Financial Post, Barry Critchley, 29 January 2007
Raising equity capital is the most financially rewarding part of the underwriting business. As a rule the dealers can expect to pocket at least 4% for their efforts. And the fee often goes higher when the underwriters sell stock on behalf of less-well known or junior issuers. In those situations, the basic fee could be 6% to 7%, which rises when so-called underwriters warrants are issued to the firms doing the underwriting.
Because of the larger-than-normal fees, the business is also very competitive with lots of firms chasing the same customers.
For 2006, there is a new name at the top of the leaderboard: after many years of swallowing the dust of perennial winner CIBC World Markets, RBC Capital Markets emerged as the leading equity underwriter on the basis of awarding the full credit to the book runner. On that basis, the book runner receives the full value of the amount of capital being raised while the other members of the syndicate receive nothing.
For the year, RBC ran the books on 94 equity financings; those deals raised $8.586 billion. Its biggest deals included:
Teranet Income Fund (a $762 million deal where it shared the book-running duties with CIBC); Pengrowth Energy Trust (which did two deals, one for $526.8 million and the other for $461.0-million); Air Canada (a part treasury, part secondary issue for $525 million that amounted to the initial public offering for the country¹s largest airline. TD Securities and Citigroup were the joint-book runner.); Addax Petroleum (the African-based oil producer was involved in two deals, a $450 million initial public offering and a $401 million issue done in August to help fund the purchase of Pan-Ocean Energy) and a $430 million offering by Oil Sands Sector Fund, the largest structured product offering for the year.
In all, RBC was either the book runner or joint book runner for six of the largest 10 common equity deals in 2006.
CIBC World Markets was in second place with 111 deals for $7.715 billion. TD Securities -- 52 deals for $3.549-billion -- was in third place, its highest ranking in many years.
GMP Securities -- a non-bank publicly listed income trust -- posted a banner year: It ran the books on 72 deals which raised $2.841 billion. That performance was good enough for fifth place on full credit to book runner.
(Indeed on this basis five of the top 10 firms last year were non-bank.) National Bank Financial, the smallest of the Big Six banks ended up in eleventh place.
Overall for 2006, $45.377 billion of equity capital was raised for our tables equity capital includes common shares, preferred shares, units of limited partnerships, units of income trusts and structured products.
Compared with 2005, RBC added 2.66 percentage points of market share in 2006. It ended up with a 19.26% share on 6% more business. The 2005 winner, CIBC lost 5.42 percentage points to market share while its business dropped by 29%.
A closer look at the numbers reveals that CIBC World Markets has much to be pleased with: On the so-called syndicate basis, it was the top-ranked firm last year. The syndicate basis is a measure of how much equity capital a particular firm actually placed. Accordingly, it is the aggregate measure of how much a particular firm sold for all its corporate clients for all the deals in which it was involved. As such is a measure of how much the firm got paid for doing what it does.
On that basis, CIBC was a syndicate member for 250 equity financings and raised $4.985- billion. RBC was in second place with 191 deals which raised $4.890 billion. BMO Nesbitt Burns -- which was the fourth ranked firm on the basis of full credit to book runner -- emerged in third place under this basis with 260 deals for $4.222 billion.
The numbers show that Canaccord Capital was the most active firm: It was in the syndicate for 425 financings. When the equity tables are broken down even further more interesting detail is revealed.
For instance: When issues of common shares are considered in isolation two independent firms, GMP and Canaccord, topped the poll. (For GMP, that result is a repeat of 2005.) The former ran the books on 69 deals which raised $2.751 billion while the latter weighed in with 120 deals for $1.869 billion.
Indeed, six of the top 10 firms were non-bank owned. Merrill, Sprott, Peters & Co. and Orion Securities were the other four non-bank owned firms to place in the top 10.
Part of the reason for the dominance of the non-bank owned firms was that 2006 was a year for the miners. GMP and Canaccord are both strong in that sector. For instance: Blue Pearl, ($230-million by GMP and UBS); Silver Wheaton (two deals, one for $228.6 million and another for $199.7 million, both done by GMP); Coalcorp Mining ($207 million by GMP and Canaccord); Yamana Gold ($200 million by Canaccord and Merrill); Ivanhoe Mines ($189.2 million by BMO and GMP); and Eldorado Gold ($186.3 million by Orion) were all in the top 20 by size.
