Why is there so little innovation in the IPO process? How has the investor landscape changed over the last decades, and how can companies get institutional investors engaged in their IPOs?

Craig Coben was until recently Bank of America’s Global Head of Equity Capital Markets, and for many years the bank’s Head of EMEA Equity Capital Markets. We draw on his 30 years’ experience advising companies on their IPOs, follow-on offerings and rights issues, to try to find some avenues to reform the IPO process. Having a well-functioning IPO market allowing companies to raise capital is important to support economic growth. With Craig, we take a step back to understand the real challenges facing European IPOs lately, and why there has been so little innovation to the IPO product over the last decades.

Craig has written several interesting columns in the FT on the topic:

Diagnosing London’s listing miasma

How should we regulate ESG research?

Why Silicon Valley has failed (so far) to disrupt the IPO process

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Per: Today, we’ll talk with Craig Coben, who was until recently Bank of America’s global head of equity capital markets, and for many years, the bank’s head of EMEA Equity Capital Markets based in London. Craig has worked with the ECM transactions for almost 30 years, helping companies execute their IPOs, follow on capital raises and rights issues in Europe and globally. Having a well-functioning IPO market, allowing companies to raise capital is important to support economic growth.

Yet, we’re recently seeing a slowdown in IPO volumes with the ones that do make it to market performing poorly. With Craig, we take a step back to understand the real challenges facing European IPOs lately, and why there’s been so little innovation to the IPO product over the last decades.

Before we start, we’d like to remind our listeners that our discussion is not financial advice, nor an investment recommendation, nor a solicitation to buy or sell any financial instruments, or an offer for financial services, or any other transaction. The information contained in the recording have no contractual value and are destined for an informational purpose only. Comments on investment management and the participants on this podcast may have holdings in the companies being discussed.

Per: Craig, thanks for joining us today. You started as a lawyer, but then you went on to a career within equity capital markets at two different investment banks. Can you tell us a bit about what attracted you to this field?

Craig: I was a lawyer for three years at Sullivan & Cromwell, two years in New York, and one year in London. I was working in securities transactions. Being a lawyer is pretty hard work. The deals are always very interesting, but when you’re the one who has to stay late to turn the documentation, some of the charm wears off over time. When I had the opportunity to move, I definitely took it and Deutsche Bank came knocking on my door and I really liked the people. I thought it was a growing platform. At the time in the late 1990s, there was a really interesting period for European Equity Capital Markets.

You were in the midst of a privatization program across the continent, modeled in part on the UK privatizations of the late 1980s. It was a really exciting time to join an investment bank in the equity capital markets team in Europe.

Per: For the benefit of our listeners, can you just explain what an equity capital markets banker actually does?

Craig: Equity capital markets bankers are effectively sitting between the corporate finance arms of the investment banks and the sales force. What we try to do is we try to originate, execute, and syndicate IPOs, follow on share offerings, convertible bond offerings, exchangeable bond offerings, and even corporate equity derivatives transactions. The mainstream part of the glamour product is, of course, the IPOs and where the people left to get the IPOs done who are sitting effectively between the investment bankers and the corporate finance teams, and the distribution platforms of the sales force.

Per: I guess you have a pretty close handle on the pulse of the investment world then.

Craig: We have to understand both what the companies are thinking, what issuers are thinking, and their shareholders, as well as what investors are thinking and try to make the deal happen. We do wear multiple hats. We’re intermediaries but in the best sense of the word.

Per: Do you have some examples of some of the most notable transactions you worked on during your career?

Craig: Yes, and I’ll tell you some of the sexier ones that I worked on because I think those are always the most interesting ones. I worked on, for example, the IPO of luxury space, Moncler, Jimmy Choo, Brunello Cucinelli. I worked on all those fun and exciting ones. I also worked on a lot of very mainstream IPOs, the Worldpay, Nexi in the payment space. I worked on Campari in the drink space. I worked on Aena in the infrastructure space, really across almost every single industry I’ve had transactions, whether it’s technology, retail, consumer, healthcare, you name it. I’ve worked on IPOs in those areas.

Per: Across the world as well, right?

