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Choosing the Right Underwriter
24 November 2011
The First Steps
2
Request for Proposal (RFP)
Can either be written by the company or by an already closely-associated bank
In case of Russian equity transactions, some key criteria are the following:
• Experience in Russian IPOs / all equity transactions
• Experience in IPOs / equity transactions in the relevant sector
• Research analyst and ranking
• Marketing and distribution capabilities
• Team on the ground to execute the transaction
• References from previous transactions
• Fees and syndicate structure
RFP Process
Draft RFP
Banks Submit
Responses
Short-list
Top Banks
“Bake-off”
Presentations
Syndicate
Selected
Deal Value ($ Bn)
0.5
0.6
0.6
0.9
0.9
1.1
1.1
0 1 2
RenCap
Credit Suisse
JPMorgan
VTB Capital
Deutsche Bank
Goldman Sachs
Morgan Stanley
Deal Value ($ Bn)
How Experienced are the Banks?Sorting through the maze of credentials
3
Key Elements to Take into Account when Assessing Credentials
• Russian equity market effectively opened in 2005
• Just as important is to ask for most recent (last 12 months) list of transactions executed by the bank
– You want to hire a bank, which has not only relevant but also recent experience in selling deals
• League tables:
– Likely to show that every bank is #1 in every area
– Set out very clear parameters for league tables such as specific number of years, exact region, IPOs only / all equity / including, excluding equity – linked transactions
Deal Value ($ Bn)
3.5
3.5
4.0
4.0
6.6
9.1
7.7
0 5 10
Citi
JPMorgan
Credit Suisse
Goldman Sachs
RenCap
Deutsche Bank
Morgan Stanley
Deal Value ($ Bn)
Russian IPOs since 2005
Source Dealogic
Number of Deals
Russian IPOs last 12 months
4
4
4
4
4
4
5
Number of Deals
6
6
16
8
24
24
23
Source Dealogic
The Transaction TeamIt’s a long process ahead, so make sure you feel comfortable with the working group
4
Team on the Ground to Execute Your Transaction
• Important to know which individuals will be running the deal
– Determine the relevant language requirements; will the project be run in Russian?
– Make sure not only the coverage banker speaks the language, but ideally equity capital markets and industry bankers as well. This will ease the communication day to day
• Do not be afraid to hire teams of advisers that will disagree with you, they are not being paid to be your “yes men”
• References:
– Ask for these and actually call the people whose contact details were provided
Selling the Deal to InvestorsA bank’s relationship with key investors is often crucial for closing a deal
5
Key Criteria for Research and Distribution
• Research:
– Analyst ranking (Institutional Investor Survey, Extel)
– Experience of deal research
• Distribution:
– Russian banks traditionally have higher trading share, especially when it comes to local lines of stock
– Most banks have good access to fund managers
– What is key however, is up-to-date knowledge of investors, which are willing to invest money at any particular moment in time
– This knowledge comes only from doing recent deals
Syndicate Size and Fees
6
Fees:
• Cheapest does not mean best: “you pay peanuts, you get monkeys”
• Market rate is fair
• Be fair about payment of the incentive
Syndicate size & composition
• Depends on size of the transaction, though the tendency for Russian deals has been toward larger syndicates, with Europe exhibiting a similar trend
• Larger syndicate does not mean better syndicate. Find a balance
• At least one Russian bank in the syndicate has become the norm
– 73% of deals in 2011 have had a Russian bank as opposed to 48% from 2005 to 2010(1)
• Global coordinators / Bookrunners / Co-bookrunners / Co-lead managers
– Look at precedents and speak to your trusted advisor to create right syndicate structure
Average Syndicate Size for Russian Equity Deals(1)
2011 YTD
2005–2010
Deals <$750 MM
Deals >$750 MM
2.7 3.5
1.8 3.0
Average Syndicate Size for European Equity Deals(1)
2011 YTD
2005–2010
Deals <$750 MM
Deals >$750 MM
1.8 3.3
1.5 2.6
Notes
1. Deals larger than $100 MM and excluding rights issues