Kevin Sullivan, chief executive officer at GMP Capital Trust, said 'our number one ranking in common equity underwriting is a testament to our growing franchise and our strong commitment to the Canadian mid-market, which generated much of the financing activity in 2006. We continue to build our own franchise by helping great Canadian growth companies with their capital market needs, he added.
Four bank-owned firms -- RBC, BMO, TD and CIBC -- were in the top 10 with RBC (25 deals for $1.579-billion) being the leader. Its big deals were Air Canada ($525-million split three ways); Addax (two deals for $902-million split three ways); First Uranium ($203-million) and Yamana Gold ($200-million) and NovaGold ($200.8-million split three ways.) National Bank (10 deals for $215.6-million) and Scotia Capital (one deal for $134-million) finished 27th and 33rd respectively. Scotia (whose one deal was for Addax) has already led three common equity deals this year.
For issues of income trusts, bank-owned firms filled the top six slots:
CIBC was the winner -- 32 deals for $4.196-billion -- comfortably ahead of RBC (26 deals for $3.436-billion). CIBC's larger trust issues included: Teranet ($762-million as a joint book runner); Canetic Resources ($690-million with three book runners); Harvest (two deals, one for $230-million of equity and the other for $638 million of units and convertibles); Yellow Pages ($381-million of equity done jointly and a $300-million convertible also done jointly); Enerplus ($253.5-million); Jazz Air ($250-million done jointly); and Calloway REIT (one for $226.1-million and another for $225-million.)
When issues of common shares and income trust units are added together, RBC emerged as the winner -- 51 deals for $5.015-billion, just ahead of CIBC: 54 deals for $4.967-billion.
Initial public offerings were dominated by income funds. For 2006 there were 27 offerings which raised a total of $7.695-billion. Teranet ($762-million), Jazz Air ($250-million), Resolve Business Outsourcing ($225-million), Crombie REIT ($215.1-million) and Supremex ($200-million).
RBC was the winner: seven deals for $789.3-million, while Canaccord did the most: 37 deals for $316.1-million.
There were 93 IPOs by corporations with Air Canada ($562.5- million); Addax ($450.5-million); North American Energy Partners and First Uranium ($233.5-million) all doing deals of at least $200-million. RBC was the leading firm in terms of corporate IPOS: seven deals for $1.029-billion.
__________________________________________________________
Financial Post, Barry Critchley, 29 January 2007
RBC Capital Markets, the securities unit of the country¹s largest financial institution, Royal Bank of Canada, was the leading underwriter of Canadian corporations and governments for 2006 in the annual underwriting rankings compiled by the Financial Post. RBC was also the winner in the 2005 rankings.
According to the FP Data Group, RBC Capital Markets was the lead underwriter and/or book runner on $41.590-billion of corporate and government financings last year.
In all, the firm led 264 financings last year -- or more than one per working day. Last year Canadian companies and governments raised $205.277-billion of capital -- about $800-million per working day.
Accordingly RBC had a 20.26% market share of the 2006 financings. In 2005, its market share was 18.48%.
"It has been a great year for us. We thank our clients for giving us the opportunity to do the business that we did," said Charles Winograd, chief executive at RBC Capital Markets.
"We are working hard to ensure sure that we have the horses to take care of our clients¹ needs in 2007 and beyond. We want to stay one step ahead of the game," he added.
RBC's performance placed it comfortably ahead of second place TD Securities. That firm -- on either a full credit to lead manager and/or book runner -- was involved in 167 deals which raised $27.595-billion. (Its market share was 13.44% versus 11.77% in 2005.)
For TD its 2006 performance meant it went one better than it did in 2005: back then it finished third behind CIBC World Markets. In 2006, CIBC World Markets finished third with 189 deals for $23.437 billion. Its market share in 2006 was 11.25% compared with 17.05% in 2005.
