Powering ahead Equity Capital Markets update Winter 2020 - Deloitte
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Powering ahead Equity Capital Markets update Winter 2020
This European Equity Capital Markets update contains commentary on: recent European and Dutch stockmarkets performance in the wake of the COVID-19 pandemic; levels of European equity market issuance and macroeconomic considerations; and current hot topics in ECM. © 2020 Deloitte All rights reserved.
Contents Market performance 05 Equity issuance and macroeconomic considerations 08 Hot topic: The importance of the Equity Story 11 Hot topic: The rise of SPACs 14 Hot topic: COVID-19 – Valuation & Capital Market Impact Monitor 18 Deloitte Equity Capital Markets 21 About this report: This report contains data sourced from Deloitte’s Autumn 2020 European CFO survey, Bloomberg, Refinitiv, FactSet, Dealogic, company admission documents and press releases. ECM issuance data is as at 4 December 2020 and additional market data is as at 8 December 2020. All commentary is provided by Deloitte ECM Partners and Directors. 3 © 2020 Deloitte. All rights reserved.
Powering ahead | Welcome
Deloitte’s European Equity Capital Markets update
As Equity Capital Markets come to the end of a tumultuous year, an exit strategy to the COVID-
19 pandemic through effective vaccination provides a base upon which to power forwards
Equity markets look forward. Following the US Election, and positive Figure 2: European CFOs expectations of revenues returning to pre-crisis level
news on several vaccine developments and with the Brexit transition
finally coming to an end in just days – 31 December 2020 – the Stoxx
600 has posted gains of 13.7% in November, achieving its best monthly 23%
Already at or above pre-crisis
gain since records began in 1986. The AEX gained 13.2% allowing the
index to recover to pre-”State of Alarm” levels. In these remarkable last 44% By the end of 2020
few weeks of the year, final talks between the UK and the European
13% By June 2021
Union are shadowing the unparalleled European market rally driven by
vaccine optimism. Just days ago, the UK became the first Western By 2nd half of 2021 or later
country approving the use of a COVID-19 vaccine, with first injections 20%
potentially taking place in the first half of December. At the time of
writing, the S&P 500 and the NASDAQ were up by 14.6% and by 40.2% Source: Deloitte European CFO Survey, Autumn 2020
since the start of 2020, while the main European index, the Stoxx 600,
has lost 5.3% ytd and the AEX is just higher by 1.4%.
As volatility steadies, we see appetite for IPOs return, demonstrated by the
sizeable IPOs of JDE Peet’s (€2.6bn/Netherlands/May), Allegro
Global equity markets were universally shocked in March and have
(€2.3bn/Poland/September) and The Hut Group (€2bn/UK/September) and
shown significant variance in the speed and extent of recovery through
the second SPAC IPO listing at the Euronext.
the Summer and into Winter. The latest Deloitte European CFO Survey
for Q3 2020, which pre-dates recent positive vaccine news, focuses on
Nearing the end of an historic year, uncertainty remains a key issue for
the impacts of the COVID-19 pandemic, in particular revenue
corporates. The second wave of the pandemic caused significant
expectations and employment plans.
disruption to European economies that had been showing strong signs of
recovery. However, hopes of an effective vaccine provide a dim but
2020 ECM volumes exceeded issuance levels from the previous two
strengthening light at the end of the tunnel.
years with the activity been focused on Follow-On issues, largely as a
result of companies looking to recapitalize to weather the COVID-19
We hope you find the ECM Update a helpful resource and our team is
storm and, in some cases, to fund acquisitions.
available to discuss any of the topics with you.
Figure 1: Global stock market indices performance (YTD)
140
130
120
110
100
90
80
70
60
Ronald Bakker Justin Hamers
Partner – Head of Capital Partner – Head of Capital
FTSE 100 Nasdaq Composite S&P 500
Markets Audit Markets Financial Advisory
Tel: +31 6 2025 2483 Tel: +31 6 5151 5372
Stoxx 600 Topix Hang Seng
Email: robakker@deloitte.nl Email: jhamers@deloitte.nl
Source: Refinitiv Eikon
4 © 2020 Deloitte. All rights reserved.Powering ahead | Market performance Market performance © 2020 Deloitte. All rights reserved.
