London not yet in the race for Facebook type flotations
WITH financial markets in a state of nervousness, the $104bn Facebook flotation appeared to be a godsend for the few investment banks involved. So far this year, investment banks’ equity advisory teams have had a pretty rotten time.
The year all started promisingly enough, with the Italian bank Unicredit managing to get a £6bn rights issue successfully away against all the odds and much of the received wisdom; then there was the Glencore/Xstrata £56bn merger and a number of US healthcare deals. But overall worldwide mergers and acquisitions business is down by 30 per cent.
In terms of new issues, the London market has been near dormant, although there has been some action in the oil and gas and natural resources sector. In 2011 more than half the issuance in the London market was in the oil and gas sector, according to Dealogic.
In the US, including Facebook, the picture is quite different. According to Dealogic again, US IPOs total $29.1bn, up 19 per cent from the same period last year. And of these, more than half the value, $18bn, is from technology floats. It is likely that a similar pattern is emerging in the far eastern markets where luxury flotations such as Graff Diamonds still seem to cut the mustard despite uncertain global conditions.
On Facebook Morgan Stanley got into pole position, where its highly respected team is headed by Michael Grimes. The other banks inevitably include JP Morgan, despite its recent trading problems, and, perhaps surprisingly, Barclays.
Yesterday those same banks were wondering whether their joy at being selected to work on the deal might be unwound by subsequent share price falls, as Facebook shares slipped. But most bankers would rather be on deals than miss out on them, even though their investors might have a different view.
As the dust settles on the Facebook flotation and bankers question who did well and why, they will also want to seek the answer to this question; will the UK, which does have pretensions to having its own Silicon roundabout, if not a Silicon Valley, ever be in the position of being the favoured destination for money-raising? If not, as one investment banker recently said to me, the UK technology base will inevitably drain away to where the money is.
david.hellier@cityam.com