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AgendaMarch 3 2014

Building a global mid-market challenger

The acquisition of UK brokerage Collins Stewart Hawkpoint by Canada's Canaccord Genuity gave Alexis de Rosnay the chance to fulfil his ambition of building a business, as the group aims to become a global mid-market investment bank.
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Building a global mid-market challenger

After a decade-and-a-half working for two of Wall Street’s most well-known names, Alexis de Rosnay rose to become co-head of European investment banking at Lehman Brothers in 2008. The timing could hardly have been worse. Two weeks later, Lehman was insolvent and Mr de Rosnay needed to pause and rethink.

He first chose to join pure advisory investment bank Lazard – to steer clear of any other institution that might harbour a lurking balance sheet crisis. But he already had a taste for building a business, as he had done with Lehman’s European operations. And, like many former Lehman employees, he speaks highly of the collegiate, entrepreneurial atmosphere of its London office. Consequently, a conversation with Paul Reynolds, the chief executive of Canada’s Canaccord Genuity, caught his interest.

Rare opportunity

Mr Reynolds had already combined the brokerage firm Canaccord with Genuity’s corporate finance and capital markets expertise in 2010, and was looking to expand outside Canada and the company’s natural resources focus. In the final weeks of 2011, Canaccord closed in on struggling UK brokerage Collins Stewart Hawkpoint, sealing the deal in March 2012. It presented Mr de Rosnay with the chance to lead a greatly expanded Canaccord Genuity Ltd, the European arm of the business.

“Paul Reynolds had already told me about his ambition to build a global full-service cross-border investment bank for mid-market companies. Then came the Collins Stewart acquisition, and I could see there would be few opportunities like that – to turn around and build a business that could contribute to the success of the whole Canaccord group,” says Mr de Rosnay.

This was not a straightforward task. The first year after Mr de Rosnay joined, in September 2012, was one of reshaping the business, during an environment of relatively subdued activity for the investment banking industry as a whole. He says the integration of Chase into JPMorgan, which he witnessed from the inside in the 1990s, took about three years. However, in the final quarter of 2013, the market began to revive just as Canaccord Genuity’s transformation was starting to bear fruit.

Since that time, all the firm’s pitches to lead or co-lead initial public offerings (IPOs) have been successful. These included roles on the listing of UK estate agent Foxtons, electronic invoicing firm Tungsten and debt purchasing firm Arrow Global, as well as several more deals still to be announced. In addition, Canaccord managed secondary placings for software consultancy SQS and outsourcing firm Quindell. The group results for the quarter ending December 31, 2013, showed a record performance in Europe, with a 75% rise in underwriting fees and 68% of revenues coming from outside Canada.

“It takes time to achieve cultural change and integration, to move through that period when staff are necessarily inward-focused and start getting out there to win business. The improved market conditions have helped, but we are also well positioned now. We have a global network, and strength in both securities broking and investment banking. I really believe that combining the two will make us superior to our main competitors over time,” says Mr de Rosnay.

Strong legacy

The company now has about 670 staff in Europe, including hubs in London, Paris and Frankfurt plus operations in Dublin and (for wealth management services) the Channel Islands. He believes Canaccord’s three pillars – wealth management, brokerage and investment banking – make it distinctive. Leading competitors in mid-market activity mostly have focused business models as private banks, pure brokers on the London Stock Exchange (LSE) and its growth companies market AIM, or boutique advisory firms. And the European business can draw on Canaccord’s wider network including its Canadian home market and offices in the US, Singapore, Hong Kong, Beijing and Australia.

Mr de Rosnay believes the legacy Hawkpoint business – an advisory firm acquired by Collins Stewart in 2006 – has given Canaccord a strong platform in merger and acquisition (M&A) advisory. Deals won recently include one that he is particularly proud of: advising the owner of French care home operator Orpea on the sale of a 15% stake to the Canada Pension Plan Investment Board for €321m in December 2013 and a subsequent €100m capital increase.

“That deal really showed the full range of our capabilities. We brought in one of the most respected Canadian investors, which is known for its long-term perspective, it was a cross-border deal and we won the follow-on business of a capital raise. The deal size was right in our sweet spot, and we won it in the teeth of competition from French domestic players,” he says.

Finding room

Mr de Rosnay is confident that there is room for an investment bank with those characteristics, capable of helping mid-tier European companies to find institutional investors or strategic buyers not just in Europe, but in the Americas or Asia if appropriate. That space is growing as some of the bulge-bracket firms retreat from forays into mid-market business made during the quiet markets immediately after the financial crisis.

“We are quite happy working joint books with the bulge bracket on IPOs, we bring different qualities to the table and we gain a lot from good relationships with them. On the M&A side, we saw the big banks recalibrate to the mid-market during the hard times, but they have exited quickly because the deal sizes do not move the needle for them in terms of revenues, given the size of their teams,” says Mr de Rosnay.

Where larger banks compete more directly is on staff, and Canaccord must juggle the need to deliver shareholder returns against the desire to grow and retain the right team. Mr de Rosnay says his firm inevitably has to work with a smaller budget, but there are other ways to attract talent.

“We are 52% staff-owned, and that helps to give things a very different feel to a bulge-bracket firm. It is easy to get access to all levels of the company without having to go through several layers of management, which means we can take decisions quickly. If the business is progressing, we can use the excitement and the growth to get people on board, everyone has an appetite to make things work,” he says.

Growth business

At the moment, the European operations are helping to offset slower activity in the firm’s traditional core natural resources business, where declining commodity prices are dampening the market. Canaccord Genuity has already established a good track record in technology and financial services, with a growing presence among retail and consumer companies.

In November 2013, LSE chief executive Xavier Rolet addressed an IPO conference organised by Canaccord Genuity. Mr de Rosnay believes London is increasingly persuading technology companies that it can offer an attractive alternative to the US Nasdaq market with liquidity that is just as good. Telecoms and utilities companies tend to be too large to suit a mid-market firm, but Mr de Rosnay says healthcare, leisure, industrials and business services sectors should all provide the right kind of opportunities for Canaccord in Europe.

And while fixed income is usually seen as the domain of large balance sheet banks, Canaccord is gradually establishing a presence. The firm is already strong in debt advisory work – a staple of the independent investment banks. Most recently, it advised European coffee shop group Caffe Nero on a refinancing of more than £278m ($464.59m), with a syndicate that included both leading global banks and institutional debt funds. It also provided a fairness opinion for bondholders on a restructuring offer presented by the new owners of the UK’s Cooperative Bank in 2013.

In the bond markets, Canaccord has a presence in retail bond origination and trading, with a lead manager role on a £60m retail bond offering by UK buy-to-let mortgage provider Paragon that closed in February 2014. It also has some distressed debt trading capabilities. Mr de Rosnay says there are careful moves afoot to expand its fixed-income presence.

“We frequently ask ourselves what we could do around fixed income, and we recently announced the constitution of a team of about 35 staff in the US focused on high-yield origination and trading. We are open to thinking about going further, as it can certainly be useful for the corporate advisory business. But it is something that we would consider doing over time with some internal reshuffling rather than hiring whole teams,” he says.

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