Powering ahead · 2021. 1. 13. · Powering ahead | Market performance Market performance. Positive...

Powering aheadEquity Capital Markets updateWinter 2020

© 2020 Deloitte All rights reserved.

This European Equity Capital Markets update contains commentary on: recent European and Dutch stockmarkets performance in the wake of the COVID-19 pandemic; levels of European equity market issuance and macroeconomic considerations; and current hot topics in ECM.

Market performance

Equity issuance and macroeconomic considerations

Hot topic: The importance of the Equity Story

Hot topic: The rise of SPACs

Hot topic: COVID-19 – Valuation & Capital Market Impact Monitor

Deloitte Equity Capital Markets

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Contents

About this report: This report contains data sourced from Deloitte’s Autumn 2020 European CFO survey, Bloomberg, Refinitiv, FactSet, Dealogic, company admission documentsand press releases. ECM issuance data is as at 4 December 2020 and additional market data is as at 8 December 2020. All commentary is provided by Deloitte ECM Partners andDirectors.

3 © 2020 Deloitte. All rights reserved.

23%

13%

20%

44%

Already at or above pre-crisis

By the end of 2020

By June 2021

By 2nd half of 2021 or later

Equity markets look forward. Following the US Election, and positivenews on several vaccine developments and with the Brexit transitionfinally coming to an end in just days – 31 December 2020 – the Stoxx600 has posted gains of 13.7% in November, achieving its best monthlygain since records began in 1986. The AEX gained 13.2% allowing theindex to recover to pre-”State of Alarm” levels. In these remarkable lastfew weeks of the year, final talks between the UK and the EuropeanUnion are shadowing the unparalleled European market rally driven byvaccine optimism. Just days ago, the UK became the first Westerncountry approving the use of a COVID-19 vaccine, with first injectionspotentially taking place in the first half of December. At the time ofwriting, the S&P 500 and the NASDAQ were up by 14.6% and by 40.2%since the start of 2020, while the main European index, the Stoxx 600,has lost 5.3% ytd and the AEX is just higher by 1.4%.

Global equity markets were universally shocked in March and haveshown significant variance in the speed and extent of recovery throughthe Summer and into Winter. The latest Deloitte European CFO Surveyfor Q3 2020, which pre-dates recent positive vaccine news, focuses onthe impacts of the COVID-19 pandemic, in particular revenueexpectations and employment plans.

2020 ECM volumes exceeded issuance levels from the previous twoyears with the activity been focused on Follow-On issues, largely as aresult of companies looking to recapitalize to weather the COVID-19storm and, in some cases, to fund acquisitions.

As Equity Capital Markets come to the end of a tumultuous year, an exit strategy to the COVID-19 pandemic through effective vaccination provides a base upon which to power forwards

Deloitte’s European Equity Capital Markets updatePowering ahead | Welcome


As volatility steadies, we see appetite for IPOs return, demonstrated by thesizeable IPOs of JDE Peet’s (€2.6bn/Netherlands/May), Allegro(€2.3bn/Poland/September) and The Hut Group (€2bn/UK/September) andthe second SPAC IPO listing at the Euronext.

Nearing the end of an historic year, uncertainty remains a key issue forcorporates. The second wave of the pandemic caused significantdisruption to European economies that had been showing strong signs ofrecovery. However, hopes of an effective vaccine provide a dim butstrengthening light at the end of the tunnel.

We hope you find the ECM Update a helpful resource and our team isavailable to discuss any of the topics with you.

Figure 2: European CFOs expectations of revenues returning to pre-crisis level

Source: Deloitte European CFO Survey, Autumn 2020

60708090

100110120130140

FTSE 100 Nasdaq Composite S&P 500

Stoxx 600 Topix Hang Seng

Figure 1: Global stock market indices performance (YTD)

Source: Refinitiv Eikon

Justin HamersPartner – Head of Capital Markets Financial AdvisoryTel: +31 6 5151 5372Email: [email protected]

Ronald BakkerPartner – Head of Capital Markets AuditTel: +31 6 2025 2483Email: [email protected]

© 2020 Deloitte. All rights reserved.

Powering ahead | Market performance

Market performance

Positive vaccine news in November boosted the lacklustre recovery of European stocks


There has been a heterogenous level of recovery across global stock indices, andthe same is true across European indices. In the early stages of the pandemic,there was a great deal of discussion around the likely shape of recovery, withoptimists predicting a V-shaped recovery, pragmatists favouring a “Nike swoosh”and the more pessimistic observers suggesting an L-shape. In practice, therecovery can, to date, perhaps be best characterised as K-shaped. That is, differentsectors and different geographies have recovered at different paces. Figure 3 doeshowever show that recent positive sentiment relating to the interim results of thePfizer/BioNTech, Moderna and Oxford/AstraZeneca vaccine studies and itsimminent distribution has been wide-reaching and has pushed indices backtowards pre-pandemic levels. This was reflected in recent stock marketsperformance, that have gone up on average by 12.7% since June.

