$55BN Record Breaking LBO Deal, Jefferies Banking Signal & London’s IPO Decline

Hello and welcome back to the Market Maker podcast and 3 main talking points this time round. We've got JP Morgan and Goldman Sachs have landed the biggest leveraged buyout in history with a $55 billion deal for Electronic Arts. This is a deal about structure, strategy, soft power. It's got it all. It's a Netflix series in itself, having done some research on this. The second story is about Jefferies. The investment banking boutique, they posted record revenues with dealmaking staging a bit of a comeback. What does it mean though for other bulge bracket investment banks? They're due to report, the big names like your JPs and GSs and so forth in about 2 weeks' time. So what signals are we getting about the health of the industry there? And then finally, London has dropped out of the world's top 20 IPO markets. It's now ranking 23 behind Mexico and Singapore. Fancy. So, what is going on? Can London reclaim its former glory? We'll look to, you know, get you involved and see what you think as well. But before we begin, a couple of things. I did do a bit of a call to action last episode to rate the show. And on Spotify, we went from 820 to 847 ratings in our pursuit to get to 1,000. So, looking at that run rate, I reckon we'll hit our year-end target about mid-November, which is well ahead of forecast. So the share price should be going up at this point.

27 extra ratings. It's hard to get excited about that.

No, but honestly, I mean, come on, come on listeners. Exactly. If you are a regular listener, I know not everyone maybe has rated the show. It really helps to juice up the Spotify algo and get this out to as many people as possible. So it'd be much appreciated. But two quick quick news flashes that we've had before we dive into those three topics. Number one, the US government has shut down for the first time in nearly 7 years. So I know that if you are new to markets, you might be thinking, wow, you know, the press, certainly mainstream media makes a big deal out of this. You would've seen markets haven't really reacted because we have been here many times before. But just to give you the headline news story, the Republicans proposed a short-term Continuing Resolution, they call it, to essentially keep funding levels at its current level. Again, they've hit that max cap, which is to keep fiscal discipline, and they've hit that limit. The Democrats though blocked it demanding healthcare subsidies. That's normally the lever that they pull, and they want the reversal of $1 trillion in Medicaid cuts. Now, yeah, I know you've got some stats on this, Piers, so I guess bit of context here. Shutting down the government, what's the actual implied impact that that has from a cost perspective?

Well, I mean, from a cost perspective, well, that's a good question. You tell me. I mean, the last, I think the last time you mentioned 7 years ago, right? Obviously, well, not obviously, maybe you don't remember, but that was obviously Donald Trump's term Number one. So we've got a common theme here with Trump, but basically the shutdown could cost, and it's quite a mind-blowing number, this $400 million per day in lost output. That sounds a bit sensationalist to me.

But what is the actual mechanics of this though? 'Cause I know for people following markets, the economic calendar of events has just been reshaped and there's actually the first Friday of the month of which we're now rolled into October. You would normally expect what is traditionally the largest economic data release, the Labour Report. But I'm assuming then that, that what doesn't come out because the people at the Bureau of Labour Statistics are not at work. How does this all wash out?

Well, I mean, that's it, right? So people, the government employees aren't at work because they're not getting paid. I guess this is that point about the cost. That's like the cost in lost output. What's the impact to GDP? I mean, last time the government was shut down for over a month and it cost $11 billion, or it didn't cost that, that's not the bill they have to pay. It's $11 billion less of consumption if you like, because well, these employees aren't earning a paycheck anymore, so naturally their spending drops. But $11 billion, I know it sounds like a lot, but if you've got an economy that's the size of $30-odd trillion, or can't even remember what we're up to now with the US, but it's $30-odd trillion. So in percentage terms, it's absolutely negligible. But it's a good figure for the media to band around. The big issue for me here is, right, well obviously some of these government jobs are really important from an economic measurement point of view 'cause we have the Bureau of Labor Statistics whose job it is. Now you could argue they haven't been doing a particularly good job given the quality of the data we've had coming through of late. But we're not going to get nonfarm payrolls data. Should have been tomorrow. So that we lose the key number one, top of the list labor market measurement each month. That's gone. We won't get it. The CPI inflation data comes mid-month. If the government's shut down in 2 weeks' time, which it almost certainly will be, they're not going to sort this out that quickly, then we ain't getting an inflation number. And then the Fed have a meeting. The next meeting's at the end of October. If this shutdown lasts as long as the last one, and by the way, that was a really long shutdown. So I don't know if we're going to get a whole month again like last time, but if we did, you could see the Fed going into that meeting pretty blind. So we're left with what's called private sector economic data. And we had an ADP employment report, which is a privately run measurement on job creation. And that was issued on Wednesday and that came in really low. In fact, not only low, it came in negative. So we had 32,000 minus 32,000 jobs, right? So that indicates a continuing trend, which is a deterioration of the labor market. So if that's all the data point the Fed are gonna get come their meeting in whatever, 4 weeks' time, it's, they're gonna be a little bit blind. So I don't know how this impacts on rate cut expectations, but for me that's the most important thing when it comes to how markets might behave.

