Tue. Dec 7th, 2021

Wall Street banks are putting a lot of pressure on European companies to help raise cash to beat local competitors and increase their chances of gaining lucrative mandates for a new wave of large-scale public offerings.

Senior executives at Goldman Sachs and JPMorgan Chase said they are focusing expansion efforts on their private placement businesses amid a broader nutrition madness in capital markets. They bet that the increase in fundraising by private companies will be more than a temporary boom.

Goldman Sachs’ European company worked on 18 transactions, raising a total of more than $ 9 billion so far this year, compared to six transactions worth $ 1.7 billion in 2020.

The bank created a new “alternative equity products” group earlier this year to run the business in Europe.

Lyle Schwartz, co-head of the unit, said it puts “more resources into our private placement business that has grown massively” because it is seen “as a long-term sustainable and systemic growth driver”.

Although the number of bankers dedicated to private transactions remains small, the teams are growing. Competitor JPMorgan’s team in Europe, the Middle East and Africa (Emea) has more than doubled in size since the beginning of 2020, while the number of people in the broader share capital markets has remained stable.

Aloke Gupte, JPMorgan’s co-head of equity capital markets for Emea, said: “Everyone has been so focused on IPOs and the public markets this year for obvious reasons – we have a record year on almost every one. . . product – but I think the strength in private capital markets is incredible. ”

Goldman’s new alternative stock products unit also houses its business serving the burgeoning European Spac market, but the continent has not experienced the same boom as the US. Only 28 blank check companies listed in Emea in the first nine months of 2021, according to Refinitiv data, with Goldman and JPMorgan acting as bookkeepers on four and seven transactions, respectively.

Another senior Goldman banker said that while there will be some Spac issuance in Europe, large private fundraisers are a more sustainable secular trend.

The focus on private placements by two of Wall Street’s largest banks underscores Europe’s growing maturity initial ecosystem, especially for technology and healthcare companies. European companies raised $ 72 billion in venture capital funding in the first nine months of this year, according to CBinsights, 82 percent higher than the full annual record set in 2019.

In addition to generating fees on individual transactions, the increase in large fundraising banks offers an opportunity to start building early relationships with the most promising beginners before even more profitable events such as mergers and acquisitions or IPOs.

Schwartz said the business was “very fruitful for long-term relationships” with high-growth customers, which put them in the pole to win business as customers expand.

The international payment group Wise, for example, had already worked with Goldman on several private transactions before choosing the bank to lead its high profile direct listing earlier this year.

Bankers hope to replicate this model with recent customers who are future IPO candidates, such as the grocery delivery service Getir, British bank Zopa and money transfer specialist Zepz.

There are about 130 so-called “unicorns” in Europe – private start-ups worth more than $ 1 billion. But Gupte predicted that within a year or two there would be more than 250 in the Emea region.

“We have not yet seen the sharp point of the growth curve,” Gupte said. “So many companies are experiencing rapid growth and across so many different verticals.”

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