 Welcome back. It is officially the last episode of 2023 and also the last episode of this mini two part of review 2023 in the banking space with Stephen, our director of corporate finance. How's it going, Stephen? Yeah, very good. Thank you. And I'm glad we've both got our Christmas jumpers on today. If anyone's watching on the YouTube channel, a black North face, not that we sponsored, North face jumper is our Christmas jumper of choice today. Well, yeah, I mean, if anyone listening does work at North face or indeed know someone who does, then they should definitely hook us up here with this free advertising we're putting out. But look, let's get into it and let's go from five to one. So if you didn't listen to the first episode, I encourage you to go back and have a listen 20 minutes straight to the point reviewing the top 10 from 10 to six. And in this episode, we're going to go five to one. So that further ado, what do we have for number five, Stephen? Yeah, so coming in at number five in our top 10 themes of the year from 2023 in the banking space. Number five, competition regulation missing the mark. This is actually the story I'm going to, I'm going to personalize this a bit. This is a story of, of maybe one woman, Linda Khan, who's the head of the FTC, the federal trade, federal trade commission in the US. And her goal, having been appointed a couple of years ago, basically being to try her best to block major transactions that would be considered to be anti competitive or potentially monopolistic. She has taken it to the pharmaceutical company. She's taken it to the big tech companies. And quite frankly, she has pretty much lost every single blocking that she's tried to do. So competition regulation when done well is absolutely fantastic. And we don't want a whole raft of monopolies and we want fair markets and we want the consumer to benefit. And that's what Linda Khan's been trying to do. But so a lot of people say that she is the most hated person in Wall Street. Several Wall Street, I'm quoting here, several Wall Street donors to the Democratic Party Party are using their position of influence to quietly lobby Joe Biden to drop Khan if he gets reelected. Such is the hatred of this person that keeps trying to get in the way of nice lucrative deals. She must be the cleanest person on Wall Street or in Manhattan then if she hasn't yet been kind of talked to behind the scenes to just tame some of this behavior down, then perhaps she's what we need. She might well be and I know I worry that she's coming up against the weight of so much pressure and so much industry pressure. You know, the big deals that she blocked or that the FTC blocked. Let's talk about this from a corporate from a body perspective. The big deals Microsoft and Activision got blocked. First by the competition and markets authority in the UK, then by the FTC, it got overturned in courts and obviously subsequently has gone through as one of the biggest deals over the last two years. The horizon and Amgen deal, the big pharmaceutical deal that we've spoken about, got blocked. And then it got rejected in court. So the deal went through. Third one is meta and within. I hadn't heard of this, but this was back in February. The court decision rejected the FTC again, and the deal got got completed. So this is just this three or four cases where the FTC have put their neck out, duck their neck out and said, look, this this feels anti competitive. And then courts in the US have gone actually. No, no, this is fine. So it's been a bit of a year of competition regulation, missing the mark. It's actually been a pretty big trend, especially if you're following US deal making. So the result number five, I'm going to call it Linda Khan, gone 2024. Oh, she's gone. She's gone. Yeah. Number four, then coming in at number four, we have banks continuing to retrench and the rise of private credit. So what does that mean? Yeah. So this isn't the kind of the pithiest headline, but private credit. And we have spoke we've kind of danced around the subject a few times on the podcast, but private credit has had what can be considered to be a bit of a breakout year. Now, private credit is kind of what what it says it is lending, but not by banks by private institutions and private investors. So what's been going on here is banks have continued to withdraw from lending money, especially at the riskier end of the spectrum. Let's say the quite highly leveraged private equity end of the spectrum suddenly when looking at their, you know, their equity tier one ratios and looking looking at their financials. They're thinking this doesn't look like a good use of our risk weighted assets. So private equity still gets done deals are still getting done. And the gap that is being filled is being filled by private credit. In fact, private credit. So