The euro area economy was down by 11.8% in Q2 2020 before bouncing back by12.6% in Q3. Overall, it is expected that it will contract by 7.8% in 2020 beforegrowing 4.2% in 2021. The outbreak of the COVID-19 pandemic in theNetherlands and the measures taken in response resulted in an unprecedenteddecline in GDP in the second quarter of the year (9.4% compared to the samequarter in 2019). Economic activities substantially recovered in the third quarter(+7.7% q/q growth in Q3).

Besides COVID-19 contingency measures and economic repercussions, othertopics gather investors' attention. The terms of the exit agreement between theEU and the UK are not clear yet, although the transition period that will shape thefuture relationship between the two economies is ending in the coming weeks. Atthe same time, investors are hoping to see an extension of the central bank'sexpansionary policies that have helped sustain the economy during the crisis. InEurope, the ECB’s pandemic emergency purchase programme (PEPP) initiated inMarch 2020, together with the low interest rates, are regarded by many as anecessary stimulus for growth and investment.

Furthermore, the US presidential election resulted in Donald Trump beingdefeated by Democratic rival, Joe Biden. The new president is expected to addressissues concerning environmental protection, healthcare and international trade.

The VIX Index, a measure of market volatility, has fallen significantly from itsMarch high of 82.7 to 20.7, getting closer to pre-pandemic levels and to 2019’saverage of 15.4.

Source: Eurostat, Refinitiv Eikon

Figure 4: Volatility index

6 © 2020 Deloitte. All rights reserved

Source: Refinitiv Eikon

Figure 3: European indices performance

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Euro Stoxx 50 DAX AEX FTSE 250

Despite obvious challenges, the technology sector has shown remarkable resilience and leads the Stoxx 600 sectors

Sectors have recovered from the effects of COVID-19 at variousspeeds. This is well illustrated in Figure 5. Although capitalmarkets overall have experienced a strong performancefollowing recent progress in the vaccines development, only afew show positive returns year-to-date.

Technology has outperformed the rest of the sectors during thepandemic for obvious reasons. Some examples are the tech-related stocks found amongst the top Stoxx 600 performersYTD, such as Swedish companies Sinch up by 300% andEvolution Gaming Group up by 159%. Moreover, despite thephysical closure of all ‘non-essential’ retail stores for severalmonths in large parts of Europe, the Retail industry is one of thetop-performing sectors YTD 2020. Supermarkets and Homestores have benefitted from both their ‘essential’ status andexisting online presence coupled with a consumer populationlargely working from home and able to take delivery of goodsordered online and finding themselves with less other spendopportunities.

Utilities stocks also enjoyed a good performance relative toother sectors. The great momentum of renewable energycompanies is supported by the active role of manygovernments which include the transitioning into clean energyinto their political strategic agendas.

Energy, on the other hand, is the worst performer since thebeginning of the year. The lack of demand for travel has limitedoil price recovery following the collapse of the West TexasIntermediate price into negative territory in April. Oil priceshave steadied at around $40/bbl but remain c. 30% off the longrun average.

Similarly, Banks have been negatively affected by the COVID-19economic context. Falling interest rates, mortgage paymentrelief and increasing levels of provisions for bad debts are likelyto have contributed to recent underperformance and will likelybe affected when governmental support schemes stop as thelevel of bankruptcies is lower in the first 45 weeks in 2020compared to the same period in 2019.

Figure 5: Stoxx 600 sector performance

Source: Bloomberg, Refinitiv Eikon



Two other underperformers YTD 2020 are Real Estate and Travel & Leisuresectors. National and global restrictions have reduced demand and restrictedthe ability to travel domestically and internationally for much of the year. Thishas left the European Travel & Leisure industry with severe earnings andbalance sheet pressure, leading to many companies assessing their strategicand financial options. The financial government aid packages are expected tocontinue to be key for the development of the Hospitality sector in the nearfuture.

-40% -20% 0% 20% 40% 60% 80% 100%

TechnologyBasic Resources

Consumer Products & ServicesChemicals

RetailUtilities

Industrial Goods & ServicesFinancial Services

Automobiles & PartsPersonal Care Drug and Grocery Stores

Construction & MaterialsHealthcare

Stoxx 600Media

Food and BeveragesTelecommunications

Real EstateInsurance

Travel & LeisureBanks

Energy

Performance YTD Performance since lowest point in 2020

© 2020 Deloitte. All rights reserved

Equity issuance andmacroeconomic considerations

Thriving after recovery | Equity issuance and macroeconomic considerations

2020 ECM volumes exceed previous years’ levels with Follow-On surging and IPO market reopening as volatility steadies

ECM activity has been focused on Follow-On issues in 2020, largelyas a result of corporates needing to shore up balance sheets toweather the COVID-19 storm. Meanwhile, IPO activity is slowlyrecovering following the first half of the year where marketconditions and increasing volatility prevented companies fromlisting. As volatility steadies, sizeable companies such as Dutch JDEPeet’s and Polish Allegro successfully listed boosting the IPOmarket – currently, a healthy IPO pipeline is building up for 2021.