Powering ahead | Market performance
Positive vaccine news in November boosted the lacklustre
recovery of European stocks
Figure 3: European indices performance
There has been a heterogenous level of recovery across global stock indices, and
110 the same is true across European indices. In the early stages of the pandemic,
there was a great deal of discussion around the likely shape of recovery, with
optimists predicting a V-shaped recovery, pragmatists favouring a “Nike swoosh”
100
and the more pessimistic observers suggesting an L-shape. In practice, the
recovery can, to date, perhaps be best characterised as K-shaped. That is, different
90 sectors and different geographies have recovered at different paces. Figure 3 does
however show that recent positive sentiment relating to the interim results of the
80 Pfizer/BioNTech, Moderna and Oxford/AstraZeneca vaccine studies and its
imminent distribution has been wide-reaching and has pushed indices back
70 towards pre-pandemic levels. This was reflected in recent stock markets
performance, that have gone up on average by 12.7% since June.
60 The euro area economy was down by 11.8% in Q2 2020 before bouncing back by
12.6% in Q3. Overall, it is expected that it will contract by 7.8% in 2020 before
growing 4.2% in 2021. The outbreak of the COVID-19 pandemic in the
50
Netherlands and the measures taken in response resulted in an unprecedented
decline in GDP in the second quarter of the year (9.4% compared to the same
quarter in 2019). Economic activities substantially recovered in the third quarter
Euro Stoxx 50 DAX AEX FTSE 250
(+7.7% q/q growth in Q3).
Source: Refinitiv Eikon
Besides COVID-19 contingency measures and economic repercussions, other
Figure 4: Volatility index topics gather investors' attention. The terms of the exit agreement between the
90 EU and the UK are not clear yet, although the transition period that will shape the
future relationship between the two economies is ending in the coming weeks. At
80
the same time, investors are hoping to see an extension of the central bank's
70 expansionary policies that have helped sustain the economy during the crisis. In
Europe, the ECB’s pandemic emergency purchase programme (PEPP) initiated in
60
March 2020, together with the low interest rates, are regarded by many as a
50 necessary stimulus for growth and investment.
40 Furthermore, the US presidential election resulted in Donald Trump being
30 defeated by Democratic rival, Joe Biden. The new president is expected to address
issues concerning environmental protection, healthcare and international trade.
20
The VIX Index, a measure of market volatility, has fallen significantly from its
10
March high of 82.7 to 20.7, getting closer to pre-pandemic levels and to 2019’s
0 average of 15.4.
Source: Eurostat, Refinitiv Eikon
6 © 2020 Deloitte. All rights reservedPowering ahead | Market performance
Despite obvious challenges, the technology sector has shown
remarkable resilience and leads the Stoxx 600 sectors
Sectors have recovered from the effects of COVID-19 at various Figure 5: Stoxx 600 sector performance
speeds. This is well illustrated in Figure 5. Although capital
markets overall have experienced a strong performance Technology
following recent progress in the vaccines development, only a Basic Resources
few show positive returns year-to-date. Consumer Products & Services
Chemicals
Technology has outperformed the rest of the sectors during the
Retail
pandemic for obvious reasons. Some examples are the tech-
Utilities
related stocks found amongst the top Stoxx 600 performers
Industrial Goods & Services
YTD, such as Swedish companies Sinch up by 300% and
Financial Services
Evolution Gaming Group up by 159%. Moreover, despite the
Automobiles & Parts
physical closure of all ‘non-essential’ retail stores for several
Personal Care Drug and Grocery Stores
months in large parts of Europe, the Retail industry is one of the
Construction & Materials
top-performing sectors YTD 2020. Supermarkets and Home
Healthcare
stores have benefitted from both their ‘essential’ status and
Stoxx 600
existing online presence coupled with a consumer population
Media
largely working from home and able to take delivery of goods
Food and Beverages
ordered online and finding themselves with less other spend Telecommunications
opportunities. Real Estate
Utilities stocks also enjoyed a good performance relative to Insurance
other sectors. The great momentum of renewable energy Travel & Leisure
companies is supported by the active role of many Banks
governments which include the transitioning into clean energy Energy
into their political strategic agendas. -40% -20% 0% 20% 40% 60% 80% 100%
Energy, on the other hand, is the worst performer since the Performance YTD Performance since lowest point in 2020
beginning of the year. The lack of demand for travel has limited
Two other underperformers YTD 2020 are Real Estate and Travel & Leisure
oil price recovery following the collapse of the West Texas
sectors. National and global restrictions have reduced demand and restricted
Intermediate price into negative territory in April. Oil prices
the ability to travel domestically and internationally for much of the year. This
have steadied at around $40/bbl but remain c. 30% off the long
has left the European Travel & Leisure industry with severe earnings and
run average.
balance sheet pressure, leading to many companies assessing their strategic
Similarly, Banks have been negatively affected by the COVID-19 and financial options. The financial government aid packages are expected to
economic context. Falling interest rates, mortgage payment continue to be key for the development of the Hospitality sector in the near
relief and increasing levels of provisions for bad debts are likely future.
to have contributed to recent underperformance and will likely
be affected when governmental support schemes stop as the
level of bankruptcies is lower in the first 45 weeks in 2020
compared to the same period in 2019.
