Informed issuers obtain the best results
With the exception of crisis-induced regulatory change and occasional product innovation, the basic architecture of capital markets financing in the US has gone largely unaltered for decades. The process involves companies, which infrequently access the financial markets, retaining Wall Street banks, which execute such transactions as a primary business, and possess extensive deal experience, product expertise and highly-valued relationships with investors as a result, to manage their securities offerings and other capital structure initiatives.
This “toll-booth” model has proven highly lucrative for investment banks, which charge substantial fees to raise capital and consistently rank among the most profitable US businesses, but has long suffered from a material weakness. In serving the interests of clients on both sides of financing transactions – corporations as “issuers” of securities and investors as “buyers” – banks play a role that is inherently and fundamentally conflicted.
Further compounding this is the fact institutional investors are typically far larger and more consistent clients of the investment banks than any single corporate issuer. The conflict also requires the banks to secure expansive indemnification from issuers against any perceived legal or fiduciary obligations, as well as any potential claims of reliance upon them regarding terms, risks or conditions of the financing. (The latter is particularly ironic given that it is often a bank’s specific expertise with a financial product or structure that secures its mandate in the first place.)
Recognizing the weakness in this construct and disadvantaged position in which it places companies gives rise to an important question – How might issuers close the know
ledge and experience gap between them and their deal manager(s) and counter any potentially unfavorable impacts of the banks’ conflicted position to meet their obligations to shareholders.
At Aequitas, we believe it is incumbent upon officers and directors to approach securities offerings from an informed, engaged perspective. We put our decades of product expertise and bank-side sales/trading and deal structuring/execution experience to work on behalf of corporate clients to close this experience “gap”, preserve leverage and secure superior outcomes.
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