With c. €120bn equity issued, 2020 European Follow-On activityYTD has seen roughly 60% greater deal value than 2018 and 2019.Technology, alongside Finance, Healthcare, Real Estate, andUtility/Renewables, have been the most active sectors. The UK,Switzerland, and Germany have accounted for c. 57% of the Follow-Ons issued in Europe during 2020. Companies also turned toFollow-Ons to fund acquisitions, such was the case of Germanpharmaceutical giant Bayer which issued a jumbo €6bn rights issueto fund the Monsanto deal and the same for Spanish telecomcompany, Cellnex, which issued a mega €4bn rights issue to fundfuture acquisitions.

Whilst it has been a quieter year in terms of IPOs, the successfullistings noted earlier showed that there is still investor support fornew companies with attractive stories, especially for technologicalcompanies. Such is the case that four out of the top five largestEuropean IPOs in 2020 are companies related to the tech and e-commerce sector (Allegro, The Hut Group, Kaspi and LINKMobility). All of which have shown a phenomenal aftermarketperformance. As no surprise, the technology sector led the rankingsas the most active sector in terms of IPO volume, followed by thefinance, transportation, and healthcare sectors. In terms of listingvenue, the UK remains the most active market in terms of IPOissuances with 24% of the volume YTD followed by the stockexchanges of Netherlands, Norway and Poland.

Powering ahead | Equity issuance


Deals

Vol

ume

(€bn

) Nº of Deals

Figure 6: European equity issuances since 2018

Figure 7: 2020 YTD equity issuances by sector and equity issuances by country

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2018 2019 2020

Follow-On (€bn) IPO (€bn) Nº of Deals

30%

14%

9%7%6%

34%

United Kingdom GermanySwitzerland SwedenFrance Others

26%

9%

8%7%7%

42%

Computers & Electronics Healthcare

Real Estate/Property Transportation

Utility & Energy Others

Deloitte European CFO Autumn Survey

Economic activity in Europe picked up rapidly over thesummer following the extraordinary measures put inplace to counter the spread of COVID-19. With that, CFOoptimism has improved following the record lows ofearlier this year - Half the CFOs said they feel moreoptimistic than three months ago about the financialprospects for their company. Yet, despite increasedrevenue expectations reflecting the overall improvedmood in Europe, most businesses have yet to return totheir pre-pandemic level. In fact, 23 percent of businessesare operating at or above their pre-COVID level, but 44percent expect to return to pre-crisis levels only in ayear’s time at the earliest.

While sentiment has improved, business leaders remainconcerned about the solidity of the recovery. Aweakening in demand remains one of the top threeconcerns in two-thirds of the countries surveyed.

Nine months into the COVID-19 pandemic, a new letter has risen to prominence in thealphabet soup used to describe possible shapes of economic recovery: K. In a K-shapedrecovery, different parts of the economy experience markedly different trajectories.While some sectors or groups are rebounding, others remain stuck on a downwardtrajectory. The results of the latest Deloitte’s European CFO Survey reveal which pathsbusinesses in Europe find themselves on.

At the sector level it is in tourism and travel that CFOs are most negative about therecovery, with 84 per cent expecting to return to the pre-crisis level in the second half of2021 at the earliest (Figure 3). In transport and logistics, too, a majority (54 per cent) ofCFOs expect to be back to the pre-crisis level only by the end of next year or later. Thus,despite CFOs’ generally optimistic view of their long-term financial prospects in thissector, the crisis seems to have inflicted a heavy blow and the road to recovery lookslong. At the other end of the spectrum, about half the CFOs in the life sciences industrysay they are already at pre-crisis levels or expect to recover fully by the end of 2020. Inaddition, a relative majority of CFOs in retail (46 per cent) expect full recovery by theend of the year. Although lockdowns had an immediate negative effect on retailers, thevolume of sales recovered quite quickly and in August was already above the Januarylevel. Pent-up demand and online sales may have helped this sector to emerge from thewoods faster.

Since 2015 Deloitte has conducted the European CFO survey, giving voice twice a year to seniorfinancial executives from across Europe. The data for the Autumn 2020 edition were collected inSeptember 2020 and garnered responses from 1,578 CFOs in 18 countries and across a widerange of industries

Figure 8: Some sectors are coming back to pre-crisis levels at more rapid pace. Based on the information you have so far, when do you expect your company to return to a pre-crisis level of revenue generation?

