2025 Outlook – Financing and Advisory

Roman Dubczak: Hello, everyone. I’m Roman Dubczak, Deputy Chair of Capital Markets. At CIBC, we’re here to help you keep your ambitions on track by meeting your evolving needs. And I’m pleased to lead today’s 2025 outlook session on Financing and Advisory. We’re going to hear today from Dan Parrack, Head of Canadian Debt Syndication. Andrew Lee, Co-Head of Debt Capital Markets. Tyler Swan, Global Head of Equity Capital Markets. Jacqueline Green, Head of Financial Markets in Global Corporate Banking. And Scott Keyworth, Managing Director in our Mergers and Acquisitions group. Our experts will do a quick recap of their observations over the past 12 months, and then share some key themes they’re seeing for 2025. So, let’s get started. I hope you enjoy today’s session.

Dan, why don’t you to give us a quick overview of the Debt Capital Markets. You know, I remember starting in your position a long, long time ago. And, I think we’re back to a situation when where we were many, many decades ago with all time tights and, you know, interest rates kind of coming down. Great opportunity. But I’ll hand it over to you.

Dan Parrack: I’m going to steal my thunder Roman. When thinking about the year in review in the Canadian debt capital markets, I really think of three highlights. I think of the new record pace that we saw in corporate and bank issuance. I think about the uninverting of the yield curve that we saw between ‘23 and ’24. And I think about credit spreads trending to those tight levels. Multi-decade tights, that you just referred to. So, let’s start from the top.

In 2024, we saw over 140 billion of bank and corporate issuance in the Canadian Debt Capital Markets. That was 30% higher than last year, and actually set a new high watermark versus the 2021 total, just over 10% higher than that. And, the engine continued to be pure corporate issuance in the Canadian market, which topped $80 billion for the first time in the market’s history. A couple drivers of that, $54 billion of corporate maturities in ‘24. That compares to about 40 billion on the ten year average of maturity. So, we’re already set up for success. Two, there was a reversal of a 2023 trend for short dated issuance. Two, there was a reversal of a 2023 trend for short dated issuance. And issuers in 2023 added optionality to their borrowing programs in anticipation of a declining rate environment. And they issued these three non-call-one securities. In 2024. we saw the reversal of that trend. Those securities were refinanced with five, seven and ten year debt at much lower coupons.

So, that strategy did work. The other highlight is there was 21 inaugural issuers in 2024 that amalgamated to $16.4 billion. That’s the most issuance that cohort of inaugrural borrowers has made up since before the global financial crisis, over 15 years ago. And I think about the kind of marquee trade out of that group, it was the $7.15 billion deal from Coastal Gaslink. That’s the largest Canadian corporate investment grade deal ever, by almost a magnitude of $3 billion over Rogers, which funded in 2022, $4.25 billion when they funded their acquisition of Shaw. So, I think that shows that the Canadian market continues to grow.

We have breadth and depth to take down the big transaction. The next theme is the uninverting of the yield curve. At this time last year, we were talking about the difference between the two year and the 30 year Government of Canada bond inverted by 75-basis points. Today, we’re seeing a positive slope in that Government of Canada curve at 25-basis points, and every benchmark spot along the curve is actually at or lower than where we were last year.

So, what does this mean for issuance? It really comes back to the meeting of the minds between issuers and investors. Last year, in 2023, you had issuers reluctant to turn out at high coupons and high spreads. At the same time when investors were happy to stay in the front end to receive the peak of that yield curve. So, they met in the front end in 2023. In 2024, once there was confidence that the rate cutting cycle was underway, you saw a lot of money flow into bond funds. You saw a lot of GIC and money market product getting pushed out the curve.

And as a result, there was a lot of demand in the five, seven, ten and 30 year and issuers, seeing lower spreads, lower coupons, we’re happy to meet that demand there. So, we saw the tenor profile move out a little bit in 2024. This kind of carries into my third observation, which is the credit spreads tightening. And on our desk we’re coining this year as, “The Great Compression of ‘24, because not only have absolute spreads tightened, we’ve seen a compression because not only have absolute spreads tightened, we’ve seen a compression or a narrowing of the delta or risk premium, between different credit rating buckets.

The gap between Single A and Triple B’s was down to 30-basis points. Investment grade and high yield spreads are now within 60-basis points in Canada, and those are the narrowest premiums we’ve seen since before the pandemic, for the same exact reasons that they talked about on the uninverting, continued rate cuts, confidence in that resulting inflows into the bond market funds, etc.. So when I think about key themes to 2025, what are we looking forward to? I think, there’s a couple things that come to my mind. It’s the Maple Bond Index inclusion. It’s how competitive is the bond market going to be against bank markets, which we’ll hear about a little bit later.