Says Bob Dorrance, chief executive at TD Securities: We are really focused on helping our clients perform and we thank them for their trust and confidence in us to do so. We have focused on providing integrated solutions that best meet our clients’ needs on a competitive basis. Credit, equity, fixed income, foreign exchange, derivatives, M and A advice -- our promise is to provide the best solution to meet our clients' needs. RBC, TD and CIBC were significantly ahead of fourth-placed BMO Nesbitt Burns, whose 121 deals raised $16.871 billion. BMO was also fourth-ranked in 2005.
Rounding out the top five was National Bank Financial: 72 deals for $15.454 billion. For NBF that performance was one better than what it achieved in 2005.
NBF replaced Scotia Capital in the top five in 2006. Scotia ran the books on 89 deals last year which raised $13.379-billion with a market share of 6.52%. In 2005 its market share was 10.12%.
The next four places in the rankings were filled by foreign firms. As with 2005, Merrill Lynch was the top performing foreign firm with a seventh- place finish in 2006 and a market share of 5.76%. In 2005, its market share was 5.06%.
The bulk of the $205.277 billion of capital raised last year was for corporations. That group scooped up $132.111 billion -- $45.377 billion of equity and $86.735 million of debt. As expected, the domestic markets provided most of the corporate capital: All but $32.563 billion came from the local market.
RBC was the leader of the pack for corporate issues: On a full credit basis it led 217 transactions which raised $28.272-billion (a 21.40% market share).
RBC was the leader for both equity issuance - its 94 deals raised $8.586-billion -- and debt issuance - where its 123 deals garnered $19.687-billion.
CIBC was number two in equity and number four in debt. (TD and BMO were second- and third- ranked in corporate debt.) Measuring the different dealers by what they actually underwrote or more specifically the underwriting liability the different firms took on generates a different result. On that measure CIBC was at the top of the pile for equities: It was in 250 syndicates and assumed $4.985-billion of liability. RBC was in second place: 191 deals and a collective liability of $4.890 billion.
To show the importance of income funds, in 2006 six of the largest 10 deals were either for income funds or structured products. RBC ran the books - either solely or jointly -- on six of the top 10 deals. CIBC was second with four; TD third with three and Merrill Lynch with two (Brookfield Properties and Addax Petroleum.)
RBC was also the leader for taking companies and/or trusts and/or structured products public. In 2006 it led 39 deals which raised $3.333-billion, comfortably ahead of second-place CIBC: 50 deals for $2.539-billion.
For underwriting corporate debt, five of the top 10 firms were foreign-based, with Barclays Bank PLC being the top-rated bank: seven deals that raised $4.971-billion. Its three largest deals were Xstrata Finance Canada ($1.974-billion ); ConocoPhillips Canada ($1.415-billion) and CIBC ($1.254-billion.)
Citigroup (17 deals for $4.311-billion); Merrill Lynch (32 deals for $3.711-billion); J.P. Morgan (13 deals for $3.550-billion) and CreditSuisse (19 deals for $2.826-billion) were the other foreign-based banks to rank in the top 10 for underwriting corporate debt.
A $2.761 billion offering by Bombardier was the largest corporate debt deal in 2006. Overall $55.840 billion of corporate debt -- representing 64.38% of total corporate debt raised -- was gathered in Canada.
Among asset-backed securities -- and $12.540 billion was raised in this form -- BMO Capital Markets was the leading firm, comfortably ahead of RBC.
Canadian governments raised $73.165 billion of capital last year. While RBC was the best performer -- 47 deals for $13.318 billion -- National Bank Financial emerged in second place with 33 deals for $11.973 billion.
Two other firms -- TD and CIBC -- were the lead manager on deals that raised more than $10-billion. Four foreign firms -- Merrill Lynch, Deutsche Bank, Citigroup and Barclays Bank -- were in the top 10.
Issues by Canada Housing Trust dominated government sector financings: The issuer -- a special purpose securitization trust advised by Canada Mortgage and Housing Corporation -- taps the market on a quarterly basis.
In 2006 it raised $25.15-billion via the sale of Canada Mortgage Bonds. (The issue in December raised $8.1-billion, the largest issue in Canadian history).
The issuer uses the proceeds from those financings to buy mortgages packaged into MBS from sellers, which are typically financial institutions.
__________________________________________________________
Financial Post, Duncan Mavin, 29 January 2007
Codename Seven, co-led by Royal Bank of Canada and U.S. powerhouse Goldman Sachs, was a $900-million initial public offering, guzzled down by investors around the globe. It involved a Canadian cultural icon, and was one of the most lucrative transactions anywhere in the world in the food and beverage sector.
The transaction was, of course, the Tim Horton’s IPO -- the project name “seven” a reference to the number of the jersey worn by the founder of the coffee and doughnuts chain when he played for the Toronto Maple Leafs.
RBC’s involvement was the payoff from years of relationship building -- at Tim Horton’s in Canada and at Wendy’s International Inc. in the United States -- and the bank’s investment in a global platform, such as a food and beverage research team in Atlanta, said Michael Norris, deputy chairman at RBC Capital Markets. But what finally helped secure RBC’s involvement in the U.S.-based deal was being Canadian.
“Unless you live here, you can’t understand the value [of the Tim Horton’s brand,]” Mr. Norris said.
“My 86-year-old mother and her buddies go to Tim Horton’s. My two sons’ favourite place of anywhere to go for lunch is Tim Horton’s. When the family goes to the cottage in different cars we all meet up at Tim Horton’s. It’s really part of the Canadian fabric.” The mega-deal doesn’t make the cut for the Financial Post’s domestic dealmakers league table because Tim’s was spun out into a U.S. company.
If Tim’s was added to the dealmakers’ league table, RBC would clearly have another huge chunk of business to add to its total. But what the deal indisputably shows is how Canada’s investment banks can use global networks to leverage domestic expertise and knowledge.
“League tables are important but equally important is our ability to grow our business outside of Canada,” said Tom Millroy, co-president of Bank of Montreal Capital Markets.
The firm has offices in 26 cities around the world, including Beijing, Rio de Janeiro, Shanghai and Melbourne. Internationally, BMO’s expertise as a Canadian bank in the mining and energy sectors are particularly useful marketing tools, Mr. Millroy said.
BMO’s investment bank makes more than half of its revenue and more than a third of its net income outside of Canada, and is looking to grow overseas, he said. And BMO’s not the only investment bank with bigger global ambitions.
In November, GMP Capital Trust chief executive Kevin Sullivan also talked up his firm’s international intentions.
The opening of an office in London that targets the small and mid-sized business on the U.K.’s Alternative Investment Market, “furthers [GMP’s] ability to execute on an international scale and is the next in our multi-stage effort to diversify and expand our core business to better serve our clients,” Mr. Sullivan said.
Canaccord Capital Inc. also expanded its London securities business in 2006, moving to larger premises to accommodate its growth there. The independent broker also purchased Adams Harkness, a Boston-based securities firm, during the year.
Philip Smith, head of corporate and investment banking for Scotia Capital, said his firm is using its homegrown expertise -- in energy and oil and gas -- to expand into overseas markets.
“Globally, those two sectors are our focus. The reason for that is those are two sectors where we have competitive advantage and there’s critical mass in Canada,” said Mr. Smith.
The policy is reaping rewards. Just last week, U.S. independent oil and gas producer Devon Energy Corp. said it has engaged Scotia Waterous -- the Calgary-based oil and gas M&A specialist Scotia acquired in 2005 -- alongside Goldman Sachs & Co. to sell Devon’s assets in West Africa.
RBC, too, has continued to invest in its overseas investment banking services during the year, snaffling up Daniels & Associates, L.P. a Denver, Colo.-based advisor to the cable, telecom and broadcast industries in November.
Daniels completed more M&A transactions within the cable, telecommunications and broadcast sectors in the United States than any other investment bank over the past six years, said RBC.
Meanwhile, RBC’s Mr. Norris said last year’s mega-deal with Wendy’s shows the value of a decade long strategy of overseas expansion.
“We’ve invested in a global platform and this is how we see a return on it,” Mr. Norris said. For RBC Capital Markets, the Tim Horton’s transaction was last year’s “icing on the cake.”