27% 34% 26% 25% 29% 25% 17% 25% 15% 14%4%

21% 12% 16% 17% 12% 8% 16% 8% 15% 10%

0%

19% 18% 25% 18% 24%26% 20% 29% 27%

23%

12%

32%26%

32% 40% 34% 41% 47% 38% 42% 54%

84%

0%

20%

40%

60%

80%

100%

120%

Line sciences Retail Consumer goods Technology, media&

telecommunication

Financial services Energy, utilities &mining

Industrial productsand services

Construction Automative Transport &logistics

Tourism & travel

Already at or above pre-crisis Recovery by the end of 2020 Recovery by June 2021 Recovery in the second half of 2021 or later


Powering ahead | Macroeconomic considerations

Hot topic 1: The importance of the Equity Story


Powering ahead | Hot topic 1 : The importance of the Equity Story

A compelling investment case is the basis of a successful IPO Companies looking to IPO should develop a robust equity story, taking into considerationpotential investors’ perspectives and requirements and ensuring reliable data and KPIs cansubstantiate it


Powering ahead | The importance of the Equity Story

Given the transformative nature of an IPO, once a company decides to list, several workstreams will kick off to get the Company ready for such an event. One of the most critical workstreams will be the elaboration of a compelling investment case for investors. An assessment of the equity story's attractiveness should be carried out very early in the process, preferably as part of the decision-making process of going public. Without a strong investment case, investors won't likely be motivated to invest in a yet "unknown" company for the market

Building a compelling investment case

Business plan

Equity Story for investors

The building of the investment case should start with assessing the Company’s business plan to identify key features and ensure investors get a true reflection of the company’s track record, competitive environment, strategy, value drivers/success factors and growth objectives

Having identified the main features of the Company in the initial phase, the Company should run a peer benchmarking, consider sector dynamics, and assess how listed peers are viewed by investors, identifying key strengths and weaknesses. Taking into consideration all of the above is the basis to ensure the Company is building a compelling equity story for public markets

Supportive KPIs and data

Once the Company confirms the equity story is suitable and attractive for an IPO, the next step is to ensure that the already identified "key investment highlights" can be supported by robust, reliable data and KPIs.Therefore, the Company should compile/produce internal and external data, facts, and KPIs to support its resilient positioning.Having robust data supporting the equity story facilitates investors and research analyst to prove the robustness of the equity story and guides them to an accurate company valuation

Compelling investment case

Finally, the last step to build a compelling investment case for the IPO investors is to ensure that the proposed deal structure supports the equity story and the Company's growth story presented in the IPO prospectus. It is key to be in line with the Company’s listed peers in terms of leverage levels, dividend policy, KPIs and segments being reported to the market. All of these may affect the Company’s decision on raising capital at IPO in order to reduce leverage or finance its growth plans. A strong equity story and an attractive deal structure (i.e. large free float to provide the stock with enough liquidity) are essential to build a compelling investment case - key to successfully address and captivate the interest of the right investors

Consistency of the equity story throughout the IPO process is vital for investor’s engagementThe equity story plays a relevant part in many of the IPO documentation and focuses on thedifferent investor’s interactions. Therefore an early preparation of the investment case to bepresented to investors is critical to ensure consistency in the messages to the investors’community


Powering ahead | The importance of the Equity Story

Once the Company decides to pursue an IPO, and before selecting the banking syndicate and legal advisors for the transaction, the Company should build a robust and detailed Management Presentation. The presentation should feature the Company's equity story and the data and KPIs to support it – the Management Presentation should be the basis for advisors to start working on the different marketing materials, ensuring consistency in messages.

It is not advisable to start meeting with investors before reviewing and reaching an agreement among the advisors' group and the Company regarding the key investment highlights to be presented to the market.

It will also be crucial that a robust economic-financial model [for internal purposes] is finalized prior to those investors' meetings. Such model should reflect the business plan and be fit for sensitivity analysis

The Equity Story should be consistent in the following IPO documentation:

1 Management Presentation

Financial model 2

3 Early Look Presentation Analyst Presentation 4

5 Analysts' research reports

Prospectus 6

7 Roadshow Presentation

Consistency in the messages set out in

the marketing materials is key to ensure investors

support the Company’s story and

understand its financial track record.

The objective is for investors to believe in

the management’s ability to drive the Company and its

growth prospects -increasing the likelihood of

converting such investors’ belief into

demand early on during the

Bookbuilding process of the IPO


Hot topic 2: The rise of SPACs

Powering ahead | Hot topic 2: SPACs

The 5G of capital markets

Powering ahead | SPACs in ECM

1: source: Deloitte Private-Company CFO Considerations for SPAC Transactions15 © 2020 Deloitte. All rights reserved.

SPAC Market

Due to its popularity in the US and recent developments in the European context, SPACs have quickly become the talk of the town in the capital markets landscape. This in combination with its speed: will this relativity new IPO form be the 5G of capital markets?

SPAC gained popularity over the last couple of years, mainly in the US where 2020 has been a record-breaking year for SPAC IPOs in terms of number, amount of proceeds and average market capitalisation raising USD 33.1 billion as at 31 August 20201. The increase in use of SPAC IPOs as alternative to traditional IPOs is the result of a confluence of factors.

Pricing for a traditional IPO is affected by market volatility andbroader investment sentiment, which varies significantly leading touncertainty up to the time of pricing. SPAC mergers provide morecertainty because of up-front pricing and valuation that is in largepart determined through negotiations that typically occur monthsbefore the transaction closes.

