 Hello, and welcome back to The Deal Room and we've got, as per last week, five things on the docket. Number one, though, before we go into the rest is your trip in New York and the East Coast, Stephen. So how has that been? You said before you're going on a bit of a roadshow. What's the latest? Yeah, so I'm actually now in New York. I'm supposed to be flying back today, but it's just started snowing. There always seems to be sod's law that it snows on the day that you're traveling. So I might be at a hotel airport tonight looking at the snow piling up, but it's been a great, it's been a great last week and a bit. We've been to, up into Boston, Northeastern, took a look, took a look at Harvard as well, down to New York, Columbia, NYU, Baruch, and then off to Penn State, which is a few hours inland. So it's been fantastic. And every place that we've stopped, we've been running these M&A finance accelerators, which are open access, by the way. You can sign up to any Thursday event. We run it online, free for any student every Thursday. So check that out on the website. But this time we were doing it in person, spending a bit of time getting to grips with what M&A is, what roles in investment banking look like, what makes a great analyst. And then we were doing our simulation, our flagship simulation. And there was a little bit of friendly competition between the five colleges. I think we do have a winner that we can maybe announce. Okay, drum roll. Okay, here we go. The winner of the five campus East Coast M&A competition, Penn State. Penn State. Penn State. The average score, we do it on a grade basis, the average score of every student that submitted a piece of work from the simulation in Penn State was 75%. That beat Columbia and NYU by just 2%, with Baruch and Northeastern coming a couple of percentage points behind. But the quality was excellent. So anyone that attended those events that's listening to this podcast, well done. It was great to meet you all and wishing you the best of luck. So just before I move on, of all the people you met then, this was in person. What was one observation that you think really made someone that you encountered stand out? So just as a word of maybe advice then for the broader community, that when they get these opportunities, whether with us or in any other company, any other corporate that they encounter, what's one thing that you think really stood out that you saw or observed in one person or a commonality amongst many? Yeah, it's a really good question. I think the thing that really sticks in my head is anyone that follows up with a meaningful follow up on LinkedIn or maybe sent me an email or something like that. So I got an email today. I won't mention who it was from, but it was a very impressive candidate that basically said, look, I'm really interested in climate finance. And the simulation that you did yesterday really helped me get to grips with some of the valuation methods. I submitted it once and I didn't do too well, but then I went back and submitted it again. So we checked the competition open for an extra few hours and I did a lot better. Thank you so much for the opportunity. Let me know if there are any other resources relating to climate finance. I'm like, all right, here we go. This is someone that's not only taking the time to send me a really well scripted email, but also has done the simulation again that very evening just to improve on their score. I'm like, all right, get this person, get this person into a job in climate finance. I don't know whether you're a freshman or a sophomore, but you know, so that's for me, anyone that has got that kind of wherewithal to follow up in a really constructive manner, that's going to stay in my brain. It's why I'm talking to you about it now. So don't just follow up with a random, you know, whatever. Try and think really deeply about what you're going to say. And hopefully all that. Okay, very sound advice for anyone. I don't know about your LinkedIn account though, it's about to get absolutely hammered now. So good luck. So in terms of the things we're going to talk about then, we've got four things. We're going to talk about the IPO market seems like it really has started to heat up a little bit now and I know there's a number of deals ongoing. So just a general overview to kick things off. We're also going to talk about SPACs, special purpose acquisition companies. And this was something that was really big when COVID hit. Everyone was talking about SPACs and then they've kind of vanished. So a lot of people might just be new coming into finance and thinking, what on earth is a SPAC? Because they missed that period. Or equally so, why are we talking about them again now? So I know you're going to explain that. And then Todd's take private. Do you own a pair of Todd's Steven? No, I'll tell you why I don't own a pair of Todd's, but we'll have to wait till the end of the episode for that. Okay, and then the final one is another oil and gas mega deal