__________________________________________________________
Globe and Mail, Boyd Erman, 29 January 2007 (Source: Thomson Financial)
• Top five IPOs of 2006 Date Company Proceeds Lead
(U$ millions)
Mar 23 Tim Hortons $772.5 RBC CM, Goldman Sachs
Jun 07 Teranet Income Fund 684.1 RBC CM, CIBC World Markets
Nov 16 Air Canada 461.1 Citigroup, RBC CM, TD Securities
Nov 21 North Am Energy Ptnr 222.0 Credit Suisse, UBS, Jefferies
Feb 02 Jazz Air Income Fund 218.4 RBC CM, CIBC World Markets
• Top five IPO underwritersRank Proceeds Market Num of
(U$ millions) Share Issues
1 RBC Capital Markets $1,795.2 33.8% 13
2 CIBC World Markets 839.1 15.8 8
3 TD Securities 807.1 15.2 12
4 Goldman Sachs 386.2 7.3 1
5 Canaccord Capital 189.2 3.6 6
Industry Total 5,315.6 61
• Top 15 financial advisers on Canadian M & A:2006 2005 2006 Value Market Num of 2005 Value Market Num of
Rank Rank (U$ million) Share Deals (U$ million) Share Deals
1 2 CIBC WM $65,943.70 28.8% 56 $30,471.60 22.7% 54
2 9 JP Morgan 60,520.10 26.4 28 14,264.30 10.6 14
3 1 RBC Cap Mkts 53,477.40 23.4 46 32,587.10 24.3 33
4 6 Morgan Stanley 47,675.30 20.8 13 22,408.20 16.7 13
5 4 Goldman Sachs 47,407.40 20.7 24 24,880.60 18.6 17
6 5 UBS 43,983.80 19.2 26 22,613.70 16.9 19
7 15 Credit Suisse 38,903.80 17.0 16 6,113.90 4.6 17
8 11 Citigroup 33,162.20 14.5 16 10,338.00 7.7 13
9 7 TD Securities 31,933.40 13.9 21 18,473.80 13.8 26
10 12 Deutsche Bank 30,772.40 13.4 8 9,867.20 7.4 5
11 3 Merrill Lynch 25,668.00 11.2 12 26,095.10 19.5 14
12 10 Scotia Capital 24,409.90 10.7 29 11,692.30 8.7 26
13 16 GMP Securities 21,946.80 9.6 39 6,050.10 4.5 18
14 75 ABN AMRO 20,480.40 8.9 3 32.40 0.0 1
15 - Santander Inv 20,335.00 8.9 2 - - -
Industry Total $229,056.10 2,910 134,044.10 2,327
• Top ten equity issues:Date Company Proceeds
(U$ million)
Dec 12 Brookfield Properties $1,254.0 Merrill Lynch, JP Morgan
Mar 23 Tim Hortons 772.5 Goldman Sachs, RBC CM
Jun 07 Teranet Income Fund 684.1 RBC CM, CIBC WM
Sep 18 Pengrowth Energy Trust 471.4 RBC CM
Nov 16 Air Canada 461.1 Citigroup, RBC CM, TD Securities
Aug 02 Canetic Resources Trust 408.3 TD Securities, CIBC WM, BMO CM
Dec 08 Pengrowth Energy Trust 400.2 RBC CM
Aug 18 Addax Petroleum 359.1 Scotia Capital, RBC CM
Aug 22 Yellow Pages Income Fund 341.8 CIBC WM, BMO CM, RBC CM, Scotia Cap
Oct 25 Harvest Energy Trust 337.6 TD Securities, CIBC WM
• For companies incorporated in Canada:Rank Proceeds Market Share Number of Issues
(U$ million)
1 CIBC World Markets $4,437.10 17.9% 51
2 RBC Capital Markets 4,356.40 17.6 44
3 TD Securities 2,702.00 10.9 40
4 BMO Capital Markets 1,880.40 7.6 36
5 GMP Securities 1,675.20 6.8 44
6 Canaccord Capital 1,385.40 5.6 35
7 Merrill Lynch 1,367.10 5.5 7
8 Scotia Capital 1,080.80 4.4 20
9 National Bank Financial 722.70 2.9 18
10 JP Morgan 702.00 2.8 2
Industry Total $24,765.80 334
• For companies headquartered in Canada:Rank Proceeds Market Share Number of Issues
(U$ million)
1 RBC Capital Markets $4,531.60 18.6% 43
2 CIBC World Markets 4,405.80 18.1 50
3 TD Securities 2,677.30 11.0 39
4 GMP Securities 1,643.90 6.8 43
5 BMO Capital Markets 1,590.70 6.5 34
6 Canaccord Capital 1,315.90 5.4 34
7 Merrill Lynch 1,171.10 4.8 6
8 Scotia Capital 1,080.80 4.4 20
9 National Bank Financial 722.70 3.0 18
10 JP Morgan 702.00 2.9 2
Industry Total $24,326.00 325
Every year, investment bankers spend endless hours fighting with rivals at other firms to win deals.