The recent rise in market volatility driven by COVID-19, oil pricefluctuations and US elections, and some companies needing to delaytheir IPO, has therefore prompted several companies in the US toforego the traditional IPO route for up-front price recovery andpotential accelerated timeline offered by a SPAC transaction.

From an investor perspective, the boom in SPACs seem to reflectinvestor’s search for better returns in a low-interest rate and highvaluations world.

Introduction to SPACs

The SPAC is, however, not new and has existed since the early 2000s,but the curve of companies taking this approach has been steep inrecent years, especially in the US and with a possible cross overeffect to Europe. A SPAC is a newly created company that uses IPOproceeds to fund the acquisition of a private operating company.

SPAC’s management team seeks to complete an acquisition of anexisting operating company (“target”) within the period stated in theSPAC’s governing documents which typically varies. As an example,the recently listed Dutch Star Companies Two B.V. which was listedon Euronext Amsterdam has 24 months to complete the acquisitionsubject to a one-time six-month extension. If the SPAC successfullycompletes an acquisition, the private operating company targeteffectively becomes a public company.

If the SPAC is unable to complete an acquisition in the allocatedtimeframe, the proceeds, less certain costs, will be distributed to theshareholders. Shareholders of the SPAC will always have the finalvote to approve or disapprove the proposed acquisition.

US Statistics

The momentum in the US is not showing any signs of slowing down,and the first eight months of 2020 already have been filled withlandmark SPAC records, including –

• The highest number of SPAC IPOs in a year (81);

• The highest amount of SPAC proceeds raised in a year (USD 33.1billion as per 31 August 2020);

• The highest average SPAC IPO size in a year (USD 408.7 million);

• The largest IPO on record (USD 4 billion).

The life of a SPAC

Powering ahead | SPACs in ECM

1: source: Deloitte Private-Company CFO Considerations for SPAC Transactions16 © 2020 Deloitte. All rights reserved.

When a SPAC is launched, the sponsor, and often itsmanagement team, pay a nominal amount for an equitystake in the SPAC which is often referred to as ‘foundersstock’. The founder’s stock is intended to compensate theinitial investors for identifying a promising target

After formation, a SPAC begins the process of making its initial public offering of common shares and warrants

The search is similar to a typical M&A transaction except for the right to redeem shares which provides some uncertainty regarding the amount of cash available to pay target shareholders

Target Search

IPO

Shareholder Vote

Acquisition Close

Formation

In order to complete the merger, the shareholders will vote amongst others based on the financial information presented to the shareholders (audited financial statements of the target, interim financials, pro forma financial information, and others)

Once an affirmative vote is obtained from the proxyprocess, the target acquisition can close by merging intothe SPAC. At this stage it is imperative that the companymakes a focused effort to elevate on people, processes,and technology to support the reporting schedule.

Process

A SPAC life begins with its initial formation, followed by its IPO, its search for atarget, a shareholder merger vote, and finally, the close of an acquisition. TheSPAC process differs from that of a traditional IPO in that the target companyis not involved in the formation of the SPAC or the IPO phase. However, theterms of the shares and/or warrants offered in a SPAC IPO and the agreementsthe SPAC has with its sponsor(s) and management team ultimately influencethe value that target company investors extract from a SPAC merger.

Life of a SPAC

What route works for you?

In order to assess whether the traditional IPO or SPAC IPO route worksfor you, you might start with the following questions to understandthe main differences between the options:• Do you value the flexibility to negotiate? – In the traditional IPO

process, the underwriter has the upper hand, including setting thestock price. But in SPACs, nearly all aspects can be negotiable –from the opening stock price to the make-up of the board and, insome cases, even the sponsor’s ownership stake.

• Are you in a hurry? – SPACs are typically faster than traditionalIPOs. While a traditional IPO can typically consume more than sixmonths, SPACs have been known to make the transition withinfour months – but the required paperwork, including both thefinancial statements and prospectus, is not always lessburdensome.

• Is raising capital a primary motivation? – Companies, such asSpotify, can choose the direct listing (“DL”) route in part becausethey are well-capitalized. In a DL, a block of shares is sold withoutany new capital being raised.

• Who wants a lock-up period? – You, or your board, may decidethat a 180-day lock-up period – preventing large shareholdersfrom flooding the market with an oversupply – is prudent. That’susually the length associated with a traditional IPO, while a SPAC’slock-up typically lasts for a year. DL, by contrast, require no lock-up period.

• Is cost savings a priority? – Underwriting fees typically amount upto 7% of a traditional IPO, plus there’s the inefficiency embodied ina stock’s first-day pop. DLs, can access the public float withoutpaying those fees. But that also means their stock price can sinkon opening day. In a SPAC, underwriter fees and upfront cashoutlays are lower than in a traditional IPO. Still, CFOs of SPACtargets need to be aware that typically sponsors have 20% of theIPO shares, which effectively dilutes public shareholders. Theyshould also be cognizant of potential private investment in publicequity (PIPE) discounting and discounting in backstop agreements.

European market

What are we seeing in the European and Dutch market?