What's worse, the Fed being blind or market participants being blind? Because if the Fed's blind, Surely it just shackles their hands. They can't actually do anything. They just leave, let's say policy where it is. But for traders, it's, well, you have absolutely, you know, a market. I'm talking like the intraday short-term reaction function.

Yeah.

Well then that's gonna be wild because there's nothing to anchor against and the Fed can't communicate and use forward guidance to narrow that 'cause they don't have data to speak.

It's potentially dangerous. I mean, if you say the Fed are gonna sit on their hands and do nothing, they're not gonna cut because they don't have the data, that's dangerous. What happens if then fine, the government reopens and we get payrolls figures, I don't know, in November and the thing's just fallen off a cliff again, then you've lost 6 weeks of interest rate cutting action to try and stimulate an opposing force against that dropping labor market. So in my mind, waff. I don't know. You've gotta extrapolate, right? And the extrapolation is that the trend's down.

So also, Trump, Trump is not incentivized either to do Powell any favors. If anything, he can make Powell look even worse here by just delaying it. And then Powell is, the probability of him making a successful decision with policy is going to go down because the lack of the quality of information he's going into his model, so to speak. And therefore all the more ammo it gives to Trump. So one thing I would say is on the ADP side, ADP does periodically recalibrate their figures based on what they call an expansive series from the BLS. And so what can happen, and it's something that's always important when you see, I think in this payrolls, US companies unexpectedly dropped in September, And large part of that is being blamed on issues with the methodology behind the data analysis. So yeah, again, I think you're right. If you look at the chart, it is gone. It's been going down really all year. I think there was one little bump we saw in March, but generally from Q, early Q4 of last year, it's been trending downwards. So yeah, I'd agree with what you're saying.

Clear trend. Having said everything there, let's just draw a line because S&P new all-time highs. So, you know, equity traders don't care clearly at this point in time. So that's an important point to make here.

Okay, cool. Well, and the other one I just really quickly wanted to cover, just because not only is it something that probably has broad appeal because a lot of people in UK will be consuming their products, but also because a lot of people are in M&A interviews and so forth. And that's Coca-Cola weighing a $2 billion £2 billion sale of Costa Coffee. So I'll just go over those numbers again. They're weighing a £2 billion sale. 5 years ago they bought it for just short of £4 billion.

Yeah, I was going to say that sounds cheap.

So basically they're disposing of it and they've lost half of the value they initially paid for it. And this was all part of Coke's initial strategy. To diversify beyond fizzy drinks. Now, a couple, couple of bits on the strategy side where I think they've fallen here, but first off, well, who's interested in buying Costa? And this is where you start to bring in then interesting different types of players in the industry. So here you've got Bain Capital's, in particular, their special situations unit, which I'll go on to quickly surmise what that is, but they're backers of Gail's, So you might get a cheeky Gail's if you can afford like a £10 croissant or something like that, if you're feeling fairly cakey or Pizza Express and TDR Capital and Lazard is actually advising on this deal and it's 2 billion. So pretty decent fees probably going to come on the back of this, but I thought it was a good case study, very simply in a few interesting parts on corporate strategy. So one of the things is you've had fairly sticky inflation, rising labour costs, post-pandemic pressure on consumer spending. So obviously this investment that they've made's gone really pear-shaped. Strong competition. Starbucks— Costa's actually the second largest coffee chain in the world. Starbucks, obviously the dominant player, but then you've got Pret. You've also got a wave of boutique coffee shops, which is particularly popular with a younger demographic as well, who are very much part of that consumer spending habit comparative to older demographics. And then an interesting comment I saw from an analyst was Coca-Cola's underestimation of how capital intensive and operationally demanding a cafe business is when your traditional business is in concentrate and bottling models. So yeah, and then you throw in COVID, it magnifies these weaknesses, store closures, rising rents, shifts of consumer patterns of their behavior to at-home consumption rather than on the high street. And so yeah, it was really interesting kind of a lot of things coming together for why that didn't pan out for Coca-Cola, but also how private equity is also sitting on the sidelines. They've been particularly active in consumer and retail assets despite inflation potential challenges on the horizon. So special situation funds, these are those ones that go in, sound like the SAS of the PE world, and their job is turning around these complex underperforming organisations and one that's so operationally intensive, like Costa is certainly within that domain. And this is where these particular, like Bain has a hit squad on that side of things. So yeah, timing is everything. Strategy can misfire. Just a really interesting one, I thought, with Costa and Coke.

