Keeping one step ahead

Gina Kashinsky, Managing Director and Global Head of Equities at IHS Markit discusses the changing deal landscape and the solutions on offer.

How has Covid-19 impacted the deal-making landscape?
Following the global shutdowns and travel restrictions, the entire industry began rethinking legacy workflows and quickly pivoted to a new world of capital formation. After one month of silenced issuance, the industry embraced a new ‘virtual’ marketing format which has now become the norm. This has led to faster and more efficient roadshows that expedite the marketing process for deals. As an example, in the IPO space prior to Covid, the typical in-person roadshow would last 10-14 days, but with virtual roadshows, we’re seeing them wrap up in an average of 3-5 days, which allows for more deals and more capital to hit the market.

What trends has the pandemic accelerated and what (if any) changes do you think will become permanent?
We believe that the strong acceptance of the virtual roadshow format, will be a game changer. That’s not to say in-person roadshows will completely disappear post-Covid, but they will certainly have a more bespoke use case for firms in times ahead. The benefits from virtual meetings are numerous, such as greatly reducing the overhead costs for each deal since there’s no physical travel required and a shortening of execution timelines which creates more ‘calendar space’ for competing sectors.

Additionally, we have observed companies breaking away from conventional execution when going public, and leveraging alternative methods such as SPACs (special purpose acquisition company), Direct Listings, and Dutch Auctions to accelerate their IPO timelines and/or retain more control. Issuers want greater transparency into their deals, which allows them to play a bigger role in price discovery and allocation decisions.

Finally, we are seeing increased appetite from the buyside for technology and tools to enhance order entry, centralise intelligence and connect trading ecosystems to achieve seamless execution. Given the fluidity of deal calendars amid unprecedented volumes, investors need to engage, collaborate and execute at a quicker pace while managing their market exposure.

The year got off to a strong start, but do you expect the rest of the year to see record-breaking activity?
The equity market is seeing deals price at a record pace with over 800 transactions in Q1, nearly four times the quarterly average for the past two decades. What is also noteworthy, is that almost 300 SPAC IPOs have priced during the current quarter, surpassing the full year record of 246 set in 2020.

As we look ahead to the coming months, we anticipate the momentum to continue. Companies are growing faster and bigger than ever before, and given the current market conditions, deal velocity is at an all-time high. Of course, there is always the risk of failure for some of these companies, but right now, investors see the successes outweighing the risks. The pipeline of IPOs remains robust, with several unicorn deals looming from the likes of Robinhood, the popular stock trading app, and Coinbase, the cryptocurrency platform, which is seeking to go public via Direct Listing. In the end, the industry will continue to test out new ways to execute deals swiftly and efficiently, and from our perspective here at IHS Markit we welcome these changes as it allows us the opportunity to innovate and build new solutions for banks, issuers, and investors.

What are the key challenges that the buyside face?
With the industry moving in a more digital direction, compliance and security concerns amplify with the sharing of confidential information virtually between investors and banks. To that end, it is essential that new solutions are equipped with the latest authentication standards and auditing capabilities to judiciously manage deal participations. We have witnessed this with confidential marketing exercises where investors are brought ‘over the wall’ ahead of a public deal launch. This is a prime example where technological advancements, such as our Wall Crossing Module, can securely orchestrate intricate workflows, while keeping pace with condensed trading windows.

The speed of deals also poses challenges for buyside firms, especially when volumes are peaking. They are expected to certify IPO eligibility and submit orders across multiple bookrunning banks for every deal, which is already taxing and error-prone given the manual nature of submissions. Now, layer on a shorter deal cycle, and you are left with increased risk. At a higher level, the buyside is faced with a multitude of tools to manage primary and secondary trading. Tech ecosystems have expanded and grown more complex with a plethora of new applications, making it harder to marry critical data and achieve straight-through-processing.

How do you see the technology evolving to facilitate the process for the buyside?
Given the aforementioned challenges, we recognise the importance of providing the buyside with a holistic and modern solution to centralise data, connect and collaborate with market participants and execute across a variety of tasks. In this paradigm, investors should be able to research deals, submit indications of interest, retrieve allocations and perform cross-deal analysis all within one portal. We started within our Fixed Income and Municipals programmes where we currently offer direct buyside tools for primary issuance, and will expand the offering to Equity where we currently offer some facets of execution.

Beyond this, interoperability is a key theme to link and marry data across multiple internal and external platforms. This concept should extend into secondary trading and downstream settlement to achieve the full breadth of efficiency and scale needed by the buyside to manage a myriad of systems. From our perspective, we will continue to evaluate API connectors and seek out “best of breed” providers to integrate essential data into our sellside and buyside modules.

With changes in leadership, it’s reasonable to think we may see increased attention from regulators on a variety of topics encompassing capital formation, especially as new platforms emerge creating different types of access to capital markets. As platforms become more open, we envision greater scrutiny of the dissemination and exchange of deal communications. We are acutely focused on these trends and potential policy initiatives to ensure we remain a leading innovator of primary issuance tools for issuers, banks and investors.

What opportunities exist for IHS Markit to advance innovation?
We believe there are a number of opportunities for IHS Markit to pioneer leading-edge utilities in the equity new issuance market. Our headline objective is to unite all market participants on an interoperable central platform that yields greater transparency, collaboration and a more efficient deal execution process. We are also focused on streamlining engagement between deal makers and investors through digital and virtual tools that can mitigate execution challenges.

©Markets Media Europe 2021