• Large amount of European dry powder of private equity andventure capital funds.

• 2018’s first Dutch SPAC IPO at the Euronext (Dutch StarCompany One) is trading at more than 200% of its initialoffering price at 4 December 2020.

• This year’s second Dutch SPAC IPO at the Euronext (Dutch StarCompany Two) had higher net proceeds from the IPO (€110million) compared to Dutch Star Company One amounting to€55 million.

• Whereas European regulation seems more impediment, recentexamples showcase that SPACs in the Dutch context work welland are compliant with European regulations.

• Some IPOs got delayed or cancelled due to the marketsentiment at the time due to impacts driven by COVID-19, oilprice fluctuations and US elections and the SPAC alternativemight be a good alternative from this perspective. Also, sizeconstraints seem less of an issue for SPAC, offering a new routeto public capital for small to medium size IPOs.

• SPAC transactions come with their own set of uniquechallenges, and it is essential for entities to have anunderstanding of the risks associated `with these investmentvehicles and a comprehensive project management plan tomeet the demands of an accelerated merger timeline.

Powering ahead | The rise of SPACs

Aafke Olminkhof

Manager | Capital Markets Audit

Email: [email protected]

Tel: +31622357699

Ronald Bakker

Partner | Head of Capital Markets Audit


Tel: +31620252483

I F Y O U W O U L D L I K E T O E X P L O R E T H I S T O P I C F U R T H E R P L E A S E R E A C H O U T T O Y O U R C O N T A C T

Dutch Star Companies Two (‘DSC2’)

Listing date 19 November 2020

Deal value €110 million

Unit offering price€60 per unit – each unit consisting out of six Ordinary Shares and six Warrants

Key characteristics

• Main objective is to complete a business combination within 24-30 months after the settlement

• Requires 70% majority approval of shareholders

• New search, within time limit, will start if 30% of the shareholders participating in the EGM do not approve the business combination

Case Study SPAC IPO at Euronext

Deloitte’s role

• Deloitte acts as Auditor to DSC2 in relation to the IPO.

• Capital Markets expertise in relation to the prospectus.

Contacts


mailto:[email protected]:[email protected]


Hot topic 3: COVID -19 – Valuation & Capital Market Impact Monitor

Powering ahead | Hot topic 3: COVID-19 Valuation & Capital Market Impact Monitor

COVID-19 - Valuation & Capital Market Impact MonitorDespite the substantial drop in GDP, equity markets have recovered most of the lost ground fromthe very sharp decline following the outbreak of the COVID-19 pandemic. EV/EBITDA 2020multiples are currently trading above the levels observed before COVID-19. There is howeverquite some variation in performance between segments. Also, volatility in market inputs (likemultiples) and remaining uncertainty surrounding the impact of COVID-19 still require care andjudgement in valuations.


Powering ahead | Hot topics

Capital markets• Equity markets have recovered most of the lost ground from the very sharp decline

in March 2020 following the outbreak of the COVID-19 pandemic.• The decline in market prices in October 2020 (a.o. driven by the surge in number of

COVID-19 cases) has been more than offset by the recent stock market increasefollowing the news that several vaccines are expected to successfully enter themarket in early 2021.

• Looking at returns, per segment quite some variance is observed, with winnersparticularly in the Information Technology segment, as these companies have beenable to adapt quickly to the shift to home-working and benefit from the accelerateddigitalization of economies following COVID-19. The long-term impact of the(partial) lockdowns remains uncertain, but all sectors and businesses will be forcedto adapt and change as economies recover.

Economic outlook and analyst expectations• The economic fallout following COVID-19 has led to a substantial decrease in GDP

projections for 2020 in the Eurozone.• Due to the high uncertainty surrounding the development of the COVID-19 crisis,

there is a great variation in economic scenarios developed by economists. Despitethe surge in number of cases in many European countries, a quicker economicrecovery seems to have become more likely - or implicitly assumed by markets -with the recent news of the expected availability of vaccines.

• Contrary to the increase in stock markets, projections of equity analysts have furtherdropped compared to April 2020. As per end of November 2020, they assume a5.9% decline in 2020 revenues for the companies in the MSCI Europe Index (1.9% asper April 2020).

• Equity analysts have decreased their EBITDA 2020 estimates for companies in theMSCI Europe Index by 11.5% (compared to the estimate per 1 January 2020).

• We observe quite some variation between segments, with the large caps in HealthCare and Information Technology even expected to experience growth in 2020 (onaverage). Also, more variation exists in the expected EBITDA estimates by differentanalysts for the same company. This variation corresponds to the uncertaintysurrounding the impact of COVID-19 on the (recovery of the) economy and evenmore so on individual companies.

