Slowing world economies and sliding asset markets mean shrinking opportunities for corporate finance work this year. Or do they?
As the financial turmoil that began with U.S. sub-prime mortgage loans broadens into a global economic and credit crunch, business headlines in the first week of 2008 warned dealmakers to batten down the hatches and get ready for a lean year.
However, the outlook isn't all doom and gloom. In fact, the balance-sheet debacle facing Wall Street and its European counterparts also creates deal opportunities - and not only for bottom-fishing investors like distressed-debt hedge funds.
Here are some areas where demand for corporate finance bankers may pick up in 2008:
Convertible Debt Offerings from Financial Companies
To cope with sub-prime's hit to their balance sheets, a long list of U.S. and European banks may turn to selling convertible bonds or preferred stock. These instruments improve balance sheets in much the same way as sales of common stock, but cause less downward pressure on already battered share prices. Both Fannie Mae and Freddie Mac went this route late in 2007, as did Citigroup when it sold a $7.5 billion stake to the Abu Dhabi Investment Authority via convertible securities. "Given the current tumult in the wider credit world and the cautious sentiment in the equity markets, convertible bonds are likely to become a speedy, cost-effective and liquid financing alternative," the Financial Times says, citing comments from senior bankers at JPMorgan and Barclays.
New York, London... Or Neither?
London and New York continue their sometimes confusing, usually pointless war of words over which one is the real king of the hill for stock offerings.
Earlier this decade, London's capture of the largely symbolic title turned into a political hot potato in the U.S. For 2007, Dealogic data indicate the major U.S. stock exchanges retook the lead in value of initial public offerings, according to another FT story. Last year's $54 billion of IPOs on the New York Stock Exchange and Nasdaq combined was the highest since the Internet boom years. Meanwhile, IPO issuance on the London Stock Exchange and its Alternative Investment Market came in at $52.2 billion. "The figures suggest recent efforts to improve the regulatory regime in the U.S. are paying off," Financial News says, while noting that the 241 IPOs sold in London exceeded New York's 220.
For its part, the LSE claimed bragging rights for hosting 86 international-company IPOs from 22 countries through Dec. 14, totaling 14.5 billion ($28.6 billion, based on the Jan. 4 exchange rate), also based on Dealogic data. That was reportedly more than double the number and volume of non-U.S. company offerings sold on the NYSE and Nasdaq.
Emerging Markets - Especially (Surprise!) China
A report by Ernst & Young, cited in the China Daily, indicates that China was the real king of IPOs in 2007, raising $54.4 billion through Nov. 30. Worldwide, IPO volume rose 4 percent to record $255 billion. China made up 21 percent of the total.
Of the world's 20 biggest IPOs in 2007, 14 involved companies from emerging markets. Since the vast majority of large IPOs are transacted in the issuing company's home market, it's not surprising that both New York and London account for a smaller share of the global IPO pie in recent years.