Absolutely. And I guess slim margins in these types of businesses. And if you then get COVID and an inflation crisis, you know, there ain't much room for kind of swallowing any increased costing, right? And so I think that's obviously what's happened. But Costa, whoever goes into Costa, I mean, what's your— if you had to go to one of the big ones then, say Nero, Starbucks, Costa, I can tell you Costa would be the last one that I go into. I can't stand it. Yeah, I mean, maybe Starbucks, I guess, but I'm like you said, the young demographic. I like the boutique ones.

We'll leave the listeners guessing your age, but on that note, let's move on and let's talk about the main story we're going to chat about in this episode, which is Electronic Arts going private for $55 billion, which would mark the largest LBO LBO ever. So quite a historical week, at least for now. So yeah, what's the headlines on this deal?

Yeah, well, mega, mega deal. LBO, leverage buyout, the biggest one in the history of mankind. So this is, you know, Electronic Arts. So the kind of computer game maker of some absolute classic, you know, The FIFA, I'm sure lots of people listening to this are avid FIFA players, although I didn't realize they'd rebranded it. I'm not sure why.

Yeah, you can't call it FIFA now.

EA Sports FC, doesn't quite roll off the tongue as well, but obviously that's a massive, massive sort of asset in their, in their kind of back pocket. But then other stuff like Madden NFL, Battlefield, there's a new kind of series of that coming out and then stuff like The Sims, you know, so look, this obviously these guys have been around for, for years and actually I remember Here, I'm going to show my age. You just said, guess my age. Well, I'll age myself here. Tiger Woods Golf, EA Sports, early noughties was an absolute game changer of a computer game. The amount of hours I wasted of my life on that thing. Tiger Woods.

Yeah.

Anyway, look, this company has been IPO'd and has been on the stock market for a few years and it just hasn't got on very well being in the public markets. Okay. We'll come onto a few points around which ties into one of our conversations from last week, actually, just about Trump's idea of reducing the frequency of quarterly reporting. But look, this is a company that since they went public, just haven't really, they've lost their mojo a little bit. And I think what's happened is, this idea of quarterly reporting and having to kind of explain your strategy to shareholders and have to be on these kind of quarterly conference calls and always explaining yourself. I think what's happened is it's kind of dampened innovation a little bit. And so from a share price point of view, they've been kind of knocking on the door of $150 for really since about 2017 and periodically going up towards that level and just kind of falling back and just chopping around in a range below the $150 handle. And this is just a signal to say, well, and so, right, that's happening. Okay. Then you get outside investors who are trying to eye up deals. You mentioned earlier that private equity firms, they've got a huge amount of cash on the sidelines, as people say, a lot of firepower. It just means they're just desperate to find deals. And these big, big firms who have billions and billions on the sidelines, they want to find huge, massive deals. They want to be writing singular massive checks for really big deals and they don't come much bigger than this. So actually this deal, even though the headline is that it's PIF, so it's the Saudi Sovereign Wealth Fund who's putting up most of the money here, I think $36 billion of the $55. So it's a $55 billion all cash buyout. $36 billion of that is coming from PIF. But actually this deal got fostered between the other two partners in this So it's Silver Lake, which is a very, you know, best-in-class sort of tech, you know, fast growth tech PE fund out of the West Coast of America, you know, hugely respected. And then another partner called Affinity Partners. Okay, so you've got Silver Lake and Affinity Partners. The thing about Affinity Partners, they don't do tech at all. It's actually Gerard Kushner's fund. That's, Donald Trump's son-in-law. He's married to Ivanka Trump, and he set up this fund after Donald Trump ended his first term. Now, who was the key backer? So he did a capital raise to raise capital for his PE firm. Who was the biggest contributor? PIF. It was MBS in this over in Saudi who had— Kushner had formed quite a pally personal relationship with MBS 'cause Trump was doing a lot of work on Middle East peace deals and arms deals with the Saudis and stuff in his first term, right? And Kushner was like leading that. And so he's besties with MBS, right? So basically Kushner went to Silver Lake first and said, this EA Sports thing, I mean, look, they're not getting on very well as a publicly listed company. Look, there's an interesting play here. What do you think? And Silver Lake kind of run the numbers and they're like, all right, This could be good, but we need a really big partner. So Kushner got on the plane, flew out to see his bestie MBS and said, come on, let's go. And MBS was like, all right, I'm in. And so the conversation started and I think they tabled a bid in September, the first bid that didn't get publicized. Electronic Arts were very quiet, didn't say anything about it, but they had a bid in September. They turned it down. So then they came back with a second bid, $55 billion, which values at what is it, $210 per share. I was talking about the $150 kind of range. Well, this has smashed them up through, and I think this is a 25% premium over and above the share price trading on the stock market just before this deal was announced.