Limited recourse capital notes, which will go through their first reset cycle for bank and insurance companies in 2025. And we will get more clarity on the economic front of the pace and destination of Bank of Canada’s rate cutting cycle. I think the key theme for us in Canada may be this Maple Bond Index inclusion. So, Canada as a jurisdiction, our foreign domiciled companies… Our Maple bond issuers coming to Canada, were always excluded from the domestic universe bond index.

That’s what our our investors use to benchmark performance On January 1st, 2025, that will change. They will be included. So, that should make our market, Canada, more competitive, more consistently for global issuers. From an investor standpoint, it should add diversification to our market, give them an option for new names, new sectors that aren’t available within our Canadian borders.

So, that’s a positive, development. How does it all wrap up into 2025 issuance expectations? I won’t get the crystal ball out and tell you what the number will be, but I do expect that if the current conditions persist into 2025, in the early going, I do expect a very quick start and above average issuance volume. We have elevated maturities at $47 billion. We have the potential growth engine in Maple bonds. We have multi-decade tights and credit spreads that could compete against other financing sources like bank and commercial paper.

And we have a very conducive, constructive issuance environment right now that could, help M&A financings. The one X-factor that we’re thinking about in the ‘25, and we haven’t spent a lot of time talking about it, was bank financing. With interest rates coming down, we could see an increase in asset growth or loan growth in our banks, which could change the dynamic of how our banks fund this asset mix. And we could see an increased reliance on senior unsecured or bail-in funding in 2025, which could be an X-factor for volumes in the coming year.

Roman Dubczak: So, very good. The good times, may keep on rolling.

Dan Parrack: Fingers crossed. And maybe I’ll hand it over to Andrew to talk a little bit with the US.

Andrew Lee: Thanks, Dan. I think certainly some similar themes in the US. After having reviewed my summary of the US debt capital markets last year and predictions for 2024, it’s interesting. A number of things, did actually turn out to be true. We turned the corner at the end of last year as the market believed the fed rate hiking cycle to be an end. Macroeconomic concerns regarding the risk of a recession and inflation receded, and the bond market rallied starting at the end of last year and continue to do so throughout 2024 with, with material tightening in credit spreads and a very strong pickup in, in new issue volume.

It’s also interesting, though, that a few things didn’t happen quite as expected. Economic conditions have been stronger than anticipated, with inflation remaining well above the Fed’s 2% target throughout the year. As you may recall, at the end of last year, there were expectations of six rate cuts by the fed starting in January. But with, with strong economic conditions, there have only been two so far. Starting in September, with the possibility of another cut, on December 18th, US Treasury yields actually increased since December of last year when the when the ten year Treasury was at 415 and went as high as 470 earlier this year and then rallied lower in the second half of the year as the FED commenced this policy shift and now sits at 423, so roughly the same as a year ago. Nonetheless, it’s been a very positive year for the US bond market.

Corporate credit fundamentals continued to improve as measured by declining default rates and improved interest coverage on corporate balance sheets. Investors have continued to pour cash into the market, anticipating further rate cuts and strong economic conditions. All this resulted in a bond market rally that’s led to historically tight credit spreads. As you can see on this, on this graph, investment grade credit spreads hit their tightest level since 1997, in November. hit their tightest level since 1997, in November. And similarly, we’re seeing high-yield credit spreads, currently at 265-basis points versus the trailing five year average of 415.

And, while there were some issues that waited for lower rates to issue, there was generally capitulation that rates will remain higher for longer and so most issuers access the market because all in yields have been historically attractive this year, hitting their lowest level in 20 years. As a result, investment grade issuance volume set numerous records. Both in the third quarter and the second half of this year, we saw all time records for those periods, while the annual total, of more than $1.4 trillion for unsecured debt issuance year-to-date, is on track for the second busiest, year ever Since 2020, the Covid year.

As you can see from the second graph, 2024 is the 12th consecutive year of more than $1 trillion of issuance, highlighting the consistency and resilience of the investment grade market. And then for the left fin market, similarly, there’s been $750 billion of issuance year to date versus about $400 billion for all of last year. As we look to 2025, the focus continues to be on the FED. CIBC is predicting a 25-basis point cut later this month and two cuts in 2025 with, with the ten year Treasury at 3.5% by the end of next year. Market tone will likely continue to strengthen on the back of expectations for future, FED rate cuts.

