - 00:02:38:20
with a transaction that was equally as well
received pricing at the midpoint
00:02:38:20 - 00:02:42:16
of both the coupon and the premium ranges.
00:02:42:22 - 00:02:47:23
But again, a very, very robust, good investor
demand for converts.
00:02:48:02 - 00:02:51:14
We are expecting activity in
the convertible market to
00:02:51:14 - 00:02:55:18
increase significantly beginning this coming week.
00:02:56:11 - 00:03:04:06
Again, taking advantage of the fact that volatility can be translated into greater savings for coupons
00:03:04:06 - 00:03:10:17
now in this market that even before this last wave of volatility saving for some issuers,
00:03:10:17 - 00:03:17:17
multiple hundreds of basis points in terms of interest expense versus traditional debt products.
00:03:17:22 - 00:03:22:10
Right, and when you think about the types of uses of the convertible product,
00:03:22:10 - 00:03:28:07
what are we going to see in terms of refinancings of all the 2020 and 2021 Covid-era convertibles?
00:03:28:15 - 00:03:33:02
How do you see that playing out over the next couple of weeks as people think about
00:03:33:02 - 00:03:38:02
upcoming maturities of those convertibles and what they need to do to recapitalize their balance sheets?
00:03:38:09 - 00:03:41:11
I think that's going to be one of the themes that we're going to see because
00:03:41:22 - 00:03:47:21
there is a number of issuers that
were delaying the refinancing
00:03:47:21 - 00:03:53:12
of those converts until
the very last possible quarter.
00:03:53:12 - 00:03:59:12
Those quarters are coming up and it's going to be this quarter, next quarter, the fourth quarter.
00:03:59:12 - 00:04:04:01
So we're definitely going to see a lot of that refinancing wave hit.
00:04:04:01 - 00:04:08:22
The other topic that is of interest to issuers now is
00:04:08:22 - 00:04:15:22
tying the efficiency of concurrent share repurchase executed, funded by a convertible.
00:04:15:22 - 00:04:19:11
As we know, when companies
issue converts, there is
00:04:19:11 - 00:04:26:22
an amount of shares that becomes available given the natural hedging activity
00:04:26:22 - 00:04:28:11
that happens around converts.
00:04:28:18 - 00:04:32:15
And that becomes a very
efficient and immediate way
00:04:32:15 - 00:04:37:16
for companies to buy back larger
amounts of shares.
00:04:37:22 - 00:04:43:03
We're seeing a lot of companies think this way
00:04:43:03 - 00:04:46:10
and we expect them to take advantage
of the market opportunity.
00:04:46:22 - 00:04:49:08
And Mariano, similar to the convertible market,
00:04:49:08 - 00:04:52:18
we've seen a lot of signs of life in the follow-on market over the last couple of weeks,
00:04:52:18 - 00:04:56:02
particularly with sponsors selling
down in the aftermarket.
00:04:56:13 - 00:05:01:13
This week, we saw four transactions
that were 2023 and 2024 IPOs
00:05:01:13 - 00:05:03:07
that traded well in the aftermarket.
00:05:03:11 - 00:05:06:09
Some of them had done previous
follow-on offerings,
00:05:06:09 - 00:05:10:02
but this week we saw sponsors come to
the market and sell down
00:05:10:12 - 00:05:12:17
incremental positions in those companies.
00:05:12:17 - 00:05:17:06
And the nice thing about those deals is all four of them were multiple times oversubscribed,
00:05:17:06 - 00:05:21:10
traded at a nice file-to-offer discount, and
also traded well in the aftermarket.
00:05:21:17 - 00:05:26:17
And that, again, going back to what we talked about around IPOs, around convertibles,
00:05:26:17 - 00:05:29:15
all three of those products are working
well in the market right now
00:05:29:15 - 00:05:33:19
and that bodes well for a lot more issuance over the next couple of weeks,
00:05:33:19 - 00:05:37:16
particularly when we get past Memorial Day, having been through Q1 earnings
00:05:37:16 - 00:05:40:22
and expect to have a clear path until July 4th.
00:05:40:23 - 00:05:45:02
So just to wrap things up, we're
expecting an incredibly busy summer
00:05:45:02 - 00:05:48:09
across all three products, IPOs,
follow-ons and convertibles.
00:05:48:09 - 00:05:51:14
So to the extent that you're thinking about accessing the equity capital markets,
00:05:51:14 - 00:05:55:12
please reach out to your Mizuho representative so we can get you the best solution possible.