Yeah. And actually one of the things here, you kind of framing it there as going to Saudi Arabia with an investment opportunity, but just taking a step back and looking at the Public Investment Fund, PIF, of Saudi Arabia and who are they and what's their overarching strategy fundamentally. And then it starts to also make a lot of sense. And it's kind of this trifecta of the finance meets politics meets gaming and tech all coming together. And so In terms of actual size, you mentioned it earlier, sovereign wealth fund. So it's going to be on the big side. So it's just short of a trillion, essentially. It's nearing $925 billion at the moment. It's one of the things here, obviously, that Saudi Arabia are doing. Just for context, that long-term economic transformation plan is the Vision 2030. This is to reduce dependence on oil revenues. So lots of talks about entertainment, tourism, renewable energy. Talking to a few people in the office, they're like, yeah, it's aiming to become the Dubai. And we'll go into some of the reasons why they might want to head in that direction because beyond financial returns, PIF views gaming and entertainment investments as tools of soft power, cultural influence, youth engagement. And a stat I wasn't aware of is that 63% of Saudi Arabia's population is under 30. Yeah, it's powerful demographics that, and then also I was just interested to know, okay, so what's their pattern? So whenever I see these investments, it's like, okay, trying to work out the strategy. Well, what's the precedence of the behavior that they've had? And in the gaming industry, I was quite surprised. So Electronic Arts, they already held 9.9% stake before this latest take private. You might You know, if you've got kids certainly, or nephews, Pokémon Go. So Scopely, they acquired for $4.9 billion in 2023. Nintendo, PIF has actually built its stake to around 8%. That's the company's largest outside shareholder, which is quite incredible. Yeah. The cultural differences there between Nintendo's home and Saudi. And there's one that I thought was quite interesting was anyone who's a Grand Theft Auto junkie will know the type of game that that is. So I was quite surprised to see that Saudi Arabia's wealth fund in fact is very much invested and owns 3.5% in Take-Two Interactive, which gives them exposure to Rockstar Games, who's the house developer of GTA. So yeah, go figure. But there's also, you know, outside of gaming, obviously the bigger strategy, we've talked about this over the the last 2 years, probably a lot Newcastle United fans out there in the British football. They've acquired an 80% stake in that team in 2021. You've got them bankrolling LIV Golf, striking that deal to merge operations with PGA Tour. There's Formula 1, there's combat sports, WWE, UFC, you name it. Saudi are all in on this play. And what I thought was quite interesting was Looking at all this coming together, so there is the diversification play. That's fundamentally, I guess, the cornerstone of it. But what I thought was quite interesting doing some research on this is that the global video game industry is valued at nearly $190 billion with a worldwide audience of 3.69 billion players. That's equivalent of 60% of all internet users. That's insane. What a market.

That's half the population.

Yeah.

Half the planet.

But this is why, you know, you find that surprising 'cause you're old, Piers. So fair.

Yeah.

