Friday October 30, 2020

Brexit will not be an impediment to raising capital

‘The Irish government responded aggressively to the twin threats of COVID-19 and Brexit in Budget 2021’ says Ian Huggard, Specialist Equity Sales, Goodbody Capital Markets

15th October, 2020

What's your name and what position do you hold?

Ian Huggard, Specialist Equity Sales, Goodbody Capital Markets

What are your day to day responsibilities?

Communicating with institutional investors and corporates to help build shareholders’ bases that allow companies to scale. This entails matching investment styles with company profiles, taking into account financial and non-financial factors.

What is your professional background?

I have spent over 30 years in capital markets in the US and Europe in various roles in global and local investment banks.

How do you see the current situation affecting capital fundraising for businesses?

Generating interest among investors for new ideas is particularly challenging in an environment where there are no physical meetings during a fund-raising roadshow. Investors are naturally inclined to be drawn to stories and management teams they are familiar with. It is important to select advisors that have proven relationships that can help identify the right anchor investors as early in the process as possible. At Goodbody we’ve a number of mandates to raise capital for companies, and in the recent £110m placing for Draper Esprit, at a premium to the market price, highlights the opportunity for the right companies working with the right advisors.

The Irish government responded aggressively yesterday to the twin threats of COVID-19 and Brexit in Budget 2021. It announced a large fiscal package to deal with the ongoing fall-out from the COVID-19 pandemic and the potential impact of a hard-Brexit. It will result in a large, but necessary, budget deficit of €20.5bn in 2021 (9% of GNI), following on from an expected deficit of €21.6bn in 2020 (10% of GNI). In the context of ongoing restrictions on economic activity, several additional fiscal supports for businesses and workers were announced. These include cash grants, an extension of the wage subsidy scheme, commercial rates waivers and funding to cover the pandemic unemployment payment in 2021. A temporary reduction in the VAT rate is also supportive to the beleaguered hospitality sector. In housing, the Help-to-Buy scheme will be extended until the end of 2021 and further funds were pledged to the building of social housing. The counter-cyclical response is exactly what is required and contrasts with the track record of pro-cyclical Irish fiscal policy over decades.

When might the IPO market recover?

We are already seeing quite positive signs around the IPO market. It’s particularly notable in the US, but there’s also an increase in activity in Europe. Our corporate team are engaged with a number of companies looking to access the public markets to fund the next stage of growth. No matter the environment, I’ve found that the market does remain open for the right stories, and companies need to select the investment banks who can get them in front of the right investors for their story.

What are some of the new challenges growth-stage businesses encounter when they are on the lookout for new investors?

The challenges differ depending on the stage of maturity. Early stage growth businesses have to work harder to demonstrate that there is the capability and offering to win. With a clear addressable market and reference customers that conversation with potential investors evolves. From a public market perspective, one area that is often overlooked by companies is that, with increased volatility, investors become more concerned about after-market liquidity. Thinking about IPO offer structure, the banks and brokers that bring the company to market, the nature of the investor base and very importantly, to invest in investor relations in terms of time and resources to build profile with both the buyside and sellside, generating incremental interest in the company and the investment case. At Goodbody, we are intensely focused on each of these elements, supporting both the development of the equity story and increasing the addressable audience for that story is something we invest heavily in as a business to support our corporate clients.

What can the government do to attract private capital investment in firms and make equity financing easier to access?

Tax breaks, grants and investments to boost the interest in “green finance”. Companies that are then addressing the issues that will help deliver on the UN Sustainable Development Goals (SDG’s) should attract a lower cost of capital. Innovation in terms of encouraging retail investment in equities, in an appropriate way, would also support the continued development of the funding environment for companies. Tax efficient investment plays a role here that creates a virtuous circle – look at the success of the Nordics, Italy and even the UK in this regard.

What are the options to raise capital post-Brexit?

Brexit will not be an impediment to raising capital, it may alter the risk and opportunity set for for a particular sector or company, however capital flows will be largely unchanged as they remain global.

What’s next for your company?

As the largest institutional equities house in Dublin trading in Irish and UK equities, the top rated house from a research perspective over a number of years, and a corporate advisory business that has raised over €10bn in capital for companies and their shareholders over the last 4 years, Goodbody has a strong platform to continue to grow, supporting companies to engage with and access funding markets and bringing top quality ideas to institutional investors. We continue to invest in people to grow our business, both in Dublin and London. Lately we have invested in our ability to integrate environmental, social and governance (ESG) factors into our service offerings in order to help our clients along their sustainability journey.

Ian Huggard is speaking at the Business Post’s virtual Raising Capital Summit on Nov 4. Visit www.capitalsummit.ie for full details

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