 Hello and welcome to the deal room and hope you had a great Easter if you did indeed have a break and We're going to jump straight into a review of the first three months Q1 is done in the bag So how have things been performing in the corporate finance world? So I've got our director of corporate finance Stephen who's going to talk us through an update across the entire sphere from M&A IPO P and VC so Stephen, where would you like to start on that list? Yeah, let's let's start with mergers and acquisitions It's the thing that students tend to think about when they think about IBD and it's obviously Relatively exciting and we've spoken a lot about big deals that have happened so far in Q1 2024 but I just wanted to Yeah, do a little bit of a reflection episode and just think all right What's going on across the world in these different areas of IBD? What are the trends and what are the good elements and what are maybe some of the structurally weaker elements as well? so starting with M&A The story is relatively strong There are a lot of reasons why the deal volume and deal value of M&A deals in Q1 2024 has gone up in almost every region We're looking at the same screen in front of us at the moment and and M&A deal volume and value is up. So deal value is up 79% in Canada 51% in the US 58% in Europe which translates into a 24% increase globally weighed down interestingly by Asia Ex-Japan down 40% Japan down 54% Australasia down 27% I'm trying to get my head around why these deal volumes and values in Asia are down so much. You have any idea? Perhaps it's been the surprised robustness of North America when everyone if you think go back What not even 12 months was fearful of recession now the narrative already flipped some time ago to soft landing whereas there's still Quite clear concerns about the situation in China and China being so dominant in the region Perhaps there's just too much risk Surrounding that and it ripple effects around that Far East perhaps Yeah, yeah, I would assume it's something China related It's China has been soft for quite a long time And and it just doesn't seem like there's a lot of interest in doing deals and obviously the The big deals are the ones that are going to move the needle in the US As seen four or five of those massive deals I think we spoke about Capital one and discover financial and synopsis and ansys and diamond back. These are all 25 billion dollar plus deals. I think of 14 transactions over 10 billion dollars this quarter So this is you know, so this is the M&A market really starting to kick off We were having this conversation this time last year We wouldn't really have anything to talk about because hardly any M&A was getting done Now why the reasons behind this? I mean firstly interest rate stabilizing Nice Conversely a nice tone coming out from the Fed good poem coming out from Andrew Bailey At the Bank of England that it's looking like interest rates are not going to go up anymore And they're probably going to fall as soon as there's stability Confidence starts to seep in and let's remember interest rates, although they've been at their high They it was the quickest hiking cycle since the 1980s. You'll know this better than I You know five and a half percent interest is not it's not particularly high historically And we've had extreme bull markets from an M&A perspective and from a stock market perspective When interest rates have been up at this level, this is not dramatic by any stretch of the imagination So much like the stock markets as soon as there is stability Confidence starts returning. So we've had this wonderful Goldilocks not too hot not too hot not too cold economy Inflation's been dropping nicely, but there hasn't been recession consumer spending as as return house prices have started to kind of creep back up again and remember It's only two or three years ago that we had this huge huge wave of Helicopter payments and quantitative easing and zero interest rates. So there's trillions of dollars of cash still lying around on the balance sheets of these companies and on the and on the kind of Fundraising of these private equity firms. So as soon as it almost feels like any excuse To go out and do these deals is going to be pounced upon and just having this period of calm You know you've seen S&P break through records and the same is going to happen with M&A. I I Would predict that this trend of increased Your volumes and values is just going to continue for the end of the year and if not gain more and more momentum I don't know. I don't know what you think and yeah, that's super interesting the way he describes it actually because having lived through the source European crisis the financial crisis The recovery out of COVID has been so quick actually. I know it feels like such a Negative time for so many people for so many different reasons with layoffs and cost of living crises and things of that nature But the speed of which this is recovering now. It just seems like yeah, like you said it was only two years ago in a heightened state of fear and anxiety and uncertainty in the market and here we are and And yeah stock market's record high M&I M&A deals are starting to fly back in it's incredible the pace of change actually. Yeah, I haven't seen that this quick Yeah, and it's going to be it's going to be a mad year for M&A bankers You know you think about this combination. So there's a combination in the market at the moment of listed companies listed corporates with relatively high share prices because There's been a decent run for the last year Which means if you're buying a company with in part your own shares, you know, that's going to be a better deal for you The credit markets are opening back up again. So the availability of debt is Is a more available and be at a more reasonable cost? and on the flip side and we'll talk about private equity later on the availability of potential of companies that are up for sale and Is like there's never been before there's there's going to be thousands of private equity exits