diamond back energy have agreed to buy endeavor for $26 billion deal. So we'll unpack that one as well. So perhaps Steven to start, we could go with the with the SPAC side of things. So what is a what is a SPAC, first of all? Yeah, so a SPAC is a special purpose, as you mentioned, a special purpose acquisition company. This was a big deal. As you said, in the frothy period of, you know, 2021, low interest rates, etc. And a SPAC is an IPO, an initial public offering through the back door. Now, IPOs are obviously very popular. They're a good liquidity event or an exit event, a good way to raise money. But the process of going through an IPO is incredibly long winded. It's very expensive. The regulatory requirements are very, very strenuous, and stringent. So a special purpose acquisition company, effectively, what it does is it lists a shell company on a stock exchange on the New York Stock Exchange. And it's called, you know, Steven and ant acquisition vehicle one. And you can buy a chef $10. And then it's got about two years to go out and find a company effectively to acquire and take public through a SPAC merger. Right? And this is a way, historically, of bypassing quite a lot of the difficult, strenuous, costly IPO process. SPACs tend to be really, really popular with maybe slightly more speculative companies, companies that haven't necessarily made a profit, tech companies, etc, which would explain to an extent, why in 2021, there were 613 SPAC IPOs, which represented 63% of all IPOs, right? So it kind of dominated the market back in 2021. And that's all we were talking about. And again, if you're new to finance, you may not have come across it. Because in 2022, there were only 86, right? So it's fallen off a cliff as the markets have withdrawn from speculative assets. And actually, we've now had a couple of years of evidence to see the performance of some of these 2021 special purpose acquisition company acquisitions. So I'm just going to pick a couple that went public in 2021 through a SPAC, not through a traditional IPO. So Virgin Galactic, obviously, we know what Virgin Galactic is and what it's trying to do. It's SPAC acquisition price, though the merger price for Virgin Galactic was $2.3 billion. So you could have picked up a share in Virgin Galactic for $2.3 billion back in 2021. Now trades at $740 million. So you would have had a bit of a haircut. The Lucid Group, which you might have come across Lucid IPO or SPAC IPO for $24 billion back in 2021. Now worth $8.3 billion. Yeah, I remember talking to Piers at the time that EV bubble was with just madness at the time. Oh, God, it was Rivian wasn't it? The IPO normally and just popped to about 120 billion on day one. And then suddenly, you know, fraud charges, fraud charges, etc. I don't even know what their market capitalization is now. But the last one I wanted to mention was Clover, which is a clover health, which is health insurance and a digital health insurance, 3.7 valuation market cap now under $500 million. So this is relatively representative of the speculative nature, the loss making nature of a lot of these companies that obviously wanted to IPO through the SPAC door, they've subsequently not become a, you know, not become a favorable investment asset from an institutional investor perspective. Can I ask a naive question then? So it sounds bad, what you've described, like awfully bad, a lot of money has been lost in terms of value there. But presumably the people who drive these SPACs are in it to make a quick buck, so to speak. And like, would they have made their money like the original people involved, the financiers involved, got paid at the point of those very top evaluations? And what happens thereafter is really not their business? 100%. And this has been an accusation levied at the likes of social capital, social capital with company that took think, SoFi and Clover public through a SPAC. And yes, they have between a 15 and 20% ownership upside. So when the merger through SPAC happens, they can sell their shares. And effectively, it's a basically a 15 to 20% fee for fundraising, and bringing that company public. And then they don't really mind what happens afterwards, right? That company can die, because they've made their few hundred million dollars. And that is the kind of, again, we talk about a lot on this podcast, the kind of where does the where does the risk land? When, you know, you pass the parcel, who is the sucker at the end of the deal, and quite often, again, in these frothy SPAC like companies, the sucker has been the retail investor, that gets excited about getting access to Virgin Galactic, only to realise six months later that there's no liquidity there, and no institutional investor interest. So the price bottoms out. So yeah, it's, yeah, it's, it's still a little bit of a wild west. But the story, the reason why I wanted to bring SPACs to the table, or back to the table, is because there's been a bunch of new rules coming out from the SEC, obviously, SEC