Yeah. So then there is that other point about the majority of Saudi's population is under 30. Two-thirds identify themselves actually as gamers. So EA provides direct access to that audience domestically, globally. As well. And so this intersection of tech, sports, entertainment, you are trying to foster the optics then around building a modern diverse economy. And then there's things that, some other points I thought were quite interesting. One was the EA deal reflects not only a financial investment, but also for Saudi Arabia, a strategy to develop domestic talent and capacity in gaming. So by acquiring EA, Saudi Arabia gains access to one of the industry's deepest talent pools. So as much as they have a lot of funding in their education system domestically, you can also start to be a hub to attract talent internationally from that. And then obviously intellectual information gets transferred and so forth. So longer play. And then another one I thought was interesting finally was about influenced by the kind of backdoor and just thinking about the multiple layers of this. Uh, and one of the things here was about Saudi Arabia having a key say in not only where games are made, but where hardware like consoles and accessories are too. Such power then, what does that mean? It could result in countries and companies who previously refused to engage being faced with a tough decision, whether they need to change their stance now, 'cause they have to because of their involvement in the ecosystem. Being so powerful as one of these major players in the gaming space. So yeah, I just thought it's, it's, it's interesting. It's good for Saudi. It's obviously good for the, the Trump family.

Yeah. And I look, I would say also like in, I, I'd say like over the last decade, the PIF fund, I just, it's like from an outsider's point of view, it's kind of just spraying money all over the place. But actually as time has gone on, actually it's less spraying it randomly and you're getting more of a kind of, kind of a directional sort of view of where their multi-decade diversification plan is heading. And I think they've been tagged, I think in a way with almost like the dumb money, you know, where, you know, if anybody needs a big check, right? Let's go to the Saudis 'cause they've got all the money and you know, they'll say yes. But I think actually here teaming up with Silver Lake particularly, And Kushner, and obviously there's the Trump connection there. I think this is also a clever play from a kind of reputational point of view as well. 'Cause you know, if you're doing a deal in partnership with Silver Lake, I mean that's their, their top, top, top, right? Yeah. So, well, let's look at the kind of deal structure a little bit because PE, private equity firms, they love that, you know, that, that kind of stable annual recurring, you know, subscription revenue you get off quality, quality content. This is perfect kind of underpinning for a kind of PE deal, right? Because obviously with these PE deals, there's debt involved and the leverage buyout of course is the PE playbook. And so whilst this is a $55 billion all-cash buyout, all cash just means that there's no equity, right? So that means the shareholders of Electronic Arts, all of their shares will be bought for cash. There's no kind of part cash and okay, here's a bit of equity in a different company. This is an all-cash deal, but this doesn't mean that there's $55 billion worth of $100 bills on the table and take it away. So then you structure this. Now with leveraged buyouts, what's really interesting about this deal, yes, it's the biggest one ever, but it's not actually that levered. It beat, by the way, it's taken out the previous record was a $32 billion. So it smashed the previous record, by the way, $32 billion TXU. Most people listening to this will have never heard of that company, right? Texas Utilities basically. But they got taken private in 2007 and it was the great case study for one of the worst deals ever done. And actually it called the top of the stock market. So when anybody here, like anybody old enough hears about, oh my God, a new massive record-breaking leveraged buyout, first response is, oh God, this is the top then. But this is a bit different. TXU, so that $32 billion, right? They had, I wrote it down, oh sorry, it was a $45 billion deal. Apologies. But they had $37 billion of debt. The financing structure, $37 billion of debt and then just $8 billion of cash, right? So that's an 82% levered deal. The thing is with these PE deals, who owns the debt? Who's gotta pay the interest on the debt? Who's gotta pay back this debt? Well, it's the company that's getting taken private, right? So Electronic Arts, will own and have to service the debt that's involved with this deal, right? But look, that TXU one, massively levered, 82%. Then we had the financial crisis, it all went tits up. They couldn't afford the debt and it all blew up, right? They couldn't afford the interest payments. This one's different. So out of the $55 billion cash, it's $20 billion of debt. Now here's an interesting story because what happened again the people involved in this deal, Kushner and Silver Lake, basically said, look, because it's the Saudis that are providing most of the cash part. So it's Silver Lake and Affinity Partners that are mostly debt, right? So they just said, look, we need to find someone who can give us a lot of debt here. We'd rather do this efficiently. We don't want many, many, many multiple people involved in raising this money. We need one check. Who is there on this planet that we can go to, knock on the door and say, will you write us a check for $20 billion, please? And there aren't many. And basically it's Jamie Dimon. And apparently they went to Jamie Dimon and said, look, this is what we're doing. And apparently JPMorgan spent 3 days. That's it. They spent 3 days analyzing this deal. And then Dimon said, here you go. Here's your $20 billion of debt financing.