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01-04-202001-01-2020 01-07-2020 01-10-2020

AEX

MSCI Europe Index

Development of AEX and MSCI Europe since 01-01-2020

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2019AC

110.4

2020FC 2023FC

106.9103.1

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116.3Estimate per 01-01-2020

Estimate per 23-11-2020

Revenue estimates by analysts** - MSCI Europe

** Reflects median revenue growth expected by equity analysts for companies in MSCI Europe IndexSource: Capital IQ, Deloitte Analysis

Source: Capital IQ, Deloitte Analysis

MSCI Europe - Most vs. least affected segments*

* Reflects share price impact since 01-01-2020 (median impact MSCI Europe is -2.7%)

Health Care: +3.0%

Industrials: -1.7%

Information Tech.: +4.1% Energy: -38.5%

Financials: -14.1%

Real Estate: -22.0%

COVID-19 - Valuation & Capital Market Impact Monitor


Powering ahead | Hot topics

Trading multiples• In March 2020, EV/EBITDA 2020 trading multiples declined sharply after the

decrease in stock prices (whilst 2020 EBITDA estimates were relatively unchanged).Due to the recovery in stock markets and the drop in EBITDA 2020 estimates,EV/EBITDA 2020 trading multiples are currently above their observed levels peryear-end 2019.

• In these times of market and economic volatility, the use of multiples becomesmore challenging and often yields less meaningful or inconclusive results. Therefore,extra care is required and consistency in reporting periods and normalisationsbecome even more important. Also, forward-looking multiples (if based onconsistent ‘post-crisis’ EBITDA estimates for 2021 or 2022) likely yield moremeaningful results.

DCF Analysis• As the earnings estimates have gradually decreased, whilst share prices recovered,

the sharp initial increase in equity market risk premium (ERMP) has normalised.• Although a company WACC might have changed, a DCF analysis also requires the

financial forecasts to reflect the new economic reality. Due to the ability to modelthe uncertainty surrounding the impact of COVID-19 on a company’s performancein financial scenarios, DCF analyses have become even more important.

Reconciling results• The variation and volatility in financial forecasts and market inputs require care for

consistency and more professional judgement. A bigger variance in valuationranges also increases the likelihood of a discrepancy in value perception betweenbuyers and sellers in transactions, or between current market pricing and resultsobtained in fair (market) value analyses (based on a long-term ‘value in use’perspective).

• Despite these challenges, the need for and relevance of valuations often increase ineconomic crises (for example in relation to financial restructurings, goodwillimpairment tests, complex / distressed M&A and shareholder disputes).

6x

7x

8x

9x

10x

11x

12x

13x

01-07-2019 01-01-2020 01-07-2020

7.8x

10.8x

10.2x

7.4x

11.8x

10.6x

EV/EBITDA 2020 & 2021 – Median MSCI Europe Index

+9.8%

+4.8%EV/EBITDA 2020

EV/EBITDA 2021

23-11-2020

40

50

60

70

80

90

100

110

01-01-2020 01-04-2020 01-07-2020 01-10-2020

MSCI Europe Index

2020 Net Earnings expectations

Development in MSCI Europe & 2020 earnings estimates

Financial scenarios and corroborating results

DCF

Sce

nari

os

Enterprise value

Mul

tipl

es

2019 2020 2021 2022 2023 2024

Old Forecast

New Scenarios

Source: Capital IQ, Deloitte Analysis

Contacts Jeroen van der Wal

Partner | M&A | Valuation & Modelling


Tel: +31655853480

Maurits van Maren

Partner | M&A | Valuation & Modelling


Tel: +31620789518

I F Y O U W O U L D L I K E T O E X P L O R E T H I S T O P I C F U R T H E R P L E A S E R E A C H O U T T O Y O U R C O N T A C T

Full report - For the full report, or the COVID-19 - Valuation & Capital Market Impact Monitor of April 2020, please visit out website here

mailto:[email protected]://www2.deloitte.com/nl/nl/pages/finance/articles/covid-19-valuation-and-capital-markets-impact-monitor.html


Deloitte EquityCapitalMarkets

Powering ahead | Deloitte Equity Capital Markets

Powering ahead | Deloitte Netherlands Equity Capital Markets

Dennis de VriesSenior [email protected]

Ronald [email protected]

Philip [email protected]

Victor WestraSenior [email protected]

Audit

Financial Advisory

Valuations

Remuneration

Aly WijbengaSenior [email protected]

Justin [email protected]

Maurits van [email protected]

Casper SchierneckerSenior [email protected]

Tax

Caspar [email protected]

Joyce [email protected]

Vincent [email protected]

Oliver CottonSenior [email protected]

Aafke [email protected]

Wytse [email protected]

Hans KnijnJunior [email protected]

Joost [email protected]

Christiaan KustersSenior [email protected]

Darryn [email protected]

Ron NoordenbosTax [email protected]

Paul de WinterSenior [email protected]

Jos [email protected]

Resilience, Crisis & Reputation

Frédérique Demenint Danny TingaPartner [email protected] [email protected]


mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

Selected European ECM team members


Powering ahead | Deloitte Equity Capital Markets

Chris [email protected]

Matthew [email protected]

Nico [email protected]

Sumit [email protected]

Runolfur Thor [email protected]

Marc [email protected]

Davide [email protected]