can be a little bit dry, but this one's quite interesting. So when going through a normal IPO, right, you have liability for forward looking projections. So if I say, you know, amplifies going through an IPO, and it's going through the traditional IPO channels, and we estimate 250% revenue growth year on year, year with a gross profit margin of 98%. I'm on the hook for that. If I, if I've been deemed to be materially misleading to IPO investors, right, and I could get sued, and that's not very nice. Whereas historically, if you do a SPAC, and you effectively buy Virgin Galactic into your SPAC, you don't have like, there's no liability for forward looking projections. So Virgin Galactic can easily just say, we're going to grow at 800% a year. And if we grow at 0% a year, it's nothing you can do. So the rules have changed basically to say that if there's any form of SPAC action, there is now liability on these projections, which makes it a lot safer from an investor perspective, you're not getting the wool pulled over your eyes. And it also, it also means, look, I can't make stuff up. You know, I've got to stand by the numbers, whether I'm going through an IPO process, or whether I'm going through a SPAC process. This just seems to make sense. And it might actually mature the market. So having no more process around this in kind of a more accountability fashion. Does that stifle? I don't know, is there a degree of innovation or necessity to get to market quickly that this could have an impact on? Yeah, so I mean, the critics to this, yeah, you're absolutely right. They say, look, this might kill, they, this might kill the SPAC industry. And all of these exciting companies that may be loss making aren't going to go public. And obviously, the retail investor doesn't really get access to these companies when they're private. So they're going to be missing out on these really exciting opportunities to get in earlier on tech companies. Now, obviously, it's been borne out that SPAC performance has been pretty terrible. The 2021 vintage, you're not going to be seeing a lot of return on your investment. So maybe let's take that critique with a bit of a pinch of salt. But I think for any students, this SPAC thing has been around for quite a long time, by the way, it didn't just appear in 2021. It's been around for 20 plus years. But this SPAC thing is not going away. So it's really good just to have an understanding, you know, if you're applying for a position and maybe you're edging towards the equity capital market space of the investment banking division. Good to know what these things are. And just my final one is on that point, more making it land from a career potential. What is the fee element of running a SPAC from a bank's perspective? Like, how aggressive is the pricing on that? And therefore, how willing is the bank to participate in that and drive that type of business? Yeah, so I think so I think the pricing from a bank perspective is relatively comparable. Maybe it's a little bit cheaper than going through an IPO process. I think historically, it's been all of the other stuff that you have to do, but banks can help can help out with and charge a fee, for example, submitting a red herring prospectus, drafting the perspective, getting these SEC filings ready, doing the roadshow. All of that stuff is going to be more costly necessarily than potentially trying to raise money through a SPAC. So I think that if I was in an equity capital markets team, I'd definitely rather be on a proper IPO. There's definitely more cash there as well to be on the front of the of the S1 of the prospectus. Yeah, and the and the financials are probably better as well. All right, well, look, we can roll over into the IPO market in itself, and you can get us up to speed on what what's been going on. Yeah, and this and this, I guess, probably tallies with some of the stuff that you and peers are talking about the the pretty the pretty rip roaring start to the year in terms of US equity markets and the S&P crashing through 5,000 and new highs across the tech spectrum and across the across the listed equity space. And often, you know, you maybe talk about it from a magnificent seven perspective and from a kind of big macro perspective, but obviously the other side of this kind of listed equity space, you've got the big blue chips and then you've got the new IPOs. And often it takes a little bit of time, a little bit of time translating an S&P rally into hey, now's probably quite a good time to IPO. There's maybe a little bit of a delay. You kind of saw that at the back end of last year. But we have had a really, really strong start to the year in terms of US IPOs. There's already been 29 IPOs this year. In fact, there were nine just last week. Just to put some context, there are only 154 in the whole of 2023. So, you know, we're kind of basically already a quarter there and we're only a month, month and a bit into the into the year. And you know, there's all sorts of IPOs