coming on the market potentially sold to these corporates that have got Nice debt and a nice share price with which to go and buy these companies So it really is, you know, it's going to be a mega year I think from and if you're a Goldman Sachs or JP Morgan banker, you're not going to get much sleep But you are probably going to get paid quite nicely. Yeah The question there, you know, you having done that very role in early part of your career, I'm assuming there's some different Responsibilities and what's expected of you dependent on serial seniority of where you sit from MD all the way down So you're kind of grad analyst, but I was reading a few things about Yes, it's looking good because then yeah, the bonus pool gets topped back up But a lot of the junior bankers were saying that back to a minimum hundred hour weeks things of that nature There's there's because of the reduction that you've seen in a lot of the more purest Investment banks like Goldman Sachs, for example, it's just even more work put on to the fewer employees and The deal flow just keeps coming so more gets expected So how does that get balance itself out? Yeah, and and obviously again if we were doing this podcast this time last year, we'd be talking about layoffs We'd be talking about Goldman Sachs axing a few hundred investment bankers and other other investment banks following suit So it is this You know, there's probably these are probably leaner divisions that are now going to have to face a much higher Heal volume and and that will lead to longer hours for sure I think the junior ranks have been culled a lot less than the senior ranks in these kind of In these waves of redundancies, so I think we're okay from that perspective I think it serves a wider point and we we try and make the world of investment banking Accessible and interesting and to an extent exciting through our simulations But we also have to remind people that if they're up for a job in M&A as much as we would love to say that There's work-life balance when there's this much deal flow coming through and Working on a deal just to get even a small deal across the line as thousands and thousands of hours of work It's hugely complex. So yeah, this is not a job for the faint heart And it's probably going to it's probably going to be quite brutal for the next year So the mind the mindset I guess that you would give as advice is that actually if you can pivot and survive the intensity You're going to accelerate your exposure to deals, right? And your experience is going to double down You're going to learn things quicker faster if you can get outside the other end You're going to be a really good place surely. Yeah, and as you get more senior either in M&A or in what in any advisory you are you are Benchmarked by the deals that you've done and if you are thinking about writing your own mini banking CV It will be worked on X transaction with Y complexity and Z geography and If you join an investment bank and all you're doing is pitching for a year It doesn't look that good on your CV. So yes, it might be brutal But if you could get two or three creds two or three tombstones as we call it back in the day It's be these I'm sure they're still physical little physical Well tombstones physical little trophies to say that you have, you know, you have worked on a particular deal You get a few of those under about early in your career. Yes It probably does set you up with the experience and knowledge that maybe someone in a in a less Overwhelming market may not get Okay, so we said here M&A then is picking up pace However, we tend to talk about IPOs is nearly every episode it would seem and they do seem like they're picking up as well But how does that look like as a balance between income for these bankers in terms of IPO deals Versus M&A deals Yeah, you put you put out a couple of good charts maybe last week or the week before on on LinkedIn talking about, you know year-to-date Best performance across investment banks and I think we we chatted on the pod that JP Morgan and Goldman Sachs tends to top out Both in terms of M&A specifically and investment banking more generally But I'll share with you a I'll share with you another another chart that looks at the split of investment banking revenue across these top 10 banks and across M&A versus equity equity capital markets bonds Debt capital markets and loans usually is leverage finance so related to private equity I'm just looking at JP Morgan, which is the number one bank in terms of overall IBD fee income 15% up relative to this time last year and it does it's made 32% of its money through M&A 15% through equity capital markets 27% through debt capital markets and 27% through loans Now Goldman Sachs is more heavily weighted to M&A with over 50% of its IBD income But if you go down to the likes of Wells Fargo and BMP and Deutsche Bank and Barclays They they generate the majority or a significant minority between 40 and 60% of their entire IBD income Through bonds through debt capital markets and it is something that I think we need to dedicate a bit more time on it to the pot You know on the pod Because it's a massive chunk of these companies revenue certainly in Q1 2024 that might change a bit throughout the year But it's a significant source of fee revenue and it's one that we tend to not talk about and tend to forget a little bit So just to give a little bit of insight very top level a lot of people listening students might not have even heard of Debt capital markets. So how does that differ in terms of what you're working on and the place and intensity to some of the other areas? We've just discussed Yeah, so debt capital markets. I think the way the way that I like to think about it is You have two ways of funding a business right debt and equity. You have two types of equity private equity Raising money for companies that are private investing in private companies and public equity Raising money and investing in companies that are public same goes for debt. You have private debt which is Lending