Source: Bloomberg, Refinitiv Eikon
7 © 2020 Deloitte. All rights reservedThriving after recovery | Equity issuance and macroeconomic considerations Equity issuance and macroeconomic considerations © 2020 Deloitte. All rights reserved
Powering ahead | Equity issuance
2020 ECM volumes exceed previous years’ levels with Follow-
On surging and IPO market reopening as volatility steadies
Figure 6: European equity issuances since 2018
ECM activity has been focused on Follow-On issues in 2020, largely Follow-On (€bn) IPO (€bn) Nº of Deals
as a result of corporates needing to shore up balance sheets to
50 300
weather the COVID-19 storm. Meanwhile, IPO activity is slowly
45
recovering following the first half of the year where market 40 250
conditions and increasing volatility prevented companies from 35
Deals Volume (€bn)
200
Nº of Deals
30
listing. As volatility steadies, sizeable companies such as Dutch JDE 25 150
Peet’s and Polish Allegro successfully listed boosting the IPO 20
15 100
market – currently, a healthy IPO pipeline is building up for 2021.
10 50
5
With c. €120bn equity issued, 2020 European Follow-On activity 0 0
YTD has seen roughly 60% greater deal value than 2018 and 2019. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Technology, alongside Finance, Healthcare, Real Estate, and 2018 2019 2020
Utility/Renewables, have been the most active sectors. The UK,
Switzerland, and Germany have accounted for c. 57% of the Follow-
Ons issued in Europe during 2020. Companies also turned to
Follow-Ons to fund acquisitions, such was the case of German
pharmaceutical giant Bayer which issued a jumbo €6bn rights issue Figure 7: 2020 YTD equity issuances by sector and equity issuances by country
to fund the Monsanto deal and the same for Spanish telecom
company, Cellnex, which issued a mega €4bn rights issue to fund
future acquisitions.
26%
30%
Whilst it has been a quieter year in terms of IPOs, the successful 34%
listings noted earlier showed that there is still investor support for
42%
new companies with attractive stories, especially for technological
companies. Such is the case that four out of the top five largest
European IPOs in 2020 are companies related to the tech and e-
commerce sector (Allegro, The Hut Group, Kaspi and LINK 9%
Mobility). All of which have shown a phenomenal aftermarket
performance. As no surprise, the technology sector led the rankings 6% 14%
8%
as the most active sector in terms of IPO volume, followed by the 7% 7%
7% 9%
finance, transportation, and healthcare sectors. In terms of listing Computers & Electronics Healthcare United Kingdom Germany
venue, the UK remains the most active market in terms of IPO
Real Estate/Property Transportation Switzerland Sweden
issuances with 24% of the volume YTD followed by the stock France Others
Utility & Energy Others
exchanges of Netherlands, Norway and Poland.
9 © 2020 Deloitte. All rights reservedPowering ahead | Macroeconomic considerations
Deloitte European CFO Autumn Survey
Since 2015 Deloitte has conducted the European CFO survey, giving voice twice a year to senior
financial executives from across Europe. The data for the Autumn 2020 edition were collected in
September 2020 and garnered responses from 1,578 CFOs in 18 countries and across a wide
range of industries
Economic activity in Europe picked up rapidly over the Nine months into the COVID-19 pandemic, a new letter has risen to prominence in the
summer following the extraordinary measures put in alphabet soup used to describe possible shapes of economic recovery: K. In a K-shaped
place to counter the spread of COVID-19. With that, CFO recovery, different parts of the economy experience markedly different trajectories.
optimism has improved following the record lows of While some sectors or groups are rebounding, others remain stuck on a downward
earlier this year - Half the CFOs said they feel more trajectory. The results of the latest Deloitte’s European CFO Survey reveal which paths
optimistic than three months ago about the financial businesses in Europe find themselves on.