lined up. There's a couple that just got away last week, Mexico retailer BBB, which I think basically the Aldi, if you know Aldi, it's the Aldi of Mexico. Do I know Aldi? I love a bit of Aldi. Are you an Aldi or a little? I'm a little, to be honest, the middle aisle of little. So, you'll find me. Christmas sorted every single year. So, yeah, so the Aldi of Mexico, BBB foods rose by about 10% end of day one in terms of the IPO launch, selling at $17.50, closed at $19.05. So, you know, so again, a little bit of momentum, add that to the US health care REIT, well, that's what it's called the US health care REIT priced at $672 million IPO, climbed 9.3% after the offer price. Havana, Therapeutics and Metagenomi. There you go, whatever that is. It's backed by Moderna. So I know the name Moderna. So, again, two biotech startups that are IPO'd and again, think about it, biotech startups, loss making, quite speculative. When these start going, going away in the market and doing relatively well, you are really starting to see the IPO market heats up. And again, remember the companies waiting in the wings, the likes of Reddit that we spoke about, the likes of SeatGeek, the ticketing platform, Rubrik, Cloud and Data Security, they're all kind of getting ready, taking a little look at this market, thinking to themselves, well, actually, a lot of our peers are getting some pretty successful IPOs away in the market. You know, I'll look back to August, September last year and I'm looking at ARM and I'm looking at Birkenstocks and they're all performing extremely well post-IPO. So this is the time and the opening up of the IPO market is a brilliant thing for all private equity investors as well and private capital investors. Finally, the spigot has been opened and the well functioning of the system is starting to kind of work again. Well, one thing just to add in that you might not have seen is just a short while ago US CPI came out and it was quite a bit higher than expected. Stocks obviously ripe for a pullback and have dumped appropriately, yields and dollar sharply up. I mean, the CPI numbers not not crazy, but it was point too high both headline and core and the market has wiped off the table on March cut. It's now not priced in a May cut. It's now fully shifting full pricing rate cut to July. So we've gone from about only five weeks ago, six weeks ago, as four boards, six cuts this year to now it might not even be half that. Yeah. And and and who's to you know, who's to speculate that this this kind of CPI can gets kicked further down the road and you know, we may end up with with with no rate hikes this year if you know, and I know that the Fed wants to be as cautious as possible and it's probably the right thing. So again, a plug to listen to both podcasts, right, because there is so much overlap between the market side of things and the macro picture and then the more micro picture and what we're talking about with M&A deals and IPOs. It really does interlink quite quite deeply. Yeah. OK. Well, let's let's move on and let's talk about Tod's. You promised you were going to give me the reason of why you do not own a pair of Tod's. So OK. So all right. So Todd's the very famous for well, relatively famous in certain Italian circles for the leather driving loafers. If I was to buy you and a nice pair of leather driving loafers from Tod's, what do you reckon is going to set you back or set me back? Sorry, I'm buying it for you. So there's two things in my head that go off. One is when I think of Tod's for some reason, I think of kickers. I don't know whether I have like a little red label or something on a black shoe has triggered that for me shot to him from my school's days. However, I've also seen Tod's in like Monaco magazine and things like that. So that means they must be fashion high end prices. So yeah, maybe maybe something as brutal looking as a kicker shoe can go for high end, probably lands it in the more expensive end of the the footwear spectrum, I imagine. So I would be paying six hundred and ninety five dollars for your for your pair of Tod's, which again, you're not going to find that on the middle of little. That's pretty punchy, right? And, you know, so obviously you might want to contextualize that with, you know, other shoe brands and cheaper shoes and you can pick up a pair of decent loafers for a hundred quid or whatever it might be. And this seems really, really quite expensive. But then maybe you can actually compare it against a Birkin bag or something like that. And suddenly it's actually relatively reasonable price as a status symbol, you know, cheaper than a lot of Birkin bag. What is that a Birkin bag? So the very famous, again, not men's fashion, women's fashion. The famous Birkin bag that is very limited in terms of its supply sells for upwards of four thousand dollars, you know, the resale value is massively, massively high. It's, you know, it's a relatively strong statement of the state of the luxury market. So yeah, maybe six