Craig: Yes. I ran European Equity Capital Markets for about eight years at BofA, but I worked as well in Asia. I was co-head of the Asia Global Capital markets team, and so we had quite a few IPOs, especially out of greater China. I’ve also worked on IPOs as well in the US when I was global head of equity capital markets for about four years.

Per: With the UK having left EU, we can now see the FCA taking a serious stab at reforming the UK listing regime. Then you have many companies, especially tech companies who are also looking at the US very seriously, for example, Revolut, ARM. I’m sure the EVC funds who back them are probably pushing for US listing as well. I wanted to go through a bit some of the arguments regarding Europe versus US given your experience. The first would be the ecosystem.

Obviously, there’s more tech companies listed in the US, there’s basically more comparables for a tech company coming to the market. I’m just wondering if it’s easier to list tech companies in the US because there’s just more comparables.

Craig: I think it depends a little bit because on the one hand, the US has a much deeper knowledge base, broader ecosystem both on the sell side and on the buy side for technology companies. In addition, the markets are much more liquid, you have more retail involvement, and so it ends up being a more favorable environment for technology companies to list in the US. On the other hand, when you’re a foreign company listing in the US, the risk is you become an orphan stock after the initial burst of interest and enthusiasm.

Your operations aren’t there, your IR function isn’t there, management isn’t there, and people see you as some odd European beast sitting on NASDAQ or the NYSE. It’s often a balance. I think it really depends. Look, it’s not very difficult for investors to run comps even if it’s on a different stock exchange, but that’s a fairly straightforward process.

Per: Would you say that US investors are typically able to look at European listings then if there is actual specialists?

Craig: Oh, they definitely do. The question is whether they’re familiar with those European listings, whether they’re familiar with those companies so they can make qualitative judgments around them. If all of the other peers are listed in the US and the target investor base is sitting in the US, then it becomes, I think a little bit harder to IPO in Europe. I think it has to be done on a case-by-case basis. I also think size matters. If your company is a relatively small size and you go list in the US, you may find not very much interest in your name.

Per: Is there any sector where Europe is the preferred listing location? We recently saw Cote announcing that they would actually do a list in France. Do you feel like there’s any sectors where Europe is actually a better listing location even for non-European companies?

Craig: It’s very rare to see non-European companies list in Europe with the exception of emerging market companies that have listed on the London Stock Exchange. You just don’t see very many non-European companies listing for example, on a Continental stock exchange. You can say that Europe is fairly strong in luxury goods, certain areas of consumer, certain areas of pharma, but again, it’s really difficult to say that Europe has such a competitive advantage, such a deep ecosystem or broad ecosystem that you would forfeit listing on your home exchange in favor of Europe.

Again, the partial exception for those companies that are listed domiciled in an emerging market where they’d want to have a global or mainstream exchange. In that case, London has still tended to be the stock market of choice.

Per: I want to come back to the question about liquidity because we often criticize Europe as being less liquid than the US. That’s probably true, but why do you think this is structurally?

Craig: A couple of reasons. I think first, the fragmentation of the European market, you don’t have one European exchange. You’ve got dozens of exchanges, dozens of settlement systems, and so as a result, it’s a completely fragmented market. Every country seems to have its own stock exchange and I think that probably does the market overall a disservice. Ideally, you would have one European exchange, you would have almost like a European market union or maybe just a couple, but they haven’t really integrated them.

I think secondly, you have a lack of retail involvement. Retail is quite important in the US. In Europe, it tends to be an afterthought, often absent. This is especially the case in the Continent. Third, I just don’t think you have that much money in Europe that is dedicated to equities. You just don’t have that many players with substantial amounts of money who are actively involved in buying and trading European equities, and so you just see the European market losing liquidity.

Even these IPOs, I know we’re going to talk about IPOs in a moment, but I think it’s one of the great challenges for the IPO market in Europe is that after two or three sessions, the stocks start to trade on appointment and that’s a real frustration for portfolio investors who need the ability to enter and exit without moving the share price against them.