money in the private markets through normal loans And then you have public debt which is lending money to companies and governments through public loans or bonds and debt capital markets is all about the origination and execution of high yield and Investment grade bonds which are subsequently very heavily traded as they you know much like a secondary public equity market so it is it is a Massive area and it is one that is it's got similar levels of intensity to equity capital markets You still work extremely hard. I would say maybe there's slightly less Slightly less time pressure and deadline pressure in the world of debt capital markets may be relative to M&A where you need to get a Bidding by the cutoff day and you need to get this deal done by the end of quarter or whatever it might be in the Exclusivity period runs out in 30 days time or whatever it might be So maybe it's not quite as intense seven a but it's certainly on a par with equity capital markets You don't necessarily quite get the excitement of an IPO But all of the other stuff you do is is really really quite interesting So yeah, I mean actually when as you described if you're talking about a BNP or someone like that, you're the money makers. Oh Yes, absolutely, and I used to work at HSBC and I quickly realized having done M&A for the first bit I quickly realized that lending was it was where it was at the company for banks with big balance sheets a Lot of money that they can possibly lend You want to go to the you want to go where the bank is absolutely flying It's a general rule for any young person entering the bank And if you're HSBC or if you're a BNP you go to lending you go to debt capital markets, etc Final question on that just before we move on to some of these IPO details then is there much Transfer between people going from DCM to ECM and vice versa yeah, there's definitely there's a lot of transfer between ECM and Leverage finance and corporate lending because the fundamentals it's all about credit It's and it's all about the credit worthiness of that particular company So the metrics you look at the ways of analyzing companies are Pretty similar whether you're on public debt private debt leverage finance Moving from debt capital markets to equity capital markets and to M&A and vice versa Yeah, it happens and you'll often be on a pitch with a combination of the M&A team That's presenting the potential acquisition opportunity And then you get the equity capital markets teams to talk about how they would finance it And then the debt capital markets teams to say hey, you could get a bond away that would support this acquisition So there's quite a lot of cross-pollination between the three and therefore, you know, you do get movements between those three different teams Already made me think in my mind's eye Because you know, you and I have a little competitive spirit and if you're teaching banking and I'm teaching markets Or if you're pitching a raising funds via the equity capital markets, I'm doing it through debt It must be quite an interesting dynamic when you're when that's playing out Yeah, and it's and it's actually It's actually Difficult because there is a there is a right there is to a large extent a right answer in terms of the way that your capital structure The combination the mix of debt and equity is put together and that will probably get decided within a you know in one of the meeting rooms within a bank and Maybe the final decision maker might be the M&A director that's potentially running the deal and go no No, it makes more sense to be more heavily weighted on the debt capital markets pitch So we're going to put that as item number two in the presentation and put the equity capital markets down to item number three because Do they need to really raise money in the public markets for this? Probably not. So yeah, it's it's a really interesting dynamic. And as we've said before, there's quite a lot of egos out there as well All right, and then percentage wise then just give us some context. How is the IPO market performing? Yeah, so yeah moving on to IPOs. We've spoken a lot about IPOs in the last four weeks and and obviously my my big buy read it up 70% since IPO'd so I'll be cashing that in Change my job from long-term stable investor to day trader. I think But yeah, no, so from from from equity capital markets and IPO perspective There's been 40 IPOs in the u.s. So far this year, which is 18% more than last year There's been some big IPOs a number of which we have spoken about And it's kind of it's up. I was just looking at stats here It's up 361 percent in europe that's 7.3 billion dollars that must be That must be related to some of the companies we're talking about a couple of weeks ago Douglas our favorite company and gal derma gal derma is responsible for You know a third of that if not half of that on its own So that's a that's an extraordinary increase And quite representative of the fact that there were just zero IPO activity. That's all in europe last year I still couldn't find by the way. I still couldn't find a q1 london stock exchange IPO I don't know if I was just looking in the wrong places. I don't know if have you reported on any Well, I like the way that when you look at these kind of there's lots of different data vendors that you can use to look at investment banking scorecards to kind of slice and dice all these statistics up in real time and Yeah, I know we've left europe But you would have thought there would have been a london item on the list, but london doesn't even exist anymore in in the ui of that website that we use so Probably says it all really It's bad and as I said, I just don't think I've seen an IPO of any any significance If if any significance if if any IPO in london over the last quarter, which isn't which isn't great But maybe we'll get she in who knows um So just a couple of stats and I think this is really important to to zoom out and think about the equity capital markets team that runs the IPO process within a bank and often we Almost use