But there will be a focus on the new administration’s policies and their potential impact on inflation and the budget deficit. We see a supportive credit spread environment as the FED lower rates, continues reducing yields on the short-term debt. Investors are expected to extend duration looking to lock in longer dated coupons. And as a result, we expect longer dated credit spreads to continue to see support and issuers migrating to that part of the curve.

And then finally, we’re expecting potentially even stronger, issuance here next year. In the leveraged finance market, with quite a bit of refinancing activity already completed this year, we’re expecting volumes to be modest, modestly higher, with larger proportion of supply coming from M&A , LBOs and dividend recaps. But some are calling for much higher volumes as a result of, greater event driven activity. And then in the IG market, with $400 billion maturities due in each of 2025 and ‘26, and predicted higher volumes related to M&A activity, we’re estimating annual volumes, next year, potentially at, $1.5 trillion or more. So, that concludes my recap of the US debt capital markets. And, I’d like to pass it over to Tyler.

Tyler Swan: Thanks, Andrew. So, we haven’t had the same, record year as you’ve had the bond market, but equity underwriting activity did pick up this year. So, for North America, equity underwriting volumes were up 51%. So, a healthy bounce back that’s still only a little bit, over half of peak volumes in 2021. So, a lot of room to run. And most of that growth was in, the US, not in Canada, Canada with flat volumes. Many reasons to expect, though, that the, issuance volumes will pick up again next year. Inflation Canada, the US obviously under control and tame central bank easing cycle well underway and expected to continue into next year.

The decline in inflation in short rates is pulling money out of money markets and bank deposits and into equity markets. So the 5% GICs, that everybody moved money into during Covid, those are now maturing and you achieve more like a 3.5%. Federal policy under Trump, very uncertain. But expectations are that it’s in that net-net positive for equity markets. And valuations are robust. So, forward S&P500 earnings 22.5 times valuation multiple. And it’s not just the large cap tech that’s leading the market. The TSX is up 22% this year. The Russell US Small Cap index up 20%.

So, it’s more broad based in sectors such as utilities, pipelines, gold bullion, financials all trading near highs. And most importantly I think, corporate earnings growth is expected to accelerate. So, Q4 expectations built into analyst estimates is for 8% growth. Next year, that accelerates to 13% growth. And then on the supply side, there are a lot of private equity firms ultimately eyeing either monetization of, stakes in public companies or the IPO market, and they’re watching the equities trade higher and pointing out that they’re more likely to execute on that in the coming year.

A lot of our public company clients are hunting for acquisitions, and then holders of large blocks of stock are seeking liquidity. So, many reasons to expect that, the momentum will continue. Just thinking through where we saw the momentum this year that drove the 51% increase in volumes, a lot of blockbuster deals, the Boeing $24 billion equity financing a large one and Alibaba convert for $5 billion. The IPO market accelerated and the largest one was Lineage, industrial REIT for $5 billion. And the overall IPO market did have a bounce back year.

There are 61 IPOs of size that happen in the US market. You have to squint a little closer to see the pickup and the green shoots for the Canadian market. But we did have the first Canadian IPO in 18 months for Dynamite Group, a women’s apparel retailer. And there’s a very large cohort of IPO prospects that are really eyeing the 2025, 2026 years, as the time to go public. A lot of those IPO prospects, many of them will turn out to be targets for private equity. But we do think a lot of them will end up being public companies. So, overall, we’ve got a lot of optimism that this will actually be a big bounce back year for the Canadian IPO market, although a lot of that activity we see starting mid-next year. And now I’ll pass it over to Jacqueline to discuss the bank market.

Jacqueline Green: Thanks very much Tyler. The bank market actually had a relatively strong year. Banks are back in growth mode, and that includes the US regional banks and some of the foreign banks that we saw on the sidelines as recently as the end of last year. We’re seeing cautious optimism building around the economy, particularly in the US, and you just heard a little bit about that from my colleagues. Credit spreads are down, as Dan and Andrew mentioned.

And actually for the banks, they’re down about 20%. And so what that means, is that for banks, it’s less expensive to lend when you take out of account the underlying rate environment than it would have been previously. And then lastly, we’re starting to see an uptick in M&A. And we’ve started to see an increase in the volume of bridges in term loans as a result of that. So, all of these factors have helped to drive a 37% increase in volumes year-over-year. And that’s really notable.

