Yoël Zaoui, co-founder of advisory firm Zaoui & Co, said: “This is a time of unusual political uncertainty, with key elections and fundamental changes in front of us, and of challenging growth outlook.”
Crispin Osborne, co-head of banking for Europe, the Middle East and Africa at Barclays, said that although the backdrop going into the fourth quarter was one of “relative calm”, there were risks on the horizon, “not least US elections, the Italian referendum, other European elections and the intensifying rhetoric in the UK and hardening of the Brexit tone”.
Uncertainty around the UK’s June referendum on European Union membership hit equity capital market desks particularly badly, with Dealogic data for the year to September 30 showing that ECM volume in Europe was down by a third year-on-year.
That dragged investment banking revenues in Europe to a 13-year low of $ 11.8 billion over the nine months. M&A in the region is also down, although the debt capital markets have proved more resilient, with issuance in Europe rising year-on-year over the first nine months.
Despite pressures, investment bankers in the City welcomed a pick-up in activity in September and Citigroup’s Emea corporate and investment banking chief Manolo Falco now expects “robust” activity in the capital markets.
British technology firm Micro Focus International’s $ 8.8 billion bid for Hewlett-Packard’s software business in September offered hope for UK M&A bankers, while a string of private equity-backed businesses – including 10-pin bowling operator Hollywood Bowl, software provider Misys, medical products maker ConvaTec and waste disposal group Biffa – floated or confirmed plans to list in London during September and October.
Bob Elfring, head of Emea corporate and investment banking at Bank of America Merrill Lynch, said that although “uncertainties” in the market could “change the sentiment quite quickly”, he felt positive about upcoming deals.
Elfring said: “Given the relatively slow activity in ECM and levfin in the first half of this year, the pipeline in these areas is very solid, and we expect more deals like the IPOs of Misys and ConvaTec and the merger financing for [UK petrol stations operator] Euro Garages to come to market.”
Mark Echlin, Credit Suisse’s co-head of Emea investment banking and capital markets, argued that many corporates were looking to drive earnings in the lower global growth environment “through consolidation and enhanced cost-cutting”. He added that the fall in sterling meant “there is also a great deal of interest in cheaper UK assets”.
At JP Morgan, Viswas Raghavan, deputy chief executive for Emea and head of Emea banking, said: “The fluctuation in sterling and the relatively benign environment ahead of EU negotiations has provided the impetus for many clients to move now. At the moment, market conditions are ripe for activity. Clients want to take advantage of equity market conditions and we’ll see a strong IPO pipeline take us to year end. M&A activity is coming in and out of the UK. High yield activity has picked up significantly over last year and investor interest will continue.”