Barclays Capital: Capital Guidance
With bank capital in short supply, acquisition financing now relies heavily upon intelligent use of the capital markets. Matthew Ponsonby, Mark Lewellen and Peter Bulbrook tell Elly Earls why Barclays Capital, with its integrated financing and advisory services, is perfectly placed to guide companies through the M&A process.
Two years ago, acquisition financing was a very different business. A combination of equity and debt, generally in the form of bridge financing and based on credit ratings, was put in place to target the optimal capital structure for companies post-acquisition. After syndicating the facility out into the loan market, an orderly period of bond market re-financing followed, which in some cases could last 12-18 months. Banks were readily putting up significant amounts of bank capital on a one-, three- or even five-year basis, happy to ride out the re-financing risk.
Fast forward to 2010 and the situation has changed considerably. "Now it's less about which deal to do, but more about how to get a deal done," says Matthew Ponsonby, co-head of M&A for Barclays Capital in Europe. "In an environment where you don't have unlimited free access to the bank's balance sheets, you need to be much more intelligent about how you structure your transaction to get a deal done in the prevailing market conditions; it's really all about the clever use of capital markets."
Barclays Capital, which has built an advisory business into the framework of an already successful financing firm, can offer clients an integrated perspective on acquisition financing.
"This is a real differentiator today as we come to give advice on M&A," says Ponsonby. "We're coming at financing from a very joined-up perspective, which is seamless right through from loan to equity. We can advise on which capital markets to access and how and when to access them. In order to do that, it is essential to have a very integrated business and have each part of the business talking to each other."
Peter Bulbrook, head of EMEA Loan Capital Markets, agrees. "It's important to have a wide ranging dialogue with clients; they need to engage with financial institutions that can talk them through whichever means they can access capital - be it bridge or syndicated loans, bonds, equity and so on."
Early re-financing is one of the main trends that has been noticed by Barclays Capital; in such a strong credit market, it is possible to re-finance quickly and efficiently, so business is being structured to incentivise early re-financing. "The tendency now is to structure your acquisition finance package with an element of quick access into the capital markets," notes Mark Lewellen, head of European corporate origination at Barclays Capital.
However, when it comes to M&A transactions, it is vital to remember that the market conditions of the coming months (and sometimes years) still need to be taken into account. "You've got to think through all the possible outcomes of the market changing and you have to give yourself flexibility and think about the target capital structure that is going to withstand the cycle," Lewellen explains.
Markets are moving fast, making it essential for the advisory sector of Barclays Capital to coordinate with colleagues across the bank. "We work very closely with the global finance team, because in order to know how to get a deal done and think about the appropriate capital structure, you need to have a very clear understanding of the mood of the market," Ponsonby remarks. "You have to be in the market to really understand where it is at any given point."
2009 was a record year for equity issuance in the UK with companies increasingly focusing on issuing equity to refinance the balance sheets and Ponsonby is confident that the next wave of equity is going to be inextricably connected with M&A. "As boards think about deals, they're thinking about the impact across all stakeholders; they're concerned with how the broad markets, as well as the equity markets, will look at the deal," he says.
"It's very much a case of formulating the structure of a deal so that it will have optimal reception across a range of market commentators and a range of interested parties – as well as getting it done from a technical M&A point of view. And we feel that Barclays Capital is enormously well-placed to provide advice to corporates on this subject."
For Bulbrook, the current market conditions are ideal for M&A activities. "We're confident that sizeable M&A transactions can be executed in the market," he concludes. "Whether it's through underwritten bank financing or bridge financing to debt capital markets, we're confident that they can be financed successfully."