Bankers waiting for the mega deals of 2015 to continue into the new year did not have to wait long. Despite market turmoil, several big-ticket bids have been made, none bigger than the $ 48 billion offer from China National Chemical Corporation, or ChemChina, for Swiss agrochemicals company Syngenta in early February.
For bankers at HSBC, which is advising the acquirer, the wait to be working on such a deal had been rather longer. The Syngenta bid is the largest M&A advisory mandate the UK bank has won since it acted for Suez on its $ 54.6 billion takeover of Gaz de France a decade ago.
Since winning the mandate, HSBC’s M&A advisers have had an eventful few weeks. The bank is also advising South African retail company Steinhoff International on two counterbid approaches in the space of two weeks. The first was a £1.4 billion proposal to buy Home Retail Group, which had agreed terms of a possible £1.3 billion sale to supermarket group J Sainsbury. That was followed by Conforama, a Steinhoff subsidiary, making a £661 million non-binding proposal to the board of white goods company Darty, which had recommended a £558 million sale to Fnac of France.
James Simpson, who is leading the bank’s work with ChemChina, spoke to Financial News about deal drivers, the bank’s investment in its M&A team and the importance of bringing financing power along with deal advice. Simpson joined HSBC from UBS as co-head of M&A for Europe, the Middle East and Africa in July 2014 alongside Paris-based Stéphane Bensoussan.
Financial News: Given the volatile capital markets, how would you characterise the M&A market so far this year?
James Simpson: Last year was obviously a very strong year. Globally there was $ 5 trillion of announced deals, up some 40%. But it was dominated by the mega transactions – Pfizer-Allergan, Dow-DuPont, SAB-InBev, Shell-BG. When you took those out of the picture, the broader M&A volume was pretty flat. There was a lot of speculation around markets of M&A being somewhat overheated, but for me, when you looked at the underlying, it was a relatively sustained, stable picture.
If you roll forward to where we are at the beginning of 2016, it’s been a tricky start from a broader capital markets perspective – fairly choppy, fairly volatile. But all of the factors underlying M&A haven’t changed. We’re still in an environment where there’s relatively low growth, we’re still in an environment where companies are reasonably well funded from a cash perspective and are strategically trying to assess how they’re going to deliver growth for their shareholders and broader stakeholders.
In some areas of the market – non-investment grade – it’s tougher to get financing at the moment. But the last few weeks have been more positive than the start of the year and I think we’re starting to see that open up a little bit. Investment grade has remained open for corporate deals.
For us, if the M&A volumes are up or down by 5% or 10% it actually doesn’t make as much of a difference because we’re in an environment where we’re taking market share. [According to Dealogic, the bank had a global market share of 4.2% based on value of deals announced in 2015, compared with 2.8% in 2014]. The story for HSBC is more about taking market share in this environment than it is with growing the overall M&A volumes.
Where would you like the bank to end this year if markets present the right opportunities?
We want to continue to grow our market share. We’ve had a good start to 2016, including a standout transaction for us as lead adviser to ChemChina [on] Syngenta [and the Steinhoff approaches]. That has been building on a good set of UK public transactions that we acted on last year – acting for Carlyle on [its acquisition of] Innovation Group, acting on the P2P [public to private] for Chime [Communications].
We’ve been growing our share and have been investing in M&A within our broader UK team to support that. It’s good that rewards are coming through for that investment but there’s still some way to go. We’re not mature by any means in our core markets.
What’s the strategy to win a greater share of regional work and what challenges do you see? It’s notable that US banks stole the march in European M&A last year.
The US banks have been in a privileged position where perhaps they’ve gone through their turmoil and are relatively stable. When you’re engaged in M&A it’s not like a DCM trade where you can set up a desk and start trading within a matter of days. It requires a prolonged investment, a build-up of trust with a client over a sustained period of time. I think they are reaping the benefits of that.
European banks have been going through their restructuring later and inevitably that means that people have been more internally focused. For us, where we’ve been just steadily investing in the business, one of the challenges is ensuring that the message gets out to our client base around the broader offering that HSBC has to deliver for its clients. Deals like Syngenta, Casino, [Hutchison Whampoa’s acquisition of] O2, Holcim-Lafarge – all of these are building credibility with our clients around the capability that we have.
The bank has hired Matthew Westerman from Goldman Sachs as co-head of global banking and restructured the division to bring capital financing and coverage closer. Does having those individuals closer together benefit the M&A offering, having the financing ability aligned with more strategic advice?
We sit on the 20th floor, next to us we have the UK coverage team, who notionally sit within global banking. On the floor beneath we have the sector coverage guys. We were never really away. This delineation between capital financing and global banking, from an M&A perspective at least, didn’t really make much of a difference.
I think in terms of the broader capital financing efforts around financing, equity capital markets and so on, HSBC has the capability to deliver really exciting solutions for our clients. Look at ChemChina [for which HSBC is global co-ordinator running the syndication of a $ 20 billion acquisition financing].
There is a mix of how you do [a deal] from a strategic, tactical and negotiating perspective, how you engage with the target, and also a large piece around how do you finance this? How do you actually make this happen? It’s very powerful when you align an advisory capability with a financing capability, to be able to say to our clients, this is the deal that makes sense, here are the benefits for you, this is what we think we can do with the asset and this is how we help you deliver that transaction.
Who have been some of the key hires since you arrived in 2014?
In M&A we’ve continued to invest in the team. We brought Andrew Owens on from Barclays, brought Aamir Khan on from Lazard and James Thomlinson came over from JP Morgan – a broad spread of high quality individuals to complement the team that we already had.
On the UK coverage side, Philip Noblet arrived from Bank of America [alongside] Paul Bundred. The level of engagement with our UK client base is a very different place to where you would have seen it 12 to 18 months ago. Now it’s about focusing on our core client base and delivering for those clients.
We also have good skills and expertise when it comes to cross-border transactions. It was great last year to act for Tesco on the sale of their South Korean business. We kicked off this year with a very similar transaction, selling a Thai business for Casino. We’re also advising China Resources on the buyout from SABMiller of their beer joint venture.
It’s nice to see it go two ways – selling some of those emerging market Asian assets for our European client base and also acting for Asian corporates on their outbound M&A into Emea.