equity capital markets and ipos is is almost interchangeable But if you're looking again at the stats from q1 and you're looking at the top 10 equity capital markets banks Got morgan stanley in first place jp morgan in second goldman sacks in third and Their split of fees across different equity capital markets products is quite interesting so follow on Which means things like rights issues So when a company's already public and it wants to do another equity raise within the public markets That was 61 percent of morgan stanley's fee income on the equity capital market side That compares with only 28 percent on the IPO side with 10 convertible bonds yet to equity And it's the same every single one of these top 10 companies over 50 percent of its fee revenue is follow on So again We love talking about ipos because they're fun and they're interesting Where the money's at is follow-ons is rights issues is is additional funding through the public markets And it makes sense, right? You only IPO once but you need to raise money multiple times if you're doing expansion So surely you put your your crack squad on the IPO because if you can win the IPO Yes, proportionally it's 28 percent for morgan stanley But that leads to the follow-on the more ipos you execute surely the more revenue you get later down the domino the fair and and and I'm very uh, I'm very biased towards startups, but I use the startup analogy You know to be to go from zero to one as a as a nascent company to get a product or company off the ground That is extraordinarily difficult And then to run that company is hard But it's not as hard in my mind anyway And it's a little bit like it's a little bit like this with IPO It's like it is very hard to convince a market that a company is worth going public at a certain price To put together all the materials to do the sales pitch, etc Once that company's public doing the follow-ons. Yes, there's some convincing. Yes, there's some meetings to be had But you're already a known entity so it's more of a kind of More transactional maybe than the IPO process is so yeah, definitely put your crack squad on the ipos And from a career bringing it back to career visibility then so would I be right in saying you'd have an investment? Bank with its banking division Which would then have within it equity capital markets, which would then have within it teams that would sit in follow-ons convertibles or ipos And so you kind of go down that way or would those lighter points again cross pollinate They would say I I would probably say on the and it varies by different bank But on the equity capital market side, you would be split by region Okay, and then if you were to split again, it might well be sector Uh, you should as an equity capital markets bank could be able to do all three of those things There might be a separate convertibles team because it's got that debt and equity piece in there Um, but yeah, you should be relatively good at doing both IPOs and follow-ons Okay, cool. Make sense. So let's move on then. Let's talk a little bit about PE private equity Yeah, this is super interesting and i'm referencing the bane global private equity reports 2024 quite a lot in this piece and we'll put it on the show notes So we'll put it on linked in it's a really really instructive report of a Of an asset class that's just super super interesting and The reason why it's interesting. I mean 2023 was a bad year for private equity in terms of deal values And exit values. So deal value fell by 37 percent the amount of uh private equity company exits i I the private equity fund Own a company and I need to sell it in order to realize the upside That fell by 44 percent however Lots of big funds came to market. So fundraising was basically flat So you've got a decrease in deal value You've got a decrease in the number of exits, but you've got assets under management going up consistently year on year What does this mean this means that there is so much dry powder out there So dry powder mean meaning uninvested money sitting within a fund And it also means that there are so many companies that need to be sold In fact, this report says that Nearly half of all global buyout companies have been held by the fund for at least four years Remember a private equity fund cycle You tend to accept that your money is locked up for five to seven years But beyond that you start really agitating to get your money back And you as a private equity firm want to hold a company no longer if you possibly can in five years So you basically got I think we reported it last week. You've got three trillion dollars 28 000 companies That are waiting to be sold effectively when the timing is right and this is kind of why i'm saying This is going to be a bumper m&a pananza because in order to return Funds to to investors to limited partners within these private equity funds. They need to realize liquidity they really need to realize exit events and They're going to have to do so relatively quickly So again, just as we see a little bit more stability just as we see a little bit more Um certainty over interest rates the leverage loan market starting to open a little bit I think you are going to see Hundreds and hundreds of private equity exits Remember private equity firm can either exit through IPO It can exit to a corporate You know, we spoke about that about that earlier on in the pod or it can exit to another private equity firm And if you think about it Private equity, what has it got? It's got loads of dry powder And on the other side, there's trillions of dollars worth of companies needing to be sold. I would expect Logically that this is going to be a bumper 2024 for private equity to private equity deals So a company needing to sell because they've realized the value within that five-year holding period And then another private equity firm with loads of dry powder We need to buy because they're sitting on money that needs to be used Buying off another private equity firm and saying look we can extract more value We can take, you