2020 is turning out to be a mixed year for investment bankers. If you're an M&A banker, it's not so good, especially in Europe. If you're a capital markets banker who helps clients raise money through equity or debt issuance, it's better: issuance has been robust and investors have been surprisingly willing to look ahead to 2021.
The situation today is diametrically different to the situation we faced in 2008 and 2009. In the last financial crisis, there was almost no visibility on the future and capital markets were effectively shut for weeks on end. The secret this time is that some capital markets deals have been much easier to get done over Zoom than in person. This is particularly the case with follow-on deals from repeat issuers where there is familiarity with the parties involved and an existing base of documentation. These kinds of deals have picked up considerably during the pandemic.
Ongoing capital markets activity is one reason why we've been hiring. I'm based in New York City along with my entire team and I've been involved in a lot of online interviews throughout the COVID crisis. Many of the questions I ask are the same as ever: I want to know your story, why you want this seat. One question, though, is new and is becoming the definitive question of the crisis: Is the market recovery sustainable?
This is the big question now, and it's the one I ask all my candidates to get them talking. The big story this year is of course the speed with which markets have bounced back. The S&P 500 is on course for its best quarter in more than 20 years, but can it last? This is what everyone wants to know now.
There is, of course, no right answer. What I want you to do is to talk through the issues. Are markets irrational or rational given economic fundamentals and central bank intervention? Is this intervention sustainable? Before you step into a front office interview with me or anyone else today you need to ensure you've read around the topic thoroughly and have a well reasoned argument to make.
Personally, I think the climate for investment bankers at least is improving. There is a tonne of capital out there and many corporates are in good shape. As stabilization increases, you will get more companies looking to do deals. However, it won't all happen immediately. M&A deals take months to complete and are highly susceptible to the vagaries of the economic climate. You need a motivated buyer and a motivated seller. The buyer needs conviction that the sales and earnings of the target are good and will stay that way. The seller needs conviction that things aren't going to get any better and that they won't leave money on the table if they sell now. It's delicate and it's multidimensional; bankers are in the middle grappling with the variables.
Mostly of all though, for M&A deals to come back you need a few weeks' stability. The situation here in states like Arizona and Florida is a reminder that the virus hasn't gone away. This will set the dealmaking recovery back, but it won't derail it altogether. As we move through this, improvements will not be linear: there will be a few steps forward, a few steps back. This is going to be the future.
Ed Jones is the pseudonym of a managing director who leads a North America sector team for an international bank in New York
Photo by Evan Dennis on Unsplash
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