prospects for their company. Yet, despite increased
At the sector level it is in tourism and travel that CFOs are most negative about the
revenue expectations reflecting the overall improved
recovery, with 84 per cent expecting to return to the pre-crisis level in the second half of
mood in Europe, most businesses have yet to return to
2021 at the earliest (Figure 3). In transport and logistics, too, a majority (54 per cent) of
their pre-pandemic level. In fact, 23 percent of businesses
CFOs expect to be back to the pre-crisis level only by the end of next year or later. Thus,
are operating at or above their pre-COVID level, but 44
despite CFOs’ generally optimistic view of their long-term financial prospects in this
percent expect to return to pre-crisis levels only in a
sector, the crisis seems to have inflicted a heavy blow and the road to recovery looks
year’s time at the earliest.
long. At the other end of the spectrum, about half the CFOs in the life sciences industry
While sentiment has improved, business leaders remain say they are already at pre-crisis levels or expect to recover fully by the end of 2020. In
concerned about the solidity of the recovery. A addition, a relative majority of CFOs in retail (46 per cent) expect full recovery by the
weakening in demand remains one of the top three end of the year. Although lockdowns had an immediate negative effect on retailers, the
concerns in two-thirds of the countries surveyed. volume of sales recovered quite quickly and in August was already above the January
level. Pent-up demand and online sales may have helped this sector to emerge from the
woods faster.
Figure 8: Some sectors are coming back to pre-crisis levels at more rapid pace.
Based on the information you have so far, when do you expect your company to return to a pre-crisis level of revenue generation?
120%
100%
80% 32% 32% 40% 34% 38%
26% 41% 47% 42%
54%
60% 19% 84%
18% 25% 24%
18%
26% 29%
40% 20% 27%
21% 12%
16% 17% 12% 23%
8% 8%
16% 15%
20% 10%
34% 29%
27% 26% 25% 25% 25%
17% 15% 14% 12%
0%
4%
0%
Line sciences Retail Consumer goods Technology, media Financial services Energy, utilities & Industrial products Construction Automative Transport & Tourism & travel
& mining and services logistics
telecommunication
Already at or above pre-crisis Recovery by the end of 2020 Recovery by June 2021 Recovery in the second half of 2021 or later
10 © 2020 Deloitte. All rights reservedPowering ahead | Hot topic 1 : The importance of the Equity Story Hot topic 1: The importance of the Equity Story 11 © 2020 Deloitte. All rights reserved
Powering ahead | The importance of the Equity Story
A compelling investment case is the basis of a successful IPO
Companies looking to IPO should develop a robust equity story, taking into consideration
potential investors’ perspectives and requirements and ensuring reliable data and KPIs can
substantiate it
Given the transformative nature of an IPO, once a company decides to list, several workstreams will kick off to get the Company ready for such an event.
One of the most critical workstreams will be the elaboration of a compelling investment case for investors. An assessment of the equity story's
attractiveness should be carried out very early in the process, preferably as part of the decision-making process of going public. Without a
strong investment case, investors won't likely be motivated to invest in a yet "unknown" company for the market
Building a compelling investment case
Compelling
investment case
Finally, the last step to build a
compelling investment case for
Supportive KPIs the IPO investors is to ensure that
the proposed deal structure
and data supports the equity story and
the Company's growth story
Once the Company confirms
presented in the IPO prospectus.
the equity story is suitable and
Equity Story for attractive for an IPO, the next
It is key to be in line with the
investors step is to ensure that the
Company’s listed peers in terms
of leverage levels, dividend policy,
already identified "key
KPIs and segments being reported
Having identified the main investment highlights" can
Business plan features of the Company in be supported by robust,
to the market. All of these may
affect the Company’s decision
the initial phase, the reliable data and KPIs.
on raising capital at IPO in order
The building of the Company should run a peer Therefore, the Company should
to reduce leverage or finance its
investment case should start benchmarking, consider compile/produce internal and
growth plans.
with assessing the sector dynamics, and assess external data, facts, and KPIs to
A strong equity story and an
Company’s business plan to how listed peers are viewed support its resilient positioning.
attractive deal structure (i.e.