That’s actually the first time that we’ve seen growth in loans since the peak of the market in 2021. And in fact, if we look at the volumes as of Q3 of this year, they’ve already surpassed the full year volumes from last year, and they are on track to surpass the volumes from 2022. Not dissimilar to our mid-year update. There are some differences between geographies and markets that are worth mentioning.

So, to start out with, if we look at the US market, investment grade volumes were actually flat year-over-year, and the reason for that is less to do with supply from banks and more to do with the theme that both, Dan and Andrew touched on, which is that the bond markets, relatively speaking, has been quite attractive. So, when you combine that with the fact that we’re in a higher rate environment than historically, that we’re in a higher rate environment than historically, the investment grade clients have just not been relying on the bank market as much as they have historically.

On the flip side, if we look to the, sub investment grade market or the institutional loan market, as Andrew spoke to you, that market is up 100% year-over-year. And so that has definitely helped to drive the higher volumes. That’s a function of, investors looking for yields that’s driving multi-year lows in credit spreads. And as a result, a big wave of refinancings. If we come north of the border to Canada, it’s a slightly different story.

Again, Canada is predominantly an investment grade market, and that market is up 30% year-over-year. And I’m going to touch on one of the themes that we spoke about at the midyear, which is Canada’s risk free rate transition, or the move from CDOR to CORRA. That drove a tremendous amount of activity in Q2 of this year. There was a huge wave of refinancings that were accelerated as a result of the fact that borrowers had to open their deals anyways. And so that is certainly a sign of a healthy market when banks are able to support that amount of activity.

On either side of the border, it’s worth mentioning that M&A continues to make up a very small percentage of overall activity. Less than 10%, actually of activity. Activity is picking up towards the end of the year. So, the hope is that’s going to bode well for 2025. And it is worth noting that despite the fact we didn’t see a lot of volume, there continues to be really strong support. And probably the best example of that is the US $29 billion that was raised for Mars’s acquisition of Kellanova in the US, and that was well supported in the bank market.

Despite the differences in volumes, there were some consistent trends that are worth touching on. One is that, we are seeing downwards pressure on spreads and fees, and probably the most notable thing to mention, there is the new money premium, which we have talked about in the past. So, that’s a premium to either spreads or fees that companies have to pay when they’re trying to opportunistically raise financing over and above what they might have done historically.

That has dissipated. So, that has certainly moved in borrowers favour. The second is that syndicate compositions are becoming more stable. Last year, in the year before, we were seeing quite a bit of churn in particular, if you think about the US regional bank crisis that has stabilized now that many banks balance sheets are back in good order. The third thing is that appetite for funded assets or for term loans, as we generally call them, has increased as well. And a lot of that has to do with the fact that funding costs are down for banks. And so it’s become more attractive to lend on a funded basis.

We are seeing slightly shorter tenors than we would have pre-pandemic, kind of in the 1 to 3 year range versus five years historically, but generally a good sign that there is health in the market. And then the last point I want to touch on is a really interesting one, and that is that we are seeing a tremendous amount of demand in certain subsegments of the market. Renewables and data centres are two areas that I want to call out specifically.

So renewables, we have seen over a 50% increase year-over-year. So, we continue to see a lot of investment on the part of sponsors and borrowers in that space. And a lot of healthy supply from banks data centres is an interesting one. We’ve seen more than $50 billion in the US alone. That is up 300% from the year prior. And so, a tremendous amount of activity that’s expected to continue into 2025, particularly with the explosion of artificial intelligence and the demand that that places on that sector. Lastly, I thought it’d be worth just touching on the November election and of course, the Trump victory. As we anticipated, it has not had much of an impact on the bank market. The bank market does tend to be very relationship based.

So, I would characterize it as neutral to potentially net positive. There are two areas that we are watching closely. One is, tariffs and one is the Inflation Reduction Act. And those have the potential depending on what happens to have a disproportionate impact on certain sectors. And that could ultimately impact companies in the bank market in those sectors. So looking to 2025, we’re feeling pretty optimistic. We expect continued strong volumes.

We expect pricing that is balanced, but certainly more in favor of borrowers than it has been historically. We expect supportive participation from banks globally. And, we’re hoping more M&A financing. And maybe that’s a good segue to use. Scott.

Scott Keyworth: No pressure. Listen, I’m happy to listen to all of my colleagues. I think all of your comments so far make me optimistic about the year going forward. You know, when I think about context and answering the question, I think about what makes a constructive M&A market and frankly, three elements. First, positive economic outlook. Second would be a competitive cost of capital. And the third is access to capital. So if I set context, and look at where we were in 2023, we had geopolitical uncertainty.

