Andreas Bernstorff0009

Having adapted during lockdown, the equity capital markets team, across IPOs and other transactions, continues to grow market share. 

As BNP Paribas works to cement its place at global investment banking’s top table, its equity capital markets (ECM) team is playing an important part in the process. While its equity-linked business is gaining market share in Europe, it is winning more international mandates in initial public offerings (IPOs).

Indeed, the bank was named Investment Bank of the Year for IPOs in The Banker’s 2020 Investment Banking Awards. The citation noted the momentum that had been building in BNP Paribas’s IPO franchise, particularly over the previous 12 months.

We are quite positive about the outlook for Europe and the UK

Paul Frankfurt, BNP Paribas

The bank did not allow the eurocentric nature of its equity business to limit its possibilities, the citation observed, but made it a key strength in attracting major global clients wanting to list in euros.

“With a [pan-European] equity research and sales franchise ranked number-one by investors over the past four years, our ability to be a leading financing partner to companies is a compelling proposal to any IPO candidate,” says Andreas Bernstorff (above), BNP Paribas head of ECM Europe, the Middle East and Africa (EMEA).

Smelling the coffee

The IPO business initially shut down when the Covid-19 pandemic began to bite, since no one was prepared to risk a dud listing. Although the freeze lasted only a couple of months, when the IPO returned it was in mutated form, having adapted to lockdown conditions. At least some of the changes introduced by the virtual IPO would seem to be permanent.

The first and biggest of the new-look listings, and the one that set the tone, was that of coffee group JDE Peet’s. The new company, created for the purpose, was floated on Euronext Amsterdam, with BNP Paribas as joint global coordinator, alongside Goldman Sachs and JPMorgan. 

The business had been put together by JAB Holding Company, a German family investment conglomerate with controlling shareholdings in both of the constituents, Dutch coffee maker Jacobs Douwe Egberts, and US roaster and retailer Peet’s Coffee.

Lockdown has done nothing to reduce the public’s appetite for coffee, and may even have increased it. So the combined operation could fairly claim to be a ‘Covid winner’ — or at least Covid-proof — with robust growth prospects.

“JDE Peet’s was exactly the right vehicle to reopen the IPO market, as a good defensive consumer story,” says Roger Barb, head of ECM execution EMEA. “We had to generate confidence around the way the deal would play before the launch.”

Fast work

Traditionally — before lockdown, that is — getting investors to feel confident about valuations would generally require two weeks of investor education, followed by two weeks of bookbuilding. The JDE Peet’s transaction was derisked with the rare — for new listings — use of cornerstone investors, including Fidelity and two funds run by Soros Fund Management. JAB demonstrated its own confidence by investing €300m in new shares, giving it a total stake of 38%. It was also derisked by the sheer speed with which it was concluded.

“Necessity is the mother of invention,” Mr Barb says. “We used the momentum from our work before launch and the cornerstones to get it all done in eight days, from the announcement to the pricing.” The pre-deal investor education was completed in only five days, and the roadshow and bookbuilding in three. Both set new timetable records.

This was possible because it was all happening on screen, which turned out to be less of a disadvantage than some might have feared. The fact that roadshow teams were no longer travelling the globe to hold face-to-face meetings helped to speed things up. Another benefit was the number of investors with whom the company and its bankers could ultimately engage. “It’s counterintuitive, but a video call offers greater overall connectivity with shareholders than before, because so many more portfolio managers can get involved,” Mr Bernstorff says.

The transaction was an emphatic success, raising €2.6bn and valuing the business at €15.7bn. The price range width was 7%, somewhat narrower than the pre-Covid average of around 20%, and the shares rose 12% on the first day of trading, at the end of May.

The salient features of the JDE Peet’s deal became something of a model for subsequent IPOs, including the accelerated process, use of cornerstone investors and narrower price range.

Lockdown winners 

For the rest of 2020, the IPO market remained open only for Covid winners of one kind or another, in digital and technology sectors, healthcare and defensive industries. The other two biggest IPOs of 2020 were both online retailers, the UK’s The Hut Group and Poland’s Allegro. They raised £1.9bn and €2.3bn respectively, although BNP Paribas did not act on either deal.

The focus on lockdown winners has continued in 2021, according to Mr Bernstorff. One intriguing example was InPost, a Polish operator of automated lockers, which floated on the Amsterdam exchange in January this year. Though the company itself did not raise any money, existing shareholders sold 35% of it for €2.8bn, valuing the business at €8bn. BNP Paribas was a joint bookrunner.

“InPost is a key enabler of the e-commerce value chain, operating lockers from which consumers can retrieve things acquired online,” says Igor Donnio, BNP Paribas vice-chairman ECM EMEA. The online retailer Allegro, for example, accounts for around a quarter of InPost’s revenues.

Mr Donnio points out it was the largest IPO in Europe since 2018. BlackRock, Capital World Investors and Singapore’s GIC signed up as cornerstone investors and the shares sold out within an hour and a half of books being opened. Their price rose by 15% on day one of trading.

One measure of current investor appetite is that in 2017, when US private equity firm and principal shareholder Advent International acquired InPost, the deal was valued at a mere €107m.

Role of sponsors

Financial sponsors were on both sides of the deal when Berlin online used car dealer Auto1 listed in Frankfurt in February. BNP Paribas was a joint global coordinator on a €1.8bn IPO which valued the company at €7.6bn. The shares then opened at 45% above the subscription price. One of the sellers was SoftBank’s Vision Fund, which had a 20% stake. Cornerstone investors Sequoia Capital, a US venture fund, and US hedge fund Lone Pine invested €150m each.

“Sponsors will account for a bigger portion of IPOs this year,” Mr Donnio says. “They have raised very large new funds, have a lot of capital to deploy and they are rotating their assets increasingly fast in both public and private markets.”

Sponsors will account for a bigger portion of IPOs this year. They have raised very large new funds, have a lot of capital to deploy and they are rotating their assets increasingly fast in both public and private markets.

Igor Donnio, BNP Paribas

Ranked by total 2020 ECM deal volumes in euro markets, BNP Paribas was the highest ranking non-US bank, coming fourth after JPMorgan, Goldman Sachs and Morgan Stanley, according to Dealogic. In equity-linked business it ranked third. ”We led 26 equity-linked transactions in 2020, which was 85% more than in 2019, and have continued to gain market share,” says Meryem Bouchama, director, equity-linked origination. “In the second half of 2020 we had a 65% share, which is unprecedented in Europe.”

Equity-linked highlights included the largest-ever green convertible bond, a €2.4bn four-year issue for French utility EDF, where the bank was sole structuring adviser and joint bookrunner. Another was the first-ever sustainability-linked convertible, a €650m deal due 2026 for Schneider Electric. BNP Paribas was structuring adviser and sole global coordinator.

Positive year predicted

How will equity markets pan out over the rest of 2021?

“We are quite positive about the outlook for Europe and the UK,” says Paul Frankfurt, head of ECM syndicate. “There seems to be some momentum behind the reflation trade, and with consumer savings unleashed later in the year, we could see strong support in the UK in particular.”

In IPOs, Mr Donnio expects the current narrow sectoral focus to start widening out. “As part of sector rotation, we’ll see investors ready to buy into a bigger variety of sectors,” he says. “There are plenty of strong businesses we can showcase, and we are working on a number of non-Covid-winner IPOs right now.”

As to the mechanics of the IPO, Mr Bernstorff reckons that lockdown evolution is here to stay. “I don’t think any of this will reverse,” he insists.  


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