identify key features and by investors, identifying Having robust data
large free float to provide the
ensure investors get a true key strengths and supporting the equity story
stock with enough liquidity) are
reflection of the company’s weaknesses. Taking into facilitates investors and
essential to build a compelling
track record, competitive consideration all of the research analyst to prove the
investment case - key to
environment, strategy, above is the basis to ensure robustness of the equity
successfully address and
value drivers/success the Company is building a story and guides them to an
captivate the interest of the
factors and growth compelling equity story for accurate company valuation
right investors
objectives public markets
12 © 2020 Deloitte. All rights reserved.Powering ahead | The importance of the Equity Story
Consistency of the equity story throughout the IPO process is
vital for investor’s engagement
The equity story plays a relevant part in many of the IPO documentation and focuses on the
different investor’s interactions. Therefore an early preparation of the investment case to be
presented to investors is critical to ensure consistency in the messages to the investors’
community
Once the Company decides to pursue
The Equity Story should be consistent in the following IPO documentation:
an IPO, and before selecting the
banking syndicate and legal advisors
for the transaction, the Company
1
should build a robust and detailed Management Consistency in the
Management Presentation. The Presentation messages set out in
presentation should feature the the marketing
Company's equity story and the data materials is key to
and KPIs to support it – the
2
ensure investors
Management Presentation should be Financial model support the
the basis for advisors to start working
Company’s story and
on the different marketing materials,
understand its
3
ensuring consistency in messages.
Early Look financial track record.
Presentation
It is not advisable to start meeting with
investors before reviewing and
The objective is for
investors to believe in
4
reaching an agreement among the Analyst
advisors' group and the Company the management’s
Presentation
regarding the key investment ability to drive the
highlights to be presented to the Company and its
5
market. Analysts' research growth prospects -
reports increasing the
It will also be crucial that a robust likelihood of
economic-financial model [for internal converting such
6
purposes] is finalized prior to those investors’ belief into
Prospectus
investors' meetings. Such model should demand early on
reflect the business plan and be fit for during the
sensitivity analysis Bookbuilding process
7 Roadshow
Presentation
of the IPO
13 © 2020 Deloitte. All rights reservedPowering ahead | Hot topic 2: SPACs Hot topic 2: The rise of SPACs © 2020 Deloitte. All rights reserved
Powering ahead | SPACs in ECM
The 5G of capital markets
SPAC Market
Due to its popularity in the US and recent developments in the If the SPAC is unable to complete an acquisition in the allocated
European context, SPACs have quickly become the talk of the town timeframe, the proceeds, less certain costs, will be distributed to the
in the capital markets landscape. This in combination with its speed: shareholders. Shareholders of the SPAC will always have the final
will this relativity new IPO form be the 5G of capital markets? vote to approve or disapprove the proposed acquisition.
SPAC gained popularity over the last couple of years, mainly in the US Statistics
US where 2020 has been a record-breaking year for SPAC IPOs in
terms of number, amount of proceeds and average market
capitalisation raising USD 33.1 billion as at 31 August 20201. The The momentum in the US is not showing any signs of slowing down,
increase in use of SPAC IPOs as alternative to traditional IPOs is the and the first eight months of 2020 already have been filled with
result of a confluence of factors. landmark SPAC records, including –
Pricing for a traditional IPO is affected by market volatility and • The highest number of SPAC IPOs in a year (81);
broader investment sentiment, which varies significantly leading to
uncertainty up to the time of pricing. SPAC mergers provide more
• The highest amount of SPAC proceeds raised in a year (USD 33.1
certainty because of up-front pricing and valuation that is in large
billion as per 31 August 2020);
part determined through negotiations that typically occur months
before the transaction closes.
• The highest average SPAC IPO size in a year (USD 408.7 million);
The recent rise in market volatility driven by COVID-19, oil price
fluctuations and US elections, and some companies needing to delay • The largest IPO on record (USD 4 billion).
their IPO, has therefore prompted several companies in the US to
forego the traditional IPO route for up-front price recovery and
potential accelerated timeline offered by a SPAC transaction.
From an investor perspective, the boom in SPACs seem to reflect
investor’s search for better returns in a low-interest rate and high
valuations world.
Introduction to SPACs
The SPAC is, however, not new and has existed since the early 2000s,
but the curve of companies taking this approach has been steep in
recent years, especially in the US and with a possible cross over
effect to Europe. A SPAC is a newly created company that uses IPO
proceeds to fund the acquisition of a private operating company.
SPAC’s management team seeks to complete an acquisition of an
existing operating company (“target”) within the period stated in the
SPAC’s governing documents which typically varies. As an example,
the recently listed Dutch Star Companies Two B.V. which was listed
on Euronext Amsterdam has 24 months to complete the acquisition
subject to a one-time six-month extension. If the SPAC successfully
completes an acquisition, the private operating company target
effectively becomes a public company.
15 © 2020 Deloitte. All rights reserved. 1: source: Deloitte Private-Company CFO Considerations for SPAC TransactionsPowering ahead | SPACs in ECM
The life of a SPAC
Process What route works for you?