We had inflation, high interest rates, our debt and equity capital markets were constructive. Valuations were headed in the right direction. I think at the beginning of the year, inflation was at 5.9% in Canada, at 6.4% in the U.S. so we roll the tapes forward to 2024. Some of those factors started to come back in our favour. Starting the year, inflation was at 3.4% in Canada, 3.4% in the US, but nothing happened to rates. So what did that mean in terms of the full year and what were the results? Well, overall, I’d say looking first on a global basis, year-to-date M&A activity measured by dollar value was up by about 17%, which is very good.

In Canada, year-to-date, M&A activity level was up over 20% relative to 2023. And on an annualized basis, the number looks great. It’s about $290 billion relative to $200 billion in 2023. But if we peel back the layers of the onion, that number is impacted in large part by the Couche-Tard bid for 7-Eleven, which represents about $60 billion in value. So, if we back that out and then recalculate our numbers, the Canadian M&A sort of baseload activity is up to about $220 billion, we’re up about 10% year-over-year. Now, that’s consistent with what we’ve seen go on globally as well.

So, not a bad outcome. You know the year itself I’d break it down into two halves. If we had this conversation on the first part of the year, we would have talked about inflation, no movement in rates, you know, access or cost of capital still an issue. And for those sectors that are interest rate sensitive, we would have been talking about shareholder activism and valuations. So it would have been a very different market.

The majority of the recovery we’ve seen has been in the second half, and it’s corresponded to the reduction in rates. You know, Canada at this point has cut rates by 125-basis points, FED, lagging a little behind, two cuts 75-basis points. And we think about it, the reduction in inflation and interest rates has broader implications for the M&A market. It reduces cost of inputs. It reduces cost of capital results in an improvement in earnings. We think about it revenue growth, which Tyler has highlighted.

Maybe some increase in consumer spending which all lead to improvements in value. So, if I think about the one dynamic of cost of capital, we’ve seen improved valuations. We’ve seen reduction in debt costs. So, again all positives. The second area I’d look at would be access to capital. And so the leverage finance market as everybody said is open bank market is open. So, access. If I look at the statistics the leverage loan new issue volumes up almost double on a year-to-date basis.

High yield new issue volumes up almost 50%. Terrific! Spreads are tightening! I love it! And then I think I look at things like the increase in dividend recap transactions, which represented about 11% of volume this year. That’s very important to one of the constituents in the M&A market, which would be the private equity group. And I’ll talk about them in a minute. So on balance, I’d say the improvement in access to capital has been tremendous and should lead to follow on M&A, which we’re excited about.

But, the other area I wanted to talk about was private equity and the continued growth in private markets, increasing role of private equity in global M&A through the cycle. And if I look at what happened in the last year, private equity volumes are up. Private equity as a percentage of total M&A volume is up to about almost 50%, which is consistent with the last 2 or 3 years, all of which are really positive. Fundraising, again, has been positive, though down slightly.

If we look at it on a global basis. Private equity raised $1.1 trillion in the last year. I think it’s just under $300 billion in North America. Part of the challenge, I think private equity is finding is the exit. Their OPs are looking for a return of capital. So the reference earlier to dividend recaps is one step in the right direction. Tyler, your comment about the increase in in the IPO pipeline, access to the equity markets, the ability to sell down through secondaries, and so on. Again, are all positive contributors for private equity. The return of capital to their OPs will facilitate fundraising activities. And when they represent 50% of our market, clearly a key driver for M&A going forward.

So if I think of positive elements going into 2025, a continued reduction in interest rates, would be constructive. The resurgence in private equity activity, both through monetization and buy side activity. Again, a key driver for our market. Continued improvement in the leveraged finance markets. Access suggests larger transactions are available, accessible, and I would say a greater confidence in an economic outlook and a little more stability going forward as we go through this election cycle, and have better visibility on what our markets look like going forward.

Roman Dubczak: That was good. So, like, if I think of where we were this time last year, a little less certainty, and if I was to, kind of, put words in our mouth hoping to be where we are today, a year ago, right? So, now that we’re here, where does this all go and what do we do? I’m going to ask him specific questions. So, Dan, for you, you’re an investor spreads are at all time tights, you know, what do I do here? How does this make sense as an investor in fixed income, and how do I play it?