know, we can pump a little bit more debt into this company and it gets kind of past the parcel Around private equity firms As these dynamics continue I love that. It's just like how can we make money out of money? It's brilliant Absolutely, and there's some really interesting dynamics here as well, you know So we've spoken. I think we've spoken briefly about net asset value financing. It's, you know, Securitizations and and things like continuation funds a continuation funds are where the likes of Apollo Will set up a fund to basically buy the companies from their other funds In order for their other funds to return money to their limited partners And for the new fund who raise money on the back of some really really good companies that are coming to it So yes Money making money making money I think has been the kind of watchword for private equity over the last 20 or 30 years But they're extremely good at it and there's some there's interesting things like the secondary market for private equity opening up Which again is going to give a whole new flavour to the to the industry So right that that jenga tower is looking pretty solid for the time being so it's all right I won't pull any of the the blocks at the base out anytime soon But and it's it's it's really interesting because it as an asset class private equity just has been so It's just performed so well over the last 20 years It's it's just a case of Is this is this entrenched is the fact that you have to lock up your capital for five years You know, is that the downside that is offset by the upside of you've got, you know A long term a more long term approach with a more focused management team with access to more leverage finance Products relative to the public markets. Maybe it is structurally A more remunerative more lucrative Asset class But maybe it's not maybe it's cyclical and maybe we're about to Hit a kind of a decade long private equity trough So is it would it be right in thinking then that there's quite clear parallels between the state of play there and the state of play in venture capital Yeah, it's yeah So venture capital is the last one going to talk about and obviously venture capital is a subsection of private equity Remember when we talk about private equity, we usually talk about buyout firms that are buyout funds that are buying the entire company And I'm putting a bit of debt in there and trying to improve it and turn it around venture capital Still private equity. It's still private capital And yeah, the dynamics are relatively similar. I was just looking at some of the stats here So venture capital sitting on 69 percent more dry powder More investable money Than the five-year historic average So it's got money to deploy and 2023 was such a shocking year That it's almost like we're all pent up all this money is pent up the money hasn't gone And this is why 2024 25 And I want to be overly bullish, but you can see the way that stock markets are going on any hint of good news You know, there's just so much money out there to be deployed in the event of good news And vc very very similar dynamics And you've also got the excitement of artificial intelligence and agi you know massive massive fundraisers for very very very small companies We've we've reported this earlier on this year with mr. Allen co here Um, there's some big. Yes some big deals being done and a lot of money waiting in the wings Is it a good time to go out and raise money as a startup? I would say probably yes This time last year I would have said no and the reason why I say yes is I think that Adventure capital investors got a little bit burnt by all of the easy money and soft bank and everything of about three or four years ago And in 2022 23 got their act together and said look, we're not just going to fund anything We need to fund fundamentally strong founders and fundamentally well positioned businesses with Interesting technology and interesting economics, but we will fund you because we've got all of this dry powder So it's going to force you as a founder to really think about a robust business plan and a robust business model But the money is there if you get it right. So I think it's a really it's a really interesting environment Okay, well, I'd actually think that that's a good a good note to finish on and what I'm going to do is say two things to conclude Um for one, we've obviously talked about some different areas here So if you're a student, I'd be quite keen via the poll if you're listening on Spotify to hear Which one of these areas sounds the most interesting to you from what we've discussed So we've got m&a equity capital markets. So let's say ipos, but also some of the other activities that Stephen discussed pe And we'll splice that off and have um We'll have vc, but I'll also put in their debt capital markets as well. Definitely put in some debt. Yeah, let's have Let's have all what five and let us know I'll be really interested to know and then secondly if you do find This conversation useful or any of the other previous episodes, please do Share it with a friend Because you know, we bumped into a few people over the last couple of days They said it really helped them when it came to securing their spring weeks because that's a lot of the activity We're having with students at banks at the moment. And so if it helped them, you know, don't Keep it to yourself spread the love let other people listen as well because we're here to help And to make some of this stuff interesting and hopefully we we hit the mark And if you're a business owner because I do know that business owners and people who work in a variety of different professions who are Well grown up like me and Steven They listen for for different reasons whether interest in finance or because they are running a business They want to know what's going on in the economy and what's happening in the business world So yeah, spread the love I'd be much appreciated by Steven and I but Steven has always Great great insights and thank you very much Thanks so much, hon