The 24th ISLA conference is finally here. What does this securities lending event mean to Dealreporter?
For a start, we’re delighted to be hosting the networking lunch on 24 June. We’ve been a fixture at the International Â鶹´«Ã½ Lending Association for some years and have partnered our subscribers through tricky times from a regulatory perspective. Through our coverage of this terrain and examination of bank capital positions, we’ve followed the impact of leverage ratio changes in the wake of Basel III/Capital Requirements Directive (CRD IV) particularly closely.
But that landscape is settling, in our view, and with greater visibility comes the opportunity for securities lenders, beneficial owners and hedge funds to have confidence in their roles in this new world—and to benefit from the yield deriving from borrow plays around corporate events.
‘Corporate events’ is a broad landscape. What is your core coverage?
We are of course best known as a mergers and acquisitions (M&A) risk arbitrage market intelligence service, tracking shareholder stances, competition and other regulatory approvals and management friction—any and all risks that could see a deal come unstuck, or that could be overcome to unexpectedly see a merger close successfully.
Our core coverage areas also include special situations and equity capital markets (ECM) activity, including rights issues, block trades, convertible bond issuance and initial public offerings (IPOs), so essentially any corporate or shareholder exit situation that might create price moves and liquidity events. Our subscribers need to be ahead of the pack with such information to secure the best yield, regardless of their role within the securities lending universe.
Do you believe a qualitative approach is a route to yield in securities lending?
Of course. We know there are securities lenders tracking borrow availability, inventory and price signals. This is an essential and necessary pre-condition of operating in this space.
But it’s not enough. Having insight into potential corporate events before others in the market can price them in leaves you more yield on the table. It allows the price of a borrow to be established or secured more advantageously.
Knowing the lie of the land in securities lending is one thing. We provide insight and intelligence on those factors that will see that market topography shift. The first roundtable on 23 June will explore which markets and strategies will help generate incremental yield. Greater awareness of corporate and shareholder intentions is a vital tool in that arena.
Forward-looking insights are valuable by their nature. How do you aim to deliver them?
At Dealreporter, we have built editorial strength in depth—for Europe, this means a London headquarters, journalists in all financial centres, an additional layer of sector and transaction specialist reporters, and a team of analysts modelling the impact of our market intelligence. We are of course a global product, so our North America and Asia networks are built in the same image.
We provide our journalists with the skills, resources and freedom to investigate, with the proviso they come back bearing fresh intelligence that advances market understanding. Analysis can be helpful, but we major in news, which is why we are called Dealreporter. We report and break news.
Is negative news on a potential M&A deal the most valuable intelligence for securities lenders?
It’s certainly very actionable. In February, Dealreporter reported potential suitors for online gaming group Bwin.party appeared to have lost interest in buying the whole company. The story received widespread attention and the stock fell 20 percent. But our readers saw it first. We’ve followed up as the process revived amid moves by rival 888. Bid targets remain in the crosshairs even when one deal looks like it might fall through. That’s why we stay with a situation.
But hedge funds short on a stock need intelligence on stocks moving up as well as down, of course. Short covering ahead of competitors is preferable to doing it with the herd.
In April, we reported that Elliott Advisors was stake building in German-listed bid target DMG Mori Seiki AG, which saw that stock rise. This exclusive is typical of our journalists’ attention to detail. Chasing down that kind of information requires lightning speed and a cultivated source base. You need the movers and shakers at the end of the line and willing to talk shop in the 30 seconds they may have for you. Relationships matter enormously.
Rights issues can be hugely dilutive, but issuers are cagey about discussing them pre-event. How do you approach sourcing information on these transactions?
A transaction involves a buyer and a seller, and their intermediaries. At any given point, it will be in someone’s interest for more parties to be aware of the deal going ahead, even if not the seller’s. This is why we have a multi-layered editorial team with many different areas of expertise covered.
We cannot rely on company sources, deal advisors and shareholders or bondholders. We must triangulate between them all constantly to get the full picture.
An example of this approach was our multiple-sourced 28 May scoop on a potential capital increase at Italian energy services player Saipem. We reported that cash call pitches were coming from investment banks into the group’s oil major parent Eni, and flagged the share sale could climb up to €2.5 billion. Local press picked that up on 4 June, which saw the stock fall 13 percent, the shares suspended on Borsa Italiana and a short selling ban imposed by market regulator Consob.
Our subscribers had a whole week to adjust to this information before it broke.
With IPOs, the stock is not listed—presumably, your ECM coverage dovetails with fixed income lending strategies?
Plays on the credit quality of an IPO candidate naturally make our pre-listing ECM coverage highly actionable for securities lenders active in the fixed income space.
A lot of IPO reporting goes straight from the mouths of the syndicate desk offloading the stock onto the page: pilot fishing went well, it will price at a premium to peers, the book is multiple times covered, and so on. Again, by casting the net wider among our sources, targeting sector experts and advisors alongside buysiders, we can tell if an IPO is going well or badly.
French energy and engineering services player Spie is a private equity portfolio company. Its listing attempt in October 2014 saw Moody’s place its ratings under review for upgrade, given the capital raising IPO issuance it had planned. But we exclusively revealed the IPO was not finding traction with investors, even before the price range had been set. During bookbuild, we followed up with intelligence backing that initial view. As conditions improved, we had pre-event intelligence that investors were interested in putting their money to work in Spie in 2015 via a revived IPO, and that was borne out with a successful IPO earlier this month.
Our IPO intelligence offers numerous entry points for the securities lending universe.
Block trades are significant liquidity events, even if they are notoriously done and dusted in a matter of hours. How can market intelligence offer a route to play these situations?
Dealreporter is proud of its record innovating coverage to fill these sorts of gaps. This month, we launch an ECM Europe lock-up database, highlighting when stock post-IPO or secondary placement is free once again to be sold into the market. Running internally for some months, our analysts and reporters have already used the lock-up database to file previews where a stock placement looks to be on the cards.
On 19 May, we ran a piece highlighting outdoor goods manufacturer Thule Group’s private equity shareholder Nordic Capital might take advantage of an upcoming lock-up expiry, pointing to rationale given the stock price and the private equity firm’s recent outgoings.
At the time of writing, Nordic Capital has issued the final pricing statement on an accelerated placement of Thule stock, which is very pleasing for us and proves the value of this content.
Our proprietary analytics team had already successfully launched an IPO valuations pipeline, built with details gathered from our reporters’ market intelligence. This is emblematic of our pitch to the securities lending space.
In summary, we firmly believe the addition of our qualitative information into data models adds considerable value in the hunt for yield.
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