Dan Parrack: Yeah. It’s it’s interesting question. And it’s a conversation we have on our syndicate desk every day. Yeah. And I think there’s two elements. There’s where spreads are and then where fixed income is in general. So from a spread basis, I think that investors need to be disciplined. They need to be looking at relative value between the fixed income sub asset classes, if you will. But I think when you look at the fixed income class as a whole, look at yield, it still is very relevant. And you know, we look at a five year chart of a triple B indicative coupon.

Over the last ten years it’s averaged about 3% right now. That’s that same triple B would be yielding on a coupon basis at 3.8 to 3.9%. That’s that same triple B would be yielding on a coupon basis at 3.8 to 3.9%. So you’re still 80-basis points above the ten year average. So to me that tells me that, yes, spreads are tight, but fixed income is still relevant for a lot of these, these fund managers. is still relevant for a lot of these, these fund managers.

The other thing that are investors are gonna be grappling with are some basically some technical tailwinds that are going to be giving them liquidity. And if you think about a couple items here. 2024 in Canada, saw every month with positive inflows into bond funds 2024 in Canada, saw every month with positive inflows into bond funds and as an aggregate, that was 260% higher than 2023. Combine that with the fact that 2025 will see the most number of corporate bonds in history roll out of the corporate bond index, which, as I mentioned, is a performance… It’s a benchmark for investors. They’re going to have to continue to put money to work and extend out the curve.

And then lastly, there’ll be the most amount of organic cash return to investors in 2025. Coupon payments of corporates alone will be north of $25 billion for the first time in history. So when you think about the net issuance, that will need to be kind of absorbed by the market, you know, maturities minus these coupons is actually quite manageable. So I think that these tailwinds that investors have and the liquidity in the system is still very constructive for the fixed income asset class. And investors are going to have to deal with that, even despite the tight credit spreads.

Roman Dubczak: Right. So, buy bonds. Andrew, the US market is, as shiny as you can possibly imagine, in debt capital market terms, what could possibly go wrong? Like what are the risks in the US fixed income markets right now?

Andrew Lee: Yeah, Roman, you’re right. I mean, the market is highly constructive, for credit and risk assets. But you’re right there are potentially some, some things that, that could derail the market. Certainly I think inflation, while, we expect to continue to moderate. That’s obviously a risk if it fails to do so. Either here or globally. That could weigh on asset prices, the geopolitical conflicts that, that we’ve been seeing, potentially those intensify around the world, reversing direction, credit spreads, obviously. You know, what has been, risk on, market could very quickly turn into a risk off.

And then I think we’ve mentioned it, Jack. You mentioned it the, the, the policies of the new administration, you know, what are they actually trying to accomplish once they take office and the impact of those policies on inflation and the federal deficit? You could potentially see an impact, from the rating agencies downgrades, widening credit spreads. Again, that could potentially hinder, issuance in the New Year. I will note that the credit spread, for the year happened on November 7th. So, after the election, so I do think that the market continues to be very optimistic that the administration will be supportive, for issuance in the New Year and years to come.

Roman Dubczak: Okay. Thanks. Andrew. Tyler, equity markets are, by all measures, ripping right now. And there’s great liquidity. Fixed income yields are low and going lower. You know, and you mentioned, that that’s the context you mentioned the you know, the IPO book is building, you know, what are issuers waiting for to kind of come to market. And what would be the catalyst to get these new issues out to the market?

Tyler Swan: Yeah. So good question. So all IPOs are smaller at best mid-cap companies. And a lot of those sectors and stocks have been playing catch up for this year. And so valuations amongst those companies have been creeping up. But for many companies there’s not. Their peer group is not quite in the zone. That would feed a new supply of IPOs.

So a little bit more momentum amongst the smaller mid-cap diversified companies would help. And then I think as well, particularly in Canada, the rate cut cycle started. There’s a lot of enthusiasm about the direction of the economy, but still some uncertainty. And a lot of companies want to see in their own results and their own confidence in the results, a little bit more of a track record in the direction of their business before making the decision, which is a pretty important milestone in their company to go public.

So, they’re eyeing a two year window starting now to go public, and they’re going to optimize around market conditions and their own company performance to decide when. And then I’d also note that, private equity bought a lot of companies. And some of them were bought, and they’ve been doing better over the last year, but they were bought with a lot of leverage. And to get returns, they’re wanting to see a little bit more, improvement in their underlying equity values.

I just know that three quarters of the IPOs in our prospect IPO list are backed by private equity or financial sponsