After almost two decades’ experience in a pure advisory bank, Sophie Javary is now looking to strengthen the corporate finance business of BNP Paribas, one of Europe’s largest lenders.

With the highest Tier 1 capital of any eurozone bank and the largest market share in bookrunning euro-denominated debt in 2013, there is no doubting the status of BNP Paribas as a European financing powerhouse. By contrast, it has not traditionally been a corporate finance giant. The largest companies in its home French market, such as energy firm EDF or aerospace company Airbus Group (formerly EADS) have contributed a substantial portion of its dealflow. So the 2011 hiring of Sophie Javary, a partner at the traditional aristocrats of advisory, Rothschild, looked like a statement of intent.

In 2013, according to Thomson Reuters data, BNP Paribas broke into the top 10 for advising on completed mergers and acquisitions (M&A) in Europe, with a dramatic 9.6% market share gain taking it above Rothschild. At the start of 2014, Ms Javary became BNP Paribas’ head of corporate finance for Europe, Middle East and Africa (EMEA), and deputy to the bank’s global head of corporate finance, Thierry Varène. At the same time, she joined the executive committee for BNP Paribas Corporate and Investment Banking (CIB).

Global coverage

The bank divides its corporate finance business into two global business lines – energy and infrastructure, and metals and mining – plus the newly created EMEA regional business, which covers the bank’s core geographic presence. Ms Javary’s business line has hubs in Paris (which also covers central and eastern Europe) and London (which also covers the Nordics), and teams in Germany, Italy, Spain and the Netherlands. It also has a Middle East and Africa hub in Dubai and a presence on the ground in several other markets, including Turkey, where BNP Paribas owns local bank Turk Ekonomi Bankasi.

“The objective is to establish BNP Paribas as a leading corporate finance house in Europe. The challenge to achieve that is to move beyond the French market, and upgrade our activities in Germany, Italy, the UK and Scandinavia,” says Ms Javary.

BNP Paribas already has a strong corporate finance market share in Spain, and a significant domestic presence in Italy through subsidiary BNL, which supports its CIB. The bank is currently pursuing a strategic plan for Germany, in a bid to increase its activities among large corporates. Many German companies are export oriented, and Ms Javary says these firms are keen to make use of a bank that provides global access for financing and corporate finance. BNP Paribas also has a distinct team designated 'Investment Banking in Europe' – which she originally joined in 2011 – whose role is to maintain relations with a select group of highly strategic clients.

The corporate finance division also includes equity capital markets (ECM), where the bank sits lower in the league tables. Its equity derivatives expertise clearly provides an edge in convertibles origination. Investors and issuers often require equity risk hedging as part of an offering, and BNP Paribas was number three in Thomson Reuters’ EMEA convertibles bookrunner rankings for 2013.

“For IPOs [initial public offerings] and equity-linked deals, we are able to draw on the research and distribution capabilities of our brokerage Exane BNP Paribas, which has significantly improved its access to institutional investors over the past two or three years,” says Ms Javary.

Long-term relations

She expects the continued expansion of corporate finance to go hand in hand with “increased synergies” within the CIB, especially to draw on the bank’s strength in debt and financing. One example is the bank’s expertise in high-yield bonds and leveraged finance, which are relied on by private equity funds to finance their acquisitions. Even without structural integration, Ms Javary believes that closer co-operation with the leveraged finance teams should enable an improved flow of mandates for private equity M&A, and potentially exits via strategic sales or IPOs.

Its extensive financing role makes BNP Paribas a very different proposition from Ms Javary’s previous employer, Rothschild, which always emphasises its role as an independent advisor. She says there is no “magic recipe” dictating which model works best – different clients will need a different type of service at a given time.

“Whichever model you have, it is about the trust that you can establish between the bankers and the clients. We are often one of the top lending banks for any given client, so we have a very long-term relationship that is matured by ongoing business, so it is more of a partnership with the client and less transaction-related,” says Ms Javary.

She also believes the financing relationship gives the bank a deeper insight into each company’s strategic considerations, including the management of credit ratings, credit lines from relationship banks and balance sheet constraints. The one area that may be more suited to an independent investment bank is debt restructuring – ironically Ms Javary’s last area of responsibility at Rothschild – since companies usually do not want advice from their own creditors.

Confident on confidentiality

Ms Javary regards the size of individual lending commitments that BNP Paribas is able to make as a significant competitive advantage in cases where clients need very strict confidentiality. These would be transformative M&A deals, such as the C$650m ($593m) buyout of Canadian testing and analytics company Maxxam by France’s certification company Bureau Veritas in December 2013, on which BNP Paribas provided acquisition financing.

“The Bureau Veritas board of directors wanted a secure bridge-to-bond facility from its two closest banks to maintain confidentiality, given the exclusivity of the deal. In many cases, senior management will be certain about a deal, but the board will be more cautious and wants assurances about the availability of bank balance sheet regardless of market conditions,” says Ms Javary.

In this instance, the market conditions were buoyant and Bureau Veritas was able to issue a bond for €500m in January 2014 – with BNP Paribas one of three global coordinators. But Ms Javary says financing conditions in Spain and Italy are still more constrained than in the core European markets, so the importance of a relationship lender is more acute.

Pipeline building

While BNP Paribas’ market share is growing, it has done so in a shrinking overall deal pool, with Thomson Reuters estimating a decline of more than 12% for M&A fees in EMEA across the industry as a whole in 2013. But with fears over eurozone cohesion retreating, Ms Javary sees reasons for optimism as the deal pipeline began to grow in the final quarter of 2013.

“There are a number of sectors in Europe that are still unconsolidated. In telecommunications, there are perhaps 10 times as many operators as in the US, and the European Commission has signalled that it now fears underinvestment. That could mean a more accommodating attitude to consolidation. There are also substantial infrastructure needs such as nuclear and offshore wind power,” she says.

Additionally, a number of eurozone periphery countries such as Italy and Spain are engaging in major privatisation programmes. Ms Javary says Exane BNP Paribas analysts see growing investor demand for state assets that have been well modernised, including a steady return to European equity markets by US institutional investors in 2013. Even in Turkey, where political turbulence rose sharply in 2013, BNP Paribas is currently working on a possible deal.

“Our central scenario is for a moderate rise in long-term rates during 2014, but the European Central Bank will remain cautious as the recovery is only modest, and we do not expect the change in rates to have much impact on the IPO market. Valuations in Europe are still attractive relative to those in the US,” says Ms Javary.

Eye on Asia

Large investors from cash-rich emerging markets in Asia and the Gulf are also increasingly attracted to European assets. Ms Javary says Europe’s strong legal system allows it to offer a “predictable safe haven” for long-term investors now that fears over the eurozone have abated. Of course, Asia remains an attractive investment destination for BNP Paribas’ core European clients as well. The bank has advised French cosmetics company L’Oreal on what will be the first European acquisition of a Hong Kong-listed company, Magic Holdings, for HK$6.5bn ($837.9m), at the start of 2014. Ms Javary says the bank’s commitment to maintaining its 14-country Asian network is proving its worth.

To some extent, BNP Paribas’ push to expand its M&A and ECM franchise in Europe has been helped by the exit of rivals that were battered by the financial crisis, including RBS and Crédit Agricole. And the bank is not facing the dollar liquidity constraints that allowed US players to win European market share in 2011. But competition is still fierce.

“The challenge of US banks remains, as they can offer deep debt markets with favourable covenant terms for leveraged finance in their home market, although we are able to compete even on dollar financing. The number of truly global competitors has fallen, but those European banks that have retreated from some of their overseas markets have really concentrated attention on their domestic market, which means competition in Europe remains high,” says Ms Javary.

BNP’s ability to grow in the largest European markets of London and Frankfurt will be the acid test of its strategy.


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