private investors, private investment funds, lending money for these leverage transactions, private credit was 86% of all loans for leverage buyouts in 2023. Now that is a staggering reversal from about 10 years ago, where I would I don't have the stats but I would say it would be 90% plus bank lending. So this really is a trend that I think has got a decent amount of legs and 2023 was the year that it really broke out. Just for the understanding of people listening to these students, who are we talking about when you say this private credit was a what's the typical name associated with this space. Yeah, it's quite interesting the typical names of the typical private equity names. So Blackstone, Polo, KKR, Carlisle, they are the biggest private equity investors, I raising money raising funds to buy companies, turn them around and sell them. But they are now also the biggest providers of private credit, which effectively means that if you're thinking about how a deal is funded. How a private equity transaction is funded with a combination of debt and equity. The same firm might be providing equity through its private equity fund, the buyout fund, and also providing debt through its private credit fund. So there's a little bit of a kind of concentration risk potentially here. You know, if one of those deals goes bust, it's not just the private equity buyout fund that's on the hook. It's also the private credit fund that's also on the hook. So this is interesting. It's an interesting dynamic. Could possibly go wrong. So we'll move on then. The next one has probably got some good statistics one would imagine. So number three is talking specifically about the reopening of the IPO market. So yeah, hit me with some stats then. What was the last year like? Yeah, I'm calling this the partial reopening of the IPO market. And the IPO market just to step back is so fundamental to the private markets. It is often at the exit route of choice once there has been a lot of venture capital and private capital pumped into a company. So if the door is closed to the IPO market, it sends shockwaves and ripples through valuations in the private market. And we saw that in our in the first part of our review where we talked about the tough year for startups and the tough year for VCs. But in terms of stats, look, in 2022, there were 90 IPOs. Absolutely horrible year in the US, $8.6 billion of IPO proceeds in Q1 to Q3 2023. So we haven't quite got the Q4 data. There's been 180 IPOs, doubling the volume and almost tripling the value of the proceeds from these IPOs. So this sounds really positive, but let's put this in context in 2021, that nuts year that we had 416 IPOs in the US. Is that a record? It's a record. No, 2021 was just a just a mad year. And we've spoken about the IPO market quite a lot. I'm just going to I'm just going to revive four of our favorites that we've discussed on the pod. Instacart, Birkenstock, Carver and Arm Holdings. So I'm just going to give you a little quiz. So do you think that Instacart IPO about four months ago, the online grocery facilitation company, do you think that Instacart is up or down post IPO? Well, this is a SaaS business, right, their model. So I think they would have got pumped into the IPO. So I'm going to say they're down. And also, I didn't know that Sam Altman of OpenAI, he was an early investor. He's got as many pies, including Instacart. He's got his fingers in many, and that was from the Y Combinator days. I remember you and Piers discussing this on the pod a few weeks ago. Yes, he's got a he's got a bit of a slice of the pie. But you're right, Instacart is 20% down off its IPO price, which, you know, it was probably priced at the top end of the range. But it's also, if you've seen the way that markets have gone, there's been a pretty broad tech rally as dovish signals have come out from the Fed. So they haven't really benefited from that kind of broader tech rally, even across the smaller companies. So one out of one, well done. And Birkenstock pulled down since IPA. See, that feels that feels quite recent, the Birkenstock one. So I wondered whether, yeah, were they susceptible to the pump and dump? I certainly don't see in the, you know, I move in fashionable circles and Birkenstock has not been seen or talked about. For some time. So I'm going to go, I'm going to go there down as well. Yeah, good, good logic, but incorrect. I was really surprised to see this because I don't know if you remember, like day one, Birkenstock was down about 12% at one point. Everyone thought that this is a really lovely company, but it's just been priced too high. The revenue multiple was too high. The EBITDA price earnings multiple was too high, but Birkenstock's up about 20%. So it had that first day blip, and then it's just climbed quite nicely as investors have started to pile in. I haven't looked at the fundamentals. I don't know why this is the case, but it's really interesting to see. Again, don't just look at the first day. Look at the first few months. Look at this thing stabilize and Birkenstock's up 20%. Wow. 20% Okay. It's not bad. What about, what about Carver? So Carver are the US based kind of fast, fresh Mediterranean food restaurants chain. IPO'd about maybe six or seven months ago. I'm going to go down with them just because of the nature of their business and where we're at. Consumer wise and economic cycle wise. Yeah. Again, you're, you are absolutely right. So you're two, two from three. So 15% down. Now this is an interesting one because you're like, okay, right? You know, US economy's growing pretty quickly. Unemployment's pretty low. You know, we're at the top of the interest rate hiking cycle. You know, why are people not going out to dinner and why are people not investing in this stock? So there's, again, there's probably a technical explanation that maybe you and peers can go into as to why this is down 15%. Because the fundamentals seem pretty good. It's a profitable company. And obviously the US macro data is pretty nice. Fourth arm, the big one. Yeah. Big daddy. Yeah, these four companies you've mentioned, as we said at the time, I think arms the most bankable in terms of mature business. I think it's probably the most boring, as I think I remember on the day of the launch, it was definitely not 20% up down here and there. So I would imagine they've just plotted along with the general market and neither really exciting here or there. Yeah, I think I think plotting along with the general market is about right. It's up about 7%. Which suggests again, suggest that that was a really nicely priced IPO. If it's priced in and it's up along with the general upswing in the tech side of the market, then yeah, you're seeing some decent returns on your investment. But it isn't that volatile, crazy swinging stock because it's a big free float. It's a big amount of money and therefore the volatility is going to be slightly lower. So there you go. Two up, two down. You got three out of four. So not bad. Our expectations, IPO markets going to continue to open up in 2024. It won't be a 2021. I would expect there to be much more than 180 IPOs. I know we are speaking offline about some of the names that are potentially coming down the pipes, the reddits of this world, CVCs. I think you mentioned eToro getting a piece of the action. Yeah, I think they cancelled it, their IPO plan for the obvious reasons. But yeah, I'm sure that could come. I could look tasty again if Bitcoin continues its recent ramp. Richard will. All right. So the natural, I guess, feeder them from IPO is into M&A. So what's that? What's happened in 2023? And then what can we expect next year? Yeah, so we're getting into the top two here. And I wanted to pick some massive, massive macro themes that affect absolutely everything. And as we've actually counted down from 10 to one, the size of the theme has got more all-pervasive and global. So number two is 2022's interest rate hikes, blunts, M&A, deal, volume. Now, in 2023, as I think we've said before, the key number in terms of deal value in the world of M&A is $3 trillion. And is there going to be $3 trillion of deal volume in 2023 and of deal value in 2023? It looks like we're going to hit, we're going to just hit that couple of big transactions come out in the last few weeks. And it's still well down on 2021, which was nearly $6 trillion of deal value. And this is all about interest rates. This is all about interest rate hiking cycle. As we know, US 5.25 to 5.5% interest rates higher since 2007, UK 5.25% higher since 2007. And in M&A, it's a pretty simple calculation. It's a cost of capital. If your cost of capital is high, suddenly acquisitions look less attractive. They have to achieve a higher hurdle rate to repay that cost of capital. So it makes sense that a higher interest rate environment is going to blunt M&A deal volume and M&A deal value. Or be it in Q4, we've seen some green shoots and we've seen some pretty big deals. We've spoken previously about the oil and gas deals coming through in Q4. Okay, so leading into the top theme of the year. And it sounds like then potentially what will be the catalyst for potentially then igniting number two is the contributing factor that everyone will focus on in the period ahead, which is inflation, thus determining interest rates. So yeah, tell me a little bit about inflation from your perspective. Yeah, so coming in at number one in our themes of 2023. And this again, as you say, it's a kind of leading, leading item, paving the way for a better 2024. The number in first place inflation is partially defeated. Recession avoided. Now, the US inflation rate and you discussed