A SPAC life begins with its initial formation, followed by its IPO, its search for a In order to assess whether the traditional IPO or SPAC IPO route works
target, a shareholder merger vote, and finally, the close of an acquisition. The for you, you might start with the following questions to understand
SPAC process differs from that of a traditional IPO in that the target company the main differences between the options:
is not involved in the formation of the SPAC or the IPO phase. However, the
terms of the shares and/or warrants offered in a SPAC IPO and the agreements • Do you value the flexibility to negotiate? – In the traditional IPO
the SPAC has with its sponsor(s) and management team ultimately influence process, the underwriter has the upper hand, including setting the
the value that target company investors extract from a SPAC merger. stock price. But in SPACs, nearly all aspects can be negotiable –
from the opening stock price to the make-up of the board and, in
Life of a SPAC some cases, even the sponsor’s ownership stake.
When a SPAC is launched, the sponsor, and often its • Are you in a hurry? – SPACs are typically faster than traditional
management team, pay a nominal amount for an equity
Formation stake in the SPAC which is often referred to as ‘founders
IPOs. While a traditional IPO can typically consume more than six
stock’. The founder’s stock is intended to compensate the months, SPACs have been known to make the transition within
initial investors for identifying a promising target four months – but the required paperwork, including both the
financial statements and prospectus, is not always less
burdensome.
After formation, a SPAC begins the process of
IPO making its initial public offering of common • Is raising capital a primary motivation? – Companies, such as
shares and warrants
Spotify, can choose the direct listing (“DL”) route in part because
they are well-capitalized. In a DL, a block of shares is sold without
any new capital being raised.
The search is similar to a typical M&A transaction
Target except for the right to redeem shares which
• Who wants a lock-up period? – You, or your board, may decide
provides some uncertainty regarding the amount
Search that a 180-day lock-up period – preventing large shareholders
of cash available to pay target shareholders
from flooding the market with an oversupply – is prudent. That’s
usually the length associated with a traditional IPO, while a SPAC’s
In order to complete the merger, the shareholders will lock-up typically lasts for a year. DL, by contrast, require no lock-
Shareholder vote amongst others based on the financial up period.
Vote information presented to the shareholders (audited
financial statements of the target, interim financials,
• Is cost savings a priority? – Underwriting fees typically amount up
pro forma financial information, and others)
to 7% of a traditional IPO, plus there’s the inefficiency embodied in
a stock’s first-day pop. DLs, can access the public float without
Once an affirmative vote is obtained from the proxy
paying those fees. But that also means their stock price can sink
Acquisition process, the target acquisition can close by merging into
Close the SPAC. At this stage it is imperative that the company on opening day. In a SPAC, underwriter fees and upfront cash
makes a focused effort to elevate on people, processes, outlays are lower than in a traditional IPO. Still, CFOs of SPAC
and technology to support the reporting schedule. targets need to be aware that typically sponsors have 20% of the
IPO shares, which effectively dilutes public shareholders. They
should also be cognizant of potential private investment in public
equity (PIPE) discounting and discounting in backstop agreements.
16 © 2020 Deloitte. All rights reserved. 1: source: Deloitte Private-Company CFO Considerations for SPAC TransactionsPowering ahead | The rise of SPACs
European market
What are we seeing in the European and Dutch market? Case Study SPAC IPO at Euronext
• Large amount of European dry powder of private equity and
Dutch Star Companies Two (‘DSC2’)
venture capital funds.
Listing date 19 November 2020
• 2018’s first Dutch SPAC IPO at the Euronext (Dutch Star
Company One) is trading at more than 200% of its initial Deal value €110 million
offering price at 4 December 2020. €60 per unit – each unit consisting
• This year’s second Dutch SPAC IPO at the Euronext (Dutch Star Unit offering price out of six Ordinary Shares and six
Warrants
Company Two) had higher net proceeds from the IPO (€110
• Main objective is to complete
million) compared to Dutch Star Company One amounting to
a business combination within
€55 million. 24-30 months after the
• Whereas European regulation seems more impediment, recent settlement
examples showcase that SPACs in the Dutch context work well • Requires 70% majority
and are compliant with European regulations. Key characteristics approval of shareholders
• New search, within time limit,
• Some IPOs got delayed or cancelled due to the market will start if 30% of the
sentiment at the time due to impacts driven by COVID-19, oil shareholders participating in
price fluctuations and US elections and the SPAC alternative the EGM do not approve the
might be a good alternative from this perspective. Also, size business combination
constraints seem less of an issue for SPAC, offering a new route
Deloitte’s role
to public capital for small to medium size IPOs.
• Deloitte acts as Auditor to DSC2 in relation to the IPO.