And surely there's some upside here for Jamie Dimon from a regulation point of view, license point of view. Yeah. He's got a few things I saw in the pipeline about a retail investment platform to rival Hargreaves Lansdown and things like that. And obviously this plays within the favoritism of the administration, surely.

100%. Also, I would say the fact that, look, so $20 billion on a $55 billion deal, right? So that's actually a 36% levered. So what's the risk here to JP Morgan? Well, the risk isn't huge for two reasons. Well, look, you've got PIF as one of the big backers, and actually they'll have the majority stake in this company, right? They've got $900 billion. So look, they've got some money. To kind of COVID off some of this stuff if that debt interest payment thing goes badly. The other thing I mentioned, annual recurring subscription payments of absolute A-star quality content. Well, they throw off about EA Sports, so I, sorry, Electronic Arts throw off about $9 billion of cash per year. Now the financing costs to the company, so it's a $20 billion deal, right? But it's likely gonna cost them $1 billion per year to finance that debt, right? So they're making 6, 1, look, it's affordable. The maths really works here and you've got a backstop in the Saudis anyway. So I think from JP Morgan's point of view, you know, writing a big check like this makes a lot of sense.

No, not to mention the fees as well advising on the deal in itself. So yeah, just summarizing then some of the the themes here, because there's several that make it actually probably one of the star deals of the year in its entirety. Number one, it's the size, $55 billion. That take private is the largest leveraged buyout in history, clearly surpassing the last one at $32 billion. Second, bulge bracket bank power, if you like. Who else to advise on a deal of this magnitude but Goldman advising EA? JP Morgan not only advised the consortium as a group, but also structured the financing, You said that is the single biggest bank debt commitment in LBO history at $20 billion. The trade-offs in privatization, going private gives EA freedom from quarterly earnings pressure to innovate. Keyword there, I think particularly in that type of industry that they operate in. Yeah. And then gaming is a core growth engine. That market size, it's a true genuine market size, like $190 billion and 3.6 billion global players. And above average growth rates. So it's a good growth story there for potential further upside. Then there's the Saudi strategy overall, really playing to the strength of its Vision 2030 idea of reducing dependence on fossil fuels and its role in the global cultural hub to improve its positioning for foreign investments and things like that to facilitate that change. And then putting together then that political assets part of the deal, regulatory approval. I mean, a lot of eyebrows would be raised, Jared Kushner and Trump's son-in-law and so forth. But you bring in PIF, you bring in Silver Lake in particular, who like you said, they're a superstar name. That's certainly going to smooth over a few potential hurdles. And then you got JP involved as well with Jamie Dimon. Yeah. So yeah, it seems pretty watertight this case.

There's one more strategic theme. Look, Silverlight, they're not stupid, right? You know, what's, why are they doing this deal? Well, obviously they want to make money. There is a really interesting AI play here. It used to be that you needed a whole army of human being computer graphics designers to come up with these phenomenal games, right? Well, AI is obviously AI coming in and making that whole process way, way, way, way more efficient. So there's probably a really interesting, what we describe as a margin expansion play here. So that is a cost reduction through the further adoption of AI, reducing costs and therefore, obviously, therefore your profit margins increase. So you're almost like that additional $1 billion of debt interest payments you've gotta make every year, you could easily make that through margin expansion. I would say maybe even more. So yeah, I'd say that's the other really interesting angle to this deal.

Okay, cool. Well, look, let's move to show on and let's talk a little bit about investment banks and Jefferies in particular, because they report traditionally a couple weeks before the big bulge bracket. Banks do. So talking about the likes of JP Morgan, Goldman Sachs, so I think are around the 14th, 15th of October. Jefferies has already come out. So some of the headlines here, they posted record Q3 revenue, $2.05 billion. That's up 22% year over year. It's their best Q3 ever and the strongest quarter since early 2021. And so if you remember, that would've been the post-COVID deal sort of boom. So yeah, just wanted to get a bit of an idea of the breakdown of this. I mean, it's not just investment banking. There is obviously a capital markets division that they also operate and asset management. So how were some of those other kind of legs within their business performing?