But when the year ends and the deals are done, the battle shifts into a new phase -- a lobbying fight to determine who gets the bragging rights as the busiest bank of the year.
Arguments rage and debates swirl over tiny points that could lead to the inclusion or disqualification of deals that might put one bank or the other over the top.
The discussions can get heated because, besides bragging rights, millions of dollars are at stake. Being recognized in rankings at the top gives investment banks something to point to when they pitch companies for business, and bankers something to point to when they pitch for big bonuses.
The battle for the 2006 title of top bank in the business of selling new stock and trust units to investors was among the most intense in memory, with the race very tight between 2005's winner, CIBC World Markets Inc., and rival RBC Capital Markets.
RBC, sensing a chance to dethrone CIBC, launched an intense campaign to fight for the inclusion of one of its own big deals -- the initial public offering of Tim Hortons Inc. -- and the exclusion of some CIBC transactions.
It may seem hard to believe, but Tim Hortons, under the rules of the rankings, didn't qualify as a Canadian deal. RBC set out to change that.
The firm argued that Tim Hortons is as Canadian as a maple-glazed doughnut and a double-double. The company was founded by a pair of Canadians, and its red-script insignia is ubiquitous in the True North strong and free.
Most of the doughnuts are sold to Canadians, as was most of the stock, RBC pointed out in numerous letters, presentations and phone calls to Thomson Financial, which compiles the rankings.
The problem lies with the "Inc." in Tim Hortons Inc. For all its Canuck pedigree, the company is incorporated in the United States.
By the rules of the rankings, only companies incorporated in Canada count in the results.
CIBC argued that rules are rules, and Thomson shouldn't change them mid-game.
In the end, Thomson stuck by its ruling and Tims was out.
Thomson did relent, however, and agree to publish a second ranking by nation of headquarters, which would include Tim Hortons.
RBC then launched a last-minute challenge to have some CIBC deals excluded, arguing that transactions done by CIBC World Markets for a company called Central Fund of Canada Ltd. shouldn't count.
RBC said Central Fund, which holds bullion, is more like a type of mutual fund than a company. CIBC, along with Central Fund's management, countered that Central Fund has a business, has always been treated as a company and should stay one in Thomson's eyes.
Deliberations went back and forth for more than two days, with Thomson reviewing reams of evidence. After all the conference calls and flurries of e-mails, Thomson made its call. Central Fund was in.
The final official tally shows CIBC leading 51 issues that raised $4.44-billion (U.S.) for Canadian companies, while RBC trailed with $4.36-billion and 44 issues.
RBC, while it fell short of winning the overall game, did lead the most IPOs, running offerings for Addax Petroleum Corp. and Teranet Income Fund, in addition to Tims.
With 2006's battles behind them, bankers will face a 2007 that may be very different. The government's decision to begin shutting down the income trust sector means that new trust unit sales, a CIBC specialty in recent years, may slow.
"We had a very leading position before trusts became the in-vogue product, but that's not to say we won't have to change some of our strategy," said David Leith, head of Canadian investment banking at the firm. "We clearly will."
Investors, especially those near retirement, will still want to get regular payouts, meaning 2007 could see big demand for dividend-paying stocks. "The overriding theme, which parallels the demographic situation we're in, is to focus on yield-oriented, cash-paying investments," said Roman Dubczak, head of equity capital markets at CIBC.
So far this year, there are some big offerings in the works, including one from TransCanada Corp. that could top $1-billion (Canadian) of new stock (on top of a pile of new debt) to pay for an acquisition of a U.S. pipeline network from El Paso Corp. Banks are already vying for a lead role on that transaction.
;