• SPAC transactions come with their own set of unique
challenges, and it is essential for entities to have an • Capital Markets expertise in relation to the prospectus.
understanding of the risks associated `with these investment
vehicles and a comprehensive project management plan to
meet the demands of an accelerated merger timeline.
I F Y O U W O U L D L I K E T O E X P L O R E T H I S T O P I C F U R T H E R P L E A S E R E A C H O U T T O Y O U R C O N T A C T
Contacts Ronald Bakker Aafke Olminkhof
Partner | Head of Capital Markets Audit Manager | Capital Markets Audit
Email: robakker@deloitte.nl Email: aolminkhof@deloitte.nl
Tel: +31620252483 Tel: +31622357699
17 © 2020 Deloitte. All rights reserved.Powering ahead | Hot topic 3: COVID-19 Valuation & Capital Market Impact Monitor Hot topic 3: COVID -19 – Valuation & Capital Market Impact Monitor © 2020 Deloitte. All rights reserved
Powering ahead | Hot topics
COVID-19 - Valuation & Capital Market Impact Monitor
Despite the substantial drop in GDP, equity markets have recovered most of the lost ground from
the very sharp decline following the outbreak of the COVID-19 pandemic. EV/EBITDA 2020
multiples are currently trading above the levels observed before COVID-19. There is however
quite some variation in performance between segments. Also, volatility in market inputs (like
multiples) and remaining uncertainty surrounding the impact of COVID-19 still require care and
judgement in valuations.
Capital markets Development of AEX and MSCI Europe since 01-01-2020
• Equity markets have recovered most of the lost ground from the very sharp decline
110
in March 2020 following the outbreak of the COVID-19 pandemic.
• The decline in market prices in October 2020 (a.o. driven by the surge in number of 100
COVID-19 cases) has been more than offset by the recent stock market increase 90
following the news that several vaccines are expected to successfully enter the 80
market in early 2021.
70
• Looking at returns, per segment quite some variance is observed, with winners
AEX
particularly in the Information Technology segment, as these companies have been 60
MSCI Europe Index
able to adapt quickly to the shift to home-working and benefit from the accelerated 50
digitalization of economies following COVID-19. The long-term impact of the 01-01-2020 01-04-2020 01-07-2020 01-10-2020
(partial) lockdowns remains uncertain, but all sectors and businesses will be forced Source: Capital IQ, Deloitte Analysis
to adapt and change as economies recover. MSCI Europe - Most vs. least affected segments*
Economic outlook and analyst expectations Information Tech.: +4.1% Energy: -38.5%
• The economic fallout following COVID-19 has led to a substantial decrease in GDP
projections for 2020 in the Eurozone. Health Care: +3.0% Real Estate: -22.0%
• Due to the high uncertainty surrounding the development of the COVID-19 crisis,
there is a great variation in economic scenarios developed by economists. Despite Industrials: -1.7% Financials: -14.1%
the surge in number of cases in many European countries, a quicker economic * Reflects share price impact since 01-01-2020 (median impact MSCI Europe is -
recovery seems to have become more likely - or implicitly assumed by markets - 2.7%)
with the recent news of the expected availability of vaccines. Revenue estimates by analysts** - MSCI Europe
• Contrary to the increase in stock markets, projections of equity analysts have further
120
dropped compared to April 2020. As per end of November 2020, they assume a Estimate per 01-01-2020 116.3
5.9% decline in 2020 revenues for the companies in the MSCI Europe Index (1.9% as Estimate per 23-11-2020
110.4
per April 2020). 110
106.3
• Equity analysts have decreased their EBITDA 2020 estimates for companies in the 103.1
MSCI Europe Index by 11.5% (compared to the estimate per 1 January 2020). 106.9
• We observe quite some variation between segments, with the large caps in Health 100 102.1
Care and Information Technology even expected to experience growth in 2020 (on 94.1
97.7
average). Also, more variation exists in the expected EBITDA estimates by different
90
analysts for the same company. This variation corresponds to the uncertainty 2019AC 2020FC 2021FC 2022FC 2023FC
surrounding the impact of COVID-19 on the (recovery of the) economy and even ** Reflects median revenue growth expected by equity analysts for companies in
more so on individual companies. MSCI Europe Index
Source: Capital IQ, Deloitte Analysis
19 © 2020 Deloitte. All rights reserved.Powering ahead | Hot topics
COVID-19 - Valuation & Capital Market Impact Monitor
Trading multiples EV/EBITDA 2020 & 2021 – Median MSCI Europe Index
• In March 2020, EV/EBITDA 2020 trading multiples declined sharply after the
+9.8%
decrease in stock prices (whilst 2020 EBITDA estimates were relatively unchanged). 13x
11.8x
Due to the recovery in stock markets and the drop in EBITDA 2020 estimates, 12x
EV/EBITDA 2020 trading multiples are currently above their observed levels per 11x
10.8x
year-end 2019.
