The cunning competitor
Morgan Stanley's novel approach of not playing the volume game proves to be its strength. Tanya Angerer reports.
Morgan Stanley has shot up through the leveraged loans league tables in Europe, Middle East and Africa in recent years. In 2004, the bank took 14th position by deal value, but by the end of 2005 had risen to seventh.
The bank has won the bulk of this year's public-to-private (P2P) deals, including the biggest Swedish P2P — medical technology company Gambro. The bank has also arranged more than half of the European buy-outs this year that exceed $1bn.
The jump in league table standing sounds impressive enough. But this is not necessarily how the bank measures its progress.
"Morgan Stanley prefers not to play the volume game. Arranging a bulk of deals doesn't create huge value for a bank like us. It is more about the quality of our advice," says Simon Parry-Wingfield, co-head of leveraged and acquisition finance in London. "We chase transactions where we can play across multiple products — be it M&A advice, equities, tax and pensions advice, or a commodities angle."
In an aggressive market where an increasing number of banks are chasing arranger mandates, Morgan Stanley, surprisingly, does not feel the necessity to fight for all transactions.
"A high proportion of our deals are proprietary ideas," continues Parry-Wingfield. "We do participate in auctions, but prefer to concentrate on situations where the financing is not likely to become commoditised."
Furthermore, despite the market suffering from a patchy deal flow this year, the bank has had the self-assurance to refuse certain deals.
"In some ways, walking away from a deal can also produce the best result," says Parry-Wingfield. "It's a very competitive market and takes strength of character to draw the line."
Morgan Stanley's climb to among the top banks can also be explained through the structure of its team, which is split into syndication and origination/execution. Unlike some other banks, Morgan Stanley takes a multi-skilled approach.
Within origination and execution there are several business lines with no formal split in terms of personnel or responsibilities. The businesses the bank pursues comprise corporate event-driven financings, corporate high yield, leveraged buy-outs, emerging markets and capital restructuring. The syndicate staff are also rotated across industries and clients.
"From an organisational standpoint, our team covers every kind of leveraged finance product, across sponsors and companies, with seamless execution," says Armins Rusis, co-head of leveraged and acquisition finance in London. "We have an integrated primary and secondary leveraged finance business. Everyone sits together and views it as one continuous credit market."
Some may be sceptical about Morgan Stanley's staying power after Kevin Adeson and Oliver Duff, their former heads of leveraged finance, left for HSBC in April. But the bank is confident about its future, especially if corporate leveraged deals make a comeback.
Trade buyers have returned with a vengeance and are giving private equity firms a good run for their money. "As companies review strategic objectives, an increasing number are realising that the optimal capital structure may involve the leveraged finance markets," says Mark Walsh, managing director and head of corporate leveraged finance in London.
In the field of corporate leveraged finance, there is no doubt that Morgan Stanley, supported by its leading M&A advisory team, will then have the opportunity to realise its true potential.
|Key staff: Simon Parry-Wingfield and Armins Rusis (co-heads of leveraged and acquisition finance)
Key deal (2006): The Eu10.7bn loan supporting Ineos's buy-out of Innovene that was signed in February
Front office headcount: 35 (Europe, up a third from last year)
Key hires: Matthew Naber, executive director, loans syndicate desk (from JP Morgan), Andrew McMurdo, executive director, loans syndicate desk (from Deutsche Bank), Martin Thorneycroft, executive director, European high yield capital markets group (from Goldman Sachs)
League table position (2001-05): -, -, -, 14, 7