this on your podcast is was at 9.1% in its peak June 2022 is now at 3%. Everyone's thinking actually was inflation transitory. I know there was a big speculation back in late 2021 about that. And UK UK inflation, its peak was 11.1% CPI. I think inflation data has come out today in the UK. Is that right? Yep. Came out this very morning and it's slow to 3.9%, which is the lowest in more than two years analysts were expecting a drop basically to 4.3%. So it was it's dropping faster in three consecutive months now than what they were the analysts on the street were forecasting. So at the moment, financial markets, futures markets are pricing in four rate cuts in the UK starting in May. Wow. That's quite interesting. Inflation is an absolute killer for M&A, right? And it's an absolute killer across the banking space. Firstly, because it lends it lends itself to interest rate hikes. Secondly, it results in strategic uncertainty. If you're a business that is dealing with the effects of inflation, both in your supply chain and in terms of your pricing, you may not be thinking about considering a load of M&A. It's a volatile, uncertain, unstable period and M&A is best done when there is stable economic growth when interest rates are low and when inflation is under control. None of which we've had, certainly in 2022 and in the first half of 23. So if you're looking forward with a bit of a crystal ball into 24, if there is some nice visibility over rate cuts and if there is continued drop to that 2% to 3% inflation target. And if we avoid recession like we certainly avoided in the US, quite the opposite, right? Then this could actually be a relatively good recovery year 2024. I don't know if I'm just feeling festive. I'm up for some good news. But yeah. It's that pavocier post, that M&A post that you did earlier this week. I've gone to your head, Stephen. Well, it was a sponsored post, so they sent me a nice note. So to wrap everything up then, just to conclude, what is the trends to continue and the ones that you think that will pull back from that this five to one list for 2024? Yeah, so I think trends to continue dropping inflation, stable interest rates. I think that that's got to be a go in 2024. Everything that the Fed is kind of indicating suggests that there's going to be some cuts, you know, your point to the Bank of England. But that doesn't mean that banks are suddenly going to start getting giddy over leverage loans. So private credit, that's just going to be a trend that continues. What are the trends that are going to pull back? Well, I think, I mean, depending on the 2024 election, I just wonder whether Biden is going to have a little whisper in the ear to Linda Khan and just say, look, it's 2024. Just be nice. Just be nice to businesses. We want a series of good news stories during 2024 that shows the economy going gangbusters. And if you're there blocking everything, then that might hurt my election chances. I don't know, maybe that's cynical, but I would expect more things given the green light maybe than the more in 2023. I think there's probably some sort of societal impact given the general fears of the cost of living, even that hasn't quite materialized so much in the US, but it gives reasons to target them big tech. I think you can move the optics politically. So I think Biden could achieve that fairly comfortably within that remit if you were indeed to get reappointed. This is going to be one of the first elections. Well, it will be the first election post coronavirus and it will be the first election with a significant minority of voters having quite significant retail investor interest, because we all downloaded the app stream coronavirus and bought a bunch of stuff, right? So if I can see on my share trading app, things going up and up and up, because of a more facilitative environment, including the FTC, then maybe I'm going to feel a little bit more positive towards Biden and his economic agenda and maybe I'll vote for him. The fact that it actually comes at the back of the year. It's got a bit of runway here, so let's see. Yeah, yeah, tax cuts in the UK. Economic economic gangbusters in the US. Let's let's bring it on. All right. Well, thank you everyone very much for listening throughout the year. Thank you Stephen for bringing the dual room podcast series to the channel. Round of applause. Thank you very much. It's great fun. I love doing it. And yeah, long may continue. One final request. I looked on Spotify. We are in terms of my annual review. We're at 497 five star reviews. If there's three of you out there, just give us a little bump and drop your name in the comment section. I might send you a little merch just to help sweeten the deal. You might you might see my mom, my dad and my brother getting involved. Thanks everyone. Take care. Have a great Christmas.