Yeah. Well, yeah, so on the capital market side, they were up 6.9%. So solid. I mean, not the 17% they saw on that investment banking side, but it's a bigger part of the business. So that clocked in at $723 million in terms of revenue versus is that investment bank, $655 million. And there they're really strong on the equity side. Also a bit of options, corporate derivatives, electronic trading and so on. And there the revenues there is a function of market volatility. And so the more market volatility, this is why Trump is perfect for capital markets sell-side businesses, right? He says stuff, it moves markets, which means people are trading and it's that flow that these sell-side markets divisions are monetizing. So that did really Well, it was actually on the asset management side that was the stellar, I mean, it's the much smaller piece of the pie. So it clocked in with revenues at $177 million, but that nearly tripled, which is quite extraordinary actually. And that was just through strong fund performance basically across all of their strategies. It kind of all came together. So that was interesting. But yeah, the two biggest parts of their business are the investment bank revenues and the capital markets. And yet 17% growth on the investment bank side particularly was really strong. And it's a lead indicator, this. Look, we've been reading about the fact that there's been more deal flow. Finally IPOs are kind of back and we've been waiting for this to happen really since the start of the year and it's finally beginning. And so this is a really interesting kind of of fixed measure as to just how much is going on. I would say on the one hand, so a lead indicator, we should expect really strong figures from the big banks when they start reporting in a couple of weeks. But that said, I think actually Jefferies here, I think it's probably an outperform. We'll see when we get the figures from the other banks, but it looks like in a strong market they're outperforming. So yeah, Jefferies shareholders, very happy people.

Yeah, I was looking at the investment bank FT league tables and at the moment the kind of list going off fees in order would be Goldman's, JP, MS, Citi, then Centerview Partners actually, and then Jefferies. But actually, although Goldman sits at the top and JP, and by quite a sizable margin, I would say particularly Goldman's, Goldman's are up 10% change in fees versus the previous period. JP are actually down 16, might get a little bump on that EA deal, I'm sure.

Yeah.

But Jefferies are actually up 63% change in fees versus the previous period last year. So that's a meaningful jump. And one thing I did see as well within the banking division is outside pure M&A, of which they've been involved in, you know, lots of different deals. One of the things is they were a bookrunner on a major IPO like Firefly Aerospace. And crypto exchange bullish. So their ECM, equity capital market, and DCM, their debt side, also had really good performances. In fact, ECM was up just short of 21%. DCM was up 36%. So, you know, actually the M&A side probably was dragging it a little bit, although those fees probably made up a larger portion, most likely. One thing you did say, segue then into our final story, was You said IPOs are back. Not if you're in London, they ain't.

Nope. It's just tumbleweed blowing on the streets of London. Down the Threadneedle Street through the heart of the city.

Yeah. So the headline this week was Bloomberg had done some analysis essentially, and they compiled just IPO activity and it has a global ranking. And London basically has dropped out of the world's top 20 IPO markets. And IPO volumes down 69% year to date. It's the lowest in over 35 years. It's quite incredible actually when you start looking at some of these stats and also where we have been as context to where we are today. So the final bit on the, the context, maybe you could explain why this is happening. Which is in 2006, London raised $51 billion in IPOs. This year's total is down 99% from that peak. That is crazy talk. So it's basically just completely stopped. So what is happening? Why has this occurred?

There's a few things, but there's one massive one that trumps the whole lot. It's called the United States of America, baby. It's the American dream. Basically what's gone on in the last, and this isn't a short, this just hasn't just suddenly happened. This is a multi-decade trend divergence where the US are just the absolute juggernaut financial market on the planet. And the divergence is just every year, it's just getting wider and wider and wider. Covid just spiked it out a little bit more. And you've got a scenario where you've got this super deep capital markets in America where things like, I don't know, average risk appetite is just a lot higher. It's just a cultural thing. Therefore valuations Tend to be a lot higher. And so if you are a business here in the UK, and AstraZeneca's a topical one, massive, absolute one of the top pharmaceuticals on the entire planet, right? And a really great company with it. They're thinking of spinning out of the UK and going to list in New York. It's just deeper capital markets in the US bring higher valuations, more liquidity, better investor appetite. And so the problem is the UK cannot compete with that. And obviously we're the closest culturally to the US because some of the European markets are actually, they're kind of perking up a bit here. You're getting really interesting IPO flow coming out of Amsterdam, Stockholm, Zurich, for example. They're on the up, whereas London's just not. And I think because culturally we're so aligned and language and obviously we're so tight with the US, I think we suffer more. From that US outperformance when it comes to this whole story around raising capital and IPOs.

I'm assuming though, as a business owner, there are other downsides to listing in America and more preference here, particularly if you're a domestic company that operates here, for example. So I guess like with Costa we spoke about, there's like a special situations Bain team that see opportunity where there's pain almost. Yeah. And so in this scenario, where, you know, it seems like, well, it's a bad thing for London, it's bad for the options are being limited then. So where do these companies need to turn to if they don't want to list in the States?

Right. Well, private equity. And actually this reminds me of a point I wanted to make back on the EA story. Why is there so little debt involved in the EA? I say so little, it's $20 billion, but for a leveraged buyout, a 36% levered deal is actually really low. So why is it so low? It's because there's so much cash on the sidelines, right? And so PE firms, these take private deals, I reckon they're sniffing about. And if you're a special situation one, you know, the UK market, market is really interesting for cheap pickings to take some of these businesses back private. That's like a reverse IPO if you like, because these PE firms reckon they can get them on the cheap. And who knows, the strategy could be then to flip it and go public in the US in 5 years' time. So I wouldn't be surprised if you see a step up in US PE deal flow You know, take private sort of strategy here in the UK.

Okay. So can it be fixed though? So what can the UK, you are now the strategic advisor to the PM.

Resign.

Yeah. Well, I want to see your mortgage statements, Piers.

There's stuff you could do, like it's easier, there's less rules and regulations in the US for number one. So easing rules, we've got rules here in the UK preventing stuff like dual class shares and there's less funky stuff that's possible, right? And that's therefore less interesting for companies. And so we could do ourselves a favor and just copy the US playbook in terms of the kind of rules and regulations. And I know you can say, well look, governance is one of our trump cards, right? Governance is strong here. But look, you can have governance, but you can just chop your nose off to spite your face here. We need to just ease back off that and just get some animal spirits back into this ecosystem and try and just let the capital markets do their thing. So that's the main thing. And then yeah, stuff like the FTSE 100. So there is change, right? They're now allowing listings in non-pound sterling currencies, for example, loosening rules around executive pay guidance for publicly listed companies, this kind of stuff. But we've been talking about this stuff for years. The problem is it's politically unpalatable because if the economy's not in great shape, we've got too much debt and we're raising taxes, it's not a great look from the government's point of view if you're spinning amazing deals for these really rich founders of businesses to IPO and make it way easier. It's not a particularly great political story domestically. And unfortunately, that's been the handbrake on this sort of reform. And I think every year it carries The worse it gets. We're now not even in the top 20 of cities for IPO volume, not even in the top 20.

Well, look, not to leave it on a downer, I was just having a quick look on AI, asking it the question of, you know, in our team in China, there's various parts in Shanghai, for example, that operate on a special economic zone.

Yeah.

Where they have kind of a reform where there's a particular part of the country or the city.

Yeah.

Which is market orientated. But I guess one of the downsides here is that we are already a kind of open liberal marketplace in a sense. So it's not like in China where it's very cut off and therefore you're going to have a much bigger impact by liberalizing the policies around an economic center. But nonetheless, perhaps you could then in London, double down a little bit and start to isolate out things around particular parts like tech, fintech. I know they've tried this, haven't they? To try to get in the AI conversation a lot. I think Trump, he was obviously, they were first in queue when Trump was handing out some of these deals and things. Right. Yeah. So yeah, it'd be interesting to see. But yeah, any suggestions that people have, Do let us know. I mean, the AI is thrown out at me. Targeted zones in fintech sandboxing, green tech hubs, AI innovation zones.

That's— now we're talking. Why isn't this happening?

Well, look, go and speak to Sakir. I mean, sort it out.

We need new— we need a new political sort of era because what's gone on in recent decades, just not, it's not It's not the right direction.

All right. Well, look, ideas on a postcard, let us know. And yeah, quick shout out to Saab Ertam for again, doing some awesome notes on the research for this particular episode. And also shout out to the students that I met this time last week at Bath University. Always love coming to Bath. I feel like whenever I get off the train at Bath in the UK, it's like Disneyland. You're like, is this place real?

That's a nice, that's a nice part of the country. Yeah.

Yeah. Anyone who hasn't been, I highly recommend it, but yeah. Thank you everyone for listening. Help us in our quest to get to 1,000 ratings on Spotify if you're listening on that platform or drop us a comment. We'd love to interact, but yeah, have a great weekend and we'll see you next time.

Yep. See you later.