10x 10.6x
• In these times of market and economic volatility, the use of multiples becomes 10.2x
more challenging and often yields less meaningful or inconclusive results. Therefore, 9x
extra care is required and consistency in reporting periods and normalisations 8x 7.8x
become even more important. Also, forward-looking multiples (if based on 7x
EV/EBITDA 2020 7.4x
consistent ‘post-crisis’ EBITDA estimates for 2021 or 2022) likely yield more EV/EBITDA 2021 +4.8%
6x
meaningful results. 01-07-2019 01-01-2020 01-07-2020 23-11-2020
DCF Analysis Development in MSCI Europe & 2020 earnings estimates
• As the earnings estimates have gradually decreased, whilst share prices recovered, 110
the sharp initial increase in equity market risk premium (ERMP) has normalised. 100
• Although a company WACC might have changed, a DCF analysis also requires the 90
financial forecasts to reflect the new economic reality. Due to the ability to model 80
the uncertainty surrounding the impact of COVID-19 on a company’s performance 70
in financial scenarios, DCF analyses have become even more important.
60
MSCI Europe Index
50
Reconciling results 40
2020 Net Earnings expectations
01-01-2020 01-04-2020 01-07-2020 01-10-2020
• The variation and volatility in financial forecasts and market inputs require care for
consistency and more professional judgement. A bigger variance in valuation Financial scenarios and corroborating results
ranges also increases the likelihood of a discrepancy in value perception between
Scenarios
buyers and sellers in transactions, or between current market pricing and results
DCF
obtained in fair (market) value analyses (based on a long-term ‘value in use’
perspective).
Despite these challenges, the need for and relevance of valuations often increase in
Multiples
• Old Forecast
economic crises (for example in relation to financial restructurings, goodwill New Scenarios
impairment tests, complex / distressed M&A and shareholder disputes).
2019 2020 2021 2022 2023 2024 Enterprise value
Source: Capital IQ, Deloitte Analysis
Full report - For the full report, or the COVID-19 - Valuation & Capital Market Impact Monitor of April 2020, please visit out website here
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JDE Peet’s Just Eat Takeaway DSC 2 DSC 1 Argenx
IPO UK listing IPO IPO Secondary Offering
2020 2020 2020 2020 2020
€2.6b €6.9b €110m €80m €785m
Heineken Argenx Schoeller Allibert B&S Group
Bond Secondary Offering High yield Bond IPO
2020 2019 2019 2018
€1.5b €502m €250m €358m
Instone Real Estate Dutch Star Companies VolkerWessels Maxeda DIY
IPO One IPO IPO High yield Bond
2018 2018 2017 2017
€430m €55m €575m €475m
Infopro Takeaway.com Shop Apotheke.com Philips Lighting
High yield Bond IPO IPO IPO
2017 2016 2016 2016
€500m €350m €115m €5b
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ECM service offerings
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IPO process • P2Ps, public offers, hostile takeovers
• Support and advice on carve-out design
• Offer and transaction structuring advice (operational and financial) and • Act as lead adviser on either the buy-side
• Assistance with adviser selection implementation or sell-side of the transaction
• Input into equity story • Support on preparation of carve-out • Advice on corporate restructurings and
• Project and syndicate management financials demergers
• Analysis and coordination of investor • Support and advice on transaction
• Support and advice on preparing bid
marketing (ECM or private sale) matters
defence procedures
Reporting Accountant
IPO Auditor IPO Assist
• Typically where we are not acting
as auditor to the company
• Audit the financial statements • Support and advice where and
included in the prospectus • Underwriter due diligence
when needed
• Providing comfort to the • Working capital reporting
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• Assessing the control and governance management, seconding staff,
• Pro Forma opinion
environment building models and working as
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Tax and Remuneration
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Advice
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a NV Topco
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report. Identifies deficiencies that may delay • Assist with preparation of first set of • Advice on arranging executive and
or prohibit an IPO public financials, audit of financial employee remuneration plans
• Scope covers financial and commercial statements, ongoing analyst liaison • Benchmarking remuneration structures
areas and results announcements against other listed companies
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shortcomings prior to IPO kick-off and support remuneration plans
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