Per: We often see this argument that you have hedge funds or liquidity providers in deals IPOs who it’s quite well known will probably exit their shares pretty soon after the IPO, after having made money or lost money, go either way. I’ve also heard it mentioned that you should have a mix of long-term investors and hedge fund investors as part of your allocation to ensure you get more liquidity in the shares. What do you think about this argument? Is this really the case?

Craig: Look, I think you go to a steakhouse and you want a steak, but you also want some sizzle on that steak just to make it taste better. I think it’s the same in IPOs. You do need to have aftermarket liquidity and you do need to have an optimal mix of long-term, long-only investors as well as liquidity-providing hedge funds. I think the challenge you have right now is that you don’t have enough substantial long-only investors in Europe. As a result, there is an overreliance on liquidity providers.

Now, those liquidity providers are helpful for getting deals done, but they don’t want to be the only ones in the book either. They expect there to be a solid core, a will of long-only investors. One of the changes that has happened in Europe over the last 15, 20 years is you’ve had a hollowing out of long-only community with very few substantial long-only players left.

Per: Is that a hollowing out because people are less active in IPOs, the same asset managers, or is it a result of the concentration and also passivization of the asset management community?

Craig: Look, I think the active long-only managers have lost assets. Maybe it’s passivization, maybe it’s poor performance, maybe it’s the changes to the pension regulations in different countries. Whatever the case is right now, if you want to complete the substantial IPO in Europe, you need to get one of the big mutual fund complexes, of which they’re probably about right now two that I would say you need to get one of those two in, or else you’re going to struggle to have traction on a substantial IPO. That wasn’t the case 15, 20 years ago.

We used to do road shows in Edinburgh. We used to roadshow non-Dutch companies around the Netherlands. We used to spend time around continental Europe outside of London. We don’t do that anymore. Well, equity capital markets teams haven’t been doing it for 10, 15 years and it’s because there isn’t the money there. Everyone would love if you had a wide range of long-only investors who could put in sizeable tickets. It just doesn’t happen anymore. The UK club, by and large, has disappeared. Many people blame pension rules but whatever the case is, the UK club is a shadow of its former self.

Much of the money has gone passive or has been outsourced. In the US, the mid-market guys, they don’t find Europe all that interesting anymore because of the lack of liquidity. It just becomes a negative cycle, a vicious cycle.

Per: How do you think, if we had some policy options, how do you think you could actually encourage more European institutional participation in IPOs? You do have, maybe not to the size of the US but you have quite a lot of sizable pension funds in Europe, but maybe they don’t participate that much because it takes up quite a lot of resources, it’s quite intensive, and then maybe they were a bit disappointed with allocations in the end. How do you think you could actually engage more with those institutions?

Craig: You have to look at the pension regulations country by country by and large, the regulations discourage in one form or another substantial amount of equity allocations. There is a very clear regulatory bias in favor of fixed income, and so that’s probably the first port of call. In addition, you just have very low retail participation, whether directly or indirectly via mutual funds and unit trust. That has to do with cultural factors, tax factors, they’re myriad factors.

If you add to that the fact that it is still a very fragmented market and Italian investors don’t invest in say, Spanish equities even though we’re supposed to have moving towards capital markets union. You end up lacking scale in the markets which you’re trying to market your shares. It’s just a very, very difficult system. There are periods of time where Europe works and those were, for example, when you have the wave of privatizations, you had one privatization after another of big companies, they were quasi-monopolistic with a little bit of restructuring, they were actually very profitable, very attractive.

Then maybe you have a TMT boom or something like that. You have a catalyst and then people would come in. When you don’t have those catalysts, liquidity dries up, interest dries up, and then what you actually find is there isn’t very much money allocated to European equities.

Per: With these challenges, if we look at what’s happening in Europe right now in terms of IPOs, the activity is quite low. We’ve had three IPOs in Europe year to date, and all performed quite poorly. There were three quite different companies. You had LA Automatica, Italian Lottery Company, Euro Group Laminations, which is a leading supplier of core components of electric motors, and IONOS, which is Europe’s largest web hosting company. You had strong equity markets in the beginning of the year, actually quite low volatility in the markets.

For all these IPOs, the IPO books were covered in the first hour of book build and yet they all actually failed to deliver and underperformed quite severely. I’m just going to put the question out there, what’s wrong here? What’s wrong with the European IPO markets?