Justin [email protected]

Are Skjø[email protected]

Javier Fernandez [email protected]

Mayrin García [email protected]

Tomás de [email protected]

Sofia Schö[email protected]

Flurin [email protected]

Aadam [email protected]

United Kingdom

Belgium Denmark Finland

Iceland

IrelandItaly

Poland

Spain

Norway

Sweden Switzerland

Iver [email protected]

Anne Randmæl [email protected]

Vedrana Jelušić[email protected]

Croatia

Stefano [email protected]

Gabriele [email protected]

David [email protected]

Craig [email protected]

Thomas Strö[email protected]

Bjørn Würtz [email protected]

Albert [email protected]

Austria

Bernhard [email protected]

Alex [email protected]

Bulgaria

Lars [email protected]

Kirsi [email protected]

Czech Republic

Jan [email protected]

France

François [email protected]

Eneli [email protected]

Estonia

Germany

Andreas [email protected]

Andre [email protected]

Balazs [email protected]

Hungary

Janis [email protected]

Latvia

Linas [email protected]

Lithuania

Netherlands

Ronald [email protected]

Romania

Ioana [email protected]

Oliver [email protected]

Tomasz [email protected]

Joerg [email protected]

Oliver [email protected]

Finland (Cont.)

Frédérique Demenint [email protected]

mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

Powering ahead | Credentials

Maxeda DIYHigh yield Bond

2017€475m

VolkerWesselsIPO

2017€575m

B&S GroupIPO

2018€358m

Instone Real EstateIPO

2018€430m

Dutch Star Companies One IPO

2018€55m

InfoproHigh yield Bond

2017€500m

ArgenxSecondary Offering

2019€502m

Philips LightingIPO

2016€5b

Takeaway.comIPO

2016€350m

Shop Apotheke.comIPO

2016€115m

Schoeller AllibertHigh yield Bond

2019€250m

HeinekenBond

2020€1.5b

ArgenxSecondary Offering

2020€785m

Just Eat TakeawayUK listing

2020€6.9b

DSC 2IPO

DSC 1IPO

2020€110m

2020€80m

JDE Peet’sIPO

2020€2.6b


• Help management handle the transition to a NV

• Assist with preparation of first set of public financials, audit of financial statements, ongoing analyst liaison and results announcements

• Ongoing corporate governance advice and support

• Tax structuring, including domicile of Topco

• Advice on arranging executive and employee remuneration plans

• Benchmarking remuneration structures against other listed companies

• Implementation and documentation of remuneration plans

• Help companies prepare for an IPO

• Readiness assessment with a key findings report. Identifies deficiencies that may delay or prohibit an IPO

• Scope covers financial and commercial areas

• Design remediation plan to address shortcomings prior to IPO kick-off

• Typically where we are not acting as auditor to the company

• Support and advice where and when needed

• Services include project management, seconding staff, building models and working as an integrated part of the company’s team

• Underwriter due diligence• Working capital reporting• Profit forecast reporting• Pro Forma opinion

• Audit the financial statements included in the prospectus

• Providing comfort to the underwriters

• Assessing the control and governance environment

• Support and advice on carve-out design (operational and financial) and implementation

• Support on preparation of carve-out financials

• Support and advice on transaction (ECM or private sale) matters

• P2Ps, public offers, hostile takeovers• Act as lead adviser on either the buy-side

or sell-side of the transaction• Advice on corporate restructurings and

demergers• Support and advice on preparing bid

defence procedures

• Truly independent advice throughout the IPO process

• Offer and transaction structuring advice• Assistance with adviser selection• Input into equity story• Project and syndicate management• Analysis and coordination of investor

marketing

Independent IPO Adviser

Reporting Accountant

IPO Readiness Post-IPO SupportTax and RemunerationAdvice

IPO Assist

Carve out financials Public Company M&A

IPO Auditor

ECM service offeringsPowering ahead | Deloitte Equity Capital Markets


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© 2020 Deloitte. All rights reserved.

Slide Number 1Slide Number 2ContentsDeloitte’s European Equity Capital Markets update Market � performancePositive vaccine news in November boosted the lacklustre recovery of European stocksDespite obvious challenges, the technology sector has shown remarkable resilience and leads the Stoxx 600 sectorsEquity �issuance andmacroeconomic considerations2020 ECM volumes exceed previous years’ levels with Follow-On surging and IPO market reopening as volatility steadies Deloitte European CFO Autumn SurveySlide Number 11A compelling investment case is the basis of a successful IPO Consistency of the equity story throughout the IPO process is vital for investor’s engagementSlide Number 14Slide Number 15Slide Number 16European marketSlide Number 18COVID-19 - Valuation & Capital Market Impact MonitorCOVID-19 - Valuation & Capital Market Impact Monitor Deloitte � Equity � Capital � MarketsSlide Number 22Selected European ECM team membersSlide Number 24ECM service offeringsSlide Number 26

Powering ahead · 2021. 1. 13. · Powering ahead | Market performance Market performance. Positive...

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