hundred and ninety five dollars is not, is not excessive, you know. So anyway, so Todd's Italian company, Leather mainly shoemaker famous for its leather driving loafers. It is listed in Milan. About a one point one billion Euro valuation. And it has just been acquired. So the shares have just been taken off the market. It's just been acquired by a combination of El Catterton. So that's the LVMH investment vehicle. We spoke about El Catterton on the pod in the context of Birkin stock, which it owned until IPO still owns a big chunk. And also the founding family of Todd's, the Geller Valley Brothers, who are basically taking this company private with El Catterton, just as an aside, one of the brothers actually sits on the board of LVMH as well. So you can imagine, like I've got this kind of big Florentine palace where they all sit around with their espresso and and decide how to carve up the luxury fashion industry. No kickers in sight, I don't think. But anyway, so this is basically a story and we talk about this a lot when we're teaching M&A. This is basically a story about a subscale brand that is struggling to compete with the big beasts in the industry and therefore are kind of compelled to set to sell. You know, their value at one point one billion euro or they were on the Milanese stock market. Is that really representative of their true value? Is there a kind of smallness discount that is being applied to them because they don't have the distribution network or the reach of some of the bigger names? And we're talking here. I think I just counted five, five luxury fashion companies with a valuation of over 70 billion. Estee Lauder, Richard Mont, Christian Dior, Hermes and LVMH. So, you know, there are some big beasts out there. And if you're a subscale company like Tod's, you're just going to be struggling. So this is a classic case of a, you know, of a take private due to strategic necessity. OK, well, I think that wraps that up quite succinctly. So it makes a lot of sense and we'll see. We'll see if it warrants me pushing the boat out for your Christmas gift this year. Yeah, and I think it's also the other the last interesting thing about this is I always it's always interesting to see what other companies have a little bit of a pop when a deal is announced. So when the deal was announced to take Cod's private and Tod's shares, obviously, I think the premium was about 18 percent. These share prices of let's take a look of Burberry, Bruno Cuccellini and Salvatore Ferragamo all popped. And these are all kind of mid one to five billion dollar market capitalization, luxury fashion businesses. And they're like, all right, if this is consolidation time, we're going to have a piece of the action. It's happened with Tod's, maybe Ferragamo's next. So you can just see the kind of rippling effects of this strategy across the market, which is just quite interesting. To connect this to trading, one of the things I remember when I was used to run a research desk because we were commenting in real time. So when news like this would break, it would be that knowledge you described that could allow that arbitrage where you could enter a trade in the intraday environment and execute in and around kind of second, third order relationships, either like that or supply chain related where that depth of knowledge is a really potent force, which is why people tend to specialize in certain market segments, either size or sector. So you know that company, that industry, those relationships are very well. So it's an immediate response on when you hit this news, because when you trade, you're definitely not fast enough to hit the first point, which is the company's announced. It's then who can think of the domino effect of, well, if that happens, this happens, that happens, or then this is going to happen. And then if you can execute that, then that's where the edge is. And yeah, so it's much like the the share price drop of McDonald's when we go via is announced and the and the and the weight loss drugs and the appetite suppressant drugs are deemed to be a blockbuster. You know, McDonald's falls off a cliff. So it's just, yeah, it's that first and second and third order effect. Cool. All right. Well, then the final one for the episode is talking about another oil and gas mega deal this time. Only two, two companies. I mean, we've had Exxon, Pioneer, Chevron, Hess, Chesapeake Energy. These are all might be familiar names to a lot of people, but they probably haven't heard of these two. So who are these two? Yeah. So I noticed a really good LinkedIn post that you did yesterday on this acquisition. Diamondback acquiring endeavor for twenty six billion dollars. Just as a reminder, I mean, this is the oil and gas, the U.S. oil and gas market keeps delivering from a M&A perspective. Keeps a lot of people in business. Reminder Exxon late last year acquired Pioneer for sixty billion dollars. Hess was acquired by Chevron for fifty three billion dollars. And this is probably the latest mega deal, you know, tens of billions of dollars. Now, this deal is very, very different from the Exxon deal and the Chevron deal because Diamondback has a thirty billion dollar market capitalisation and it is acquiring a company endeavor for twenty six billion. So it's always worth thinking about the transformational nature of these different types of acquisitions. So when Exxon announced the acquisition of Pioneer for sixty billion dollars, its market capitalisation was four hundred and forty billion dollars, still fifteen percent of its total market cap. That's a big acquisition. That's chunky. That's not a bolt on, but it's not a kind of totally game changing acquisition, whereas this basically feels like a merger by any other name. Right. So it is Diamondback acquiring endeavor and Diamondback will have sixty percent of the ownership of the company, but endeavor shareholders will get forty percent ownership of the company. So it's pretty level in terms of the way that this is structured. And it's just, again, worth thinking about. All right, what does this mean in terms of integration? What does this mean in terms of consolidation and things like that? So I read that I think Conoco was the other company that was in the running here. So strategically for Diamondback why or for endeavor, I should say, why go with Diamondback and not Conoco? What would be the pros and cons of going to a much larger one or one of the equal size then in simple. Yeah, so this is so this is a classic offensive merger between two organizations that are definitely, as you rightly said, definitely received advances. I'm sure both of them had from the big oil majors. When you look at the $25 billion market cap company endeavors private, but again, you know, $20, $25 billion. And you see this wave of consolidation in the Permian Basin. Remember when we spoke about this last year, you know, this is a mature and consolidating extremely lucrative shale oil and gas production zone in the south of the US, where we've gone from a bunch of wild caters to a bunch of other individual producers to these pretty big companies. And I can imagine the CEOs of Diamondback and Endeavour getting together again with a cigar in their hands at some kind of club in Houston. Let's just imagine this. We've gone from a land to Houston, have we? No, we're traveling around the world here. It's a little. And saying, look, you know, we are, you know, we're the biggest targets here. And the only way that we can stop being targets to these big beasts that will suck us up and not give us a board seats and not give us real control and basically will integrate us into the bigger operating structure is by coming together, forming a much larger entity that suddenly becomes too big a mouthful for these bigger companies. So the combined entity of Diamondback and Endeavour with a production capacity of 816 barrels of oil equivalent per day, that starts to become a pretty hefty requisition. And it probably means that they get to continue with their kind of independent mindset board split. A board seats will be split in maybe five to Diamondback three to Endeavour. They'll split quite a lot of the moving above just selling out to a Conoco. So whenever there's a big deal, there's obviously a lot of jostling for position amongst the financial firms and who's going to run it and advise on the deal. Was there anyone within that mix, either lead advisor or corporate advisory services point of view that was interesting? Yeah, so I mean, so the advisor for Diamondback was Jeffries and the advisor for JP Morgan was Endeavour. Now, the economics for each investment bank in terms of an advisory fee will be relatively similar. You're onto a winner if you're advising the seller or advising the buyer. This is a big deal, this is going to be a big payday. But the upside of advising a buyer is that you get maybe to help to originate and organise the financing. So there was an $8 billion bridge facility that was in the mixer which actually ended up getting offered by City but I'm sure that Jeffries played a hand or at least or maybe City got a mandate on the buy side as well, on the M&A advisory as well. There was an $8 billion bridge facility commitment from City in order for the new entity or the kind of combined entity to set up loan facilities that were more conducive to the bigger company. So when you are advising a buyer and especially if you're a kind of full service bank, you can be like, alright, I'm lead advisor but I'm also going to put you in touch with our debt guys. I'm also going to put you in touch with our equity guys and suddenly one advisory fee becomes two, becomes three and it's a real blockbuster. So yeah, there'll be a lot of people clinking glasses over the course of this week. Well, with that visual in mind we'll conclude. Well, look, thank you very much Stephen for giving up your time. I know you're still on the trip safe journey home and see you when you're back in London. Thank you so much, Anne.