Craig: It’s a great question because you can’t say these three companies were dogs. You can’t say these three companies were bad or that it was speculative. These are solid companies that are profit-making companies, and yet all three IPOs have performed really poorly. I think that there are problems in the way in which IPOs are executing in Europe. I think that the deals are probably too big for the amount of money that’s available for them.

I think that you can debate whether the valuations were ambitious or not, but I think against the backdrop of limited liquidity and relatively scarce amounts of long-only capital, I think the price concessions probably had to be greater than maybe would’ve been tolerable for the shareholders of those companies. What ends up happening is the deals get jammed out. Many cases, not every case, at or near the bottom of the range, and there’s just no aftermarket buying interest.

The coverage messages that come out early are because you have the liquidity-providing hedge funds putting in sizeable orders upfront. That’s just to give them optionality, they’re helpful, but they’ll be the first to tell you that they’re not the long-term holders of these stocks. They get quite skittish too because they realize that they won’t be able to get out of their positions. From a risk management perspective, low liquidity creates all sorts of issues for them because over time they do want to exit these positions.

They do probably have some broader market hedge in many cases, it just becomes very difficult. I think the way I look at it is you have a broken market and also the way in which IPOs are executed is suboptimal, and that combination has just been fatal for the IPO market. Unless it’s a no-brainer, a fantastic trophy asset like Porsche, the IPOs are going to struggle.

Per: If we take a step back on this, what do you actually think is the right measure of success because to us as investors, it’s obviously that the share price goes up and stays high over the long term because we want to be owners of the assets and we’re looking to make a return. You could say it’s a bit different for the company and the sellers. Maybe the seller actually wants to have the highest price and the company maybe wants to have a liquid share price so they can raise capital again. What do you think is actually the right measure of a successful IPO? If you want.

Craig: It’s a balance. You do want the shares to go up in the aftermarket, not only to benefit investors but also to give the company a platform for future capital raising, future deal-making, and future success. Employer retention, everything revolves around that share price. It’s very uncomfortable when your share price is down 10%, 15%, 20% from IPO, it creates a lot of internal complications. No one should ever think that the IPO is the end event and that you should take every penny off the table because that is the extremely short-term thinking that will only damage the company and its shareholders who still have shares to dispose of in future.

Liquidity is important as well. You want to create a liquid market, but that’s fairly difficult to engineer because the market is the market and there’s not much you can do.

Per: I guess if the shares sell-off post IPO, that actually creates lower liquidity and actually more difficulty for the private equity seller, for example, to get out of the longer term. Right?

Craig: Absolutely. I think sometimes sellers think, “Well, I’ll just maximize my price at the IPO. The market will take care of itself and then when I want to do my follow-on, it’ll be what the market is, and where IPO is irrelevant to where the price will be in 6 months to 12 months.” I think that’s a very myopic view because once investors become disenchanted with a stock, it’s often very difficult for it to recover. It takes a lot of work and your back is sometimes up against the wall and it starts to feed into overall business performance in many cases.

In some ways, the way the IPOs are done in the US is better. They’ll have a smaller offering, a lower free float, the lead money in the table so that the stock trades well in the aftermarket, ideally. You do have disasters in the US, let’s not kid ourselves but ideally the stock would trade well. Then you have a platform for doing a follow-on, then subsequent sell-downs. That seems to me a much more preferable system than going out with a fairly large offering, often 25% to 40% free float, and then is a bloated offering, struggles to get done, doesn’t have a good shareholder base, and really can’t get– The slope just can’t get going.

Per: Definitely when you see that there’s not enough tension in the book, you get worried because some people have been inflating their demand and then you actually end up with quite a sloppy aftermarket, but I’ve also heard the argument the other way around, which is if there’s not enough free float, you actually end up with even more liquid shares. It’s actually not realistic to do a 10% to 15% free-float IPO in Europe.

Craig: That’s a very fair argument and I’ve made that argument myself. You have to balance it a little bit. Equity capital markets is all about finding the balance between the seller and the buyers. When it comes to free float when you’re trying to assess size, on the one hand, you have to have enough free float to create meaningful liquidity, but on the other hand, you can have too large of a size that you lose supply-demand tension. I think something is fundamentally wrong.

My own view is, look, the market is not easy in the US for the reasons we’ve just discussed, but you probably need to go back to first principles, which is offering stock at a price that’s going to be attractive to investors. If that price is not acceptable to the vendors, then don’t go ahead or don’t list. It’s better just not to go ahead. I think that sometimes what happens is that shareholders and companies don’t have realistic expectations as to what is achievable in the market. They see where other companies are trading and they think, well, they deserve that multiple as well.

Maybe in theory, they do, but in practice, because of what we’re talking about, it’s not achievable or it’s not sustainable. I think that’s one of the problems you have in Europe. In Europe, you look at the syndicate structures, you take Lottomatica or any of these ones where you have five global coordinators as opposed to in the US where you had Kenvue where you had one lead left bank. The accountability on the advisory side, you can see that in the US, you have a lead left bank. That bank, in that case, it was Goldman Sachs, they were accountable for the advice they gave. I assume they gave some pretty direct messages to Johnson & Johnson about where their deal could price. When you’re one of five banks, it’s very difficult to give that honest advice because you have four other banks who may be telling the client, “Look, this bank, they don’t really believe in the company. We do. We think you can get a higher valuation,” and they’re going to get a much more receptive audience. The way IPOs are executed in Europe can also be improved because there’s just a lack of accountability.

I think Europe should consider moving towards a lead-left concept where you have somebody on the hook, you can have a syndicate, you can add anybody you want, throw money around, but you need to have one bank that’s on the hook for the advice that they’re giving and who can actually tell them, “This is where it’s going to clear. You may not want to hear that. Maybe we shouldn’t go ahead,” as opposed to a lot of happy talk and then you price at the bottom of the reign and in this artificial level and it just trades down and all you’re doing is stabilizing it.

Per: It seems like there’s almost a cultural difference both on the way that banks are incentivized to give advice to their clients in terms of going ahead or not and the pricing. Is there also a difference of culture in terms of allowing investors to profit in a sense where in Europe, it’s maybe not so acceptable to see everybody doing well on an IPO?

Craig: Yes. It’s weird because the big fear from issuers in Europe is that they leave too much money on the table. That’s one of the reasons why, for example, European issuers hire independent advisors is because they don’t want the banks to undersell their shares, and yet when you look statistically, you see that actually, IPOs in Europe have not ended to leave a lot of money on the table over the years. It’s very rare, not unprecedented, but it’s very rare that you see large aftermarket pops as sometimes you do in the US.

Is it cultural? I don’t know if it’s cultural because when it comes to capital markets, practices are shared globally and there’s a lot of cross-pollination, but it is quite strange. I think part of the problem is that it’s one thing when you’re selling 8% of the company, it’s quite another thing when you’re selling 40% of the company. You suddenly become a lot more price sensitive. In Europe, until recently, you had a minimum 25% free float, on many stock exchanges. I think that could be or could have been one of the problems that we’ve had in Europe.

I think everyone needs to rethink how they do IPOs in Europe. I think you need more accountability, you need more flexibility, and you need a better understanding that this isn’t a market in which you can squeeze the last dollar, euro off the table.

Per: It’s also been our feedback that when you see IPOs not working, you definitely have to take into account that and discount every valuation feedback you receive and understand that it actually needs to be really good deal to get sufficient participation and also sufficient aftermarket performance because if you’re looking at having performance post IPO, the best way to do it is to have something that’s still attractive once it starts trading on day one. You get more investors that flock into it and buy more in the aftermarket.

Craig: There’s no aftermarket buying in these deals and that’s quite apparent, the three deals you’ve cited, and again, these are three perfectly solid companies. These were not fly-by-night companies, unprofitable companies, concept companies. These were solid companies. The feedback that I had heard on every company was management was good, business model was solid. I think that’s what’s so alarming about what has happened. People need to make money. When they start making money, liquidity floods in.

Then the US investors will reengage, but right now, the European IPOs are a slog. First of all, we have a tremendously long period of time before at IPOs. You have pilot fishing and all the early looks and they have different names for it, but various iterations of early looks and everything else. Then when it comes down to it, the deal is good. You may find you don’t get a proper allocation, but most deals don’t work, and then you’re stuck in a share that’s illiquid. When it’s illiquid, even if you like the name, even if you like the valuation, for many investors, especially the hedge funds, they can’t stay in it.

Their risk managers say, “You’ve got to yank your capital” because from a risk management perspective, it just doesn’t work with this kind of liquidity. You look at Euro Group, it traded what? €3 million yesterday. IONOS traded €1 million I think yesterday of average daily trading volume. My local pizzeria has almost as much daily turnover as some of these stocks. The pizza’s good, but I wouldn’t want to be buying and selling there.

Per: That’s a very good point. The IPO product has not changed much over the decades. You’ve seen it. Now we have some small changes. The FCA is looking at its listing regime. You have a bit of a relaxation of the minimum free-float rule that you talked about, but why do you think there’s so little innovation? That’s a case for Europe, but the US as well. There’s actually quite little change over time.

Craig: Well, Per, there’s a saying where you stand depends on where you sit. The current setup is actually very good for the incumbents. There has been a lack of innovation around it. Ever since you’ve had the separation research and investment banking, which is something I wrote about in the FT a couple of weeks ago, it’s very difficult to differentiate between the different distribution platforms. You tell me, Per, if a deal comes from one bank versus another bank, does it really make much of a difference to you? In many cases, I would say probably not.

If it’s a relatively cozy setup, it’s not a cartel, there’s absolutely no collusion whatsoever. I can tell you winning business is brutally competitive, but then once you’re there, once you’re executing it, there is a lack of competitive tension. I’ll tell you, when I was in Asia, one thing that was really interesting was how the Chinese IPOs work. I’m talking about the Hong Kong IPOs, the offshore IPOs for Chinese companies. Let’s say you would be a sponsor, that’s the top line. It’s like global coordinator and there’d be, let’s say, 15 names. Everybody would choose five names and the economics would not be decided. Let’s say they had 2% or 3% fee, but the distribution of those economic would not be decided until the end. Then they would see how much demand you would generate from each of those investors, or how much allocable demand you would generate from each of those investors. On that basis, the issuer would decide how much you got paid. I can remember when I first got out to Asia, there was one IPO we were a sponsor on. We got very low economics because our names just didn’t come through in the book.

Boy, did that focus minds in the future, we checked which investors we were putting down, what the follow-up was. We became much more focused on that, but in Europe, everything’s cool. You put in an order and it shows up on everyone’s book. Again, this is in a different way. It’s a lack of accountability. Sometimes I think you have to put people’s feet to the fire. I do think that the US is good about giving people accountability for the advice they give. I also think there’s something to this system that we had in Asia where if you don’t bring in an order, you’re not getting paid.

We’re going to know who’s who and who’s going to be bringing in those orders so that these banks, they had to spend time with people like yourself and make sure that you had everything you needed as opposed to just sending you a term sheet and putting in a call from the syndicate desk every once in a while and say, “What you think?”

Per: Now on the ESG side, we had an episode with Marie Freyer where we talked about the lack of ESG disclosure, but I’m wondering if ESG investment and particularly the investment into pure play ESG companies has also been a way for active management to show its strengths again. You need human analysis to understand which companies are actually benefiting, which companies have a good growth area in front of them. Do you think this is also a way to reengage with active investors and the IPOs and capital raises?

Craig: Very much so, but I think we’re nowhere near the stage we should be. I wrote a column with a friend a couple of weeks ago in the FT about ESG and about the dispersion of ESG ratings and how they were and it’s all a little bit of a mess quite clear now the regulators are going to be trying to put in place some common criteria around ESG because right now you’ve got different groups coming up with different ideas about what is E what is S and what is G? It’s really all over the place.

I don’t think it serves the public interest and I don’t think it serves investor interest. What are you actually trying to measure when you’re looking at ESG? ESG is something that I think is an area where LPs and investors are going to be increasingly focused. They want to understand ESG-related risks of their investments and there needs to be a much more systematic approach. That can only be done in my opinion with active fund management. You can have ESG indices but those are probably going to end up lacking the texture and the detail that’s necessary.

Now as far as the bank scale, the banks are they do increasing amounts of work on the DCM side. They have measuring the ESG impacts doing sustainability bonds and so forth. There really hasn’t been very much innovation on the ECM side unless you want to talk about ESG sustainable convertible bonds. That’s basically a variation of a sustainable bond. I think there’s a lot more innovation that can be done. I think the market is open to it. It’s who’s the first one to dive in? Are there going to be in dedicated ESG equity investors?

Or at least not the size that you’re talking about but most investors they do now have a ESG filter. I think it would be interesting to see ideas around that space and ECM teams would be ideally positioned to bring that forward.

Per: I think in terms of impact that you have on companies when you’re actually providing capital to them for CapEx that then goes into sustainable uses. That’s actually one of the most impactful things you can do as a fund manager.

Craig: Absolutely. It doesn’t look like it’s the term is greenwashing. You need to avoid slapping an ESG label and even though money’s fungible and just end up doing the same old thing. Just calling it ESG, but there’s so much public support for investment in sustainability in climate tech. You would think that this would be a real opportunity for equity capital markets teams. That means you have to reorient what you’re doing and that’s always a little bit difficult because that means giving up some of the stuff you’ve been doing in the past.

Are there dedicated ESG or sustainability teams in European Equity Capital Markets teams? Not that I’m aware of you. I retired a year ago so maybe things have changed but not that I’m aware of and I’m not exactly seeing it in the new issue pipeline.

Per: Could be something going forward because the pipeline is quite large. When you look at the current private companies is there any company you would have wanted to take public?

Craig: I would actually answer the question in a different way. If you want to have Europe coming back with interesting companies and differentiated companies but there are tremendous number of companies right now. Growth companies in Europe that are capital star and that they’re looking for a way to go public. The problem is that their last rounds were too high and an IPO and a down round is untenable because they might have to reimburse early investors. It might create issues with their employees who have shares.

Down rounds can be very disrupted. I think that there is probably going to be some scope for additional private capital into companies but maybe not in some non-dilutive structured way. I think that’s really what’s going to be until these valuations on the equity side from the public equity side can catch up to where the last browns were done.

Per: You think it’s the public equity market that needs to adjust upwards rather than the private valuations coming down?

Craig: Well both. The private valuations coming down it’s just going to be very painful. That is going to happen but that’s a matter of time. I think you know as well as I do that because it means write-downs and it means potentially redemptions, recriminations, you’re losing your job so write-downs in the private space just take longer to materialize but they’re going to have to meet this gap between public and private is really quite apparent. One of the things that I find interesting all these stocks that are now winding up including Europe’s largest SPAC they’re winding up.

Really what that’s about in part is this gap between public and private. There are companies that want to sell wireless and want to merge with a SPAC but the valuation that would make it sustainable is something that is untenable for them. That probably tells you why the IPO market isn’t working. By the way, the IPO market isn’t working all that well in the US, it isn’t working all that well in Asia except branch or China which is completely separate. You have this gap between public and private.

Something will have to give a little bit on both sides but especially on the private side the shoe still probably needs to drop.

Per: Craig as a last question is there any developments you would really like to see over the next five years in the ECM market? What would those be?

Craig: The ECM market should try to move into the digital era. Right now it’s an analog business in a digital world. The way IPOs are executed very similar to the way they were executed when I first started in investment banking in January 1997. There has been a lack of innovation and it’s still very much a labor-intensive process. I would like to see more use of digital technology so that it can be done more efficiently, more quickly and for there to be more flexibility so that deals can be done on bases that will work for all parties, that will encourage liquidity, that will make money, that will generate excitement.

I think that will be in everyone’s interest both interests of companies and for investors. Right now we’ve turned what should be a positive-sum game into a zero-sum and even negative-sum game. I think if there aren’t material changes in the way in which deals are done, we might burn out a few ideas. I think in five years time European Equity Capital Markets will be a backward.

Per: Thank you very much for your thoughts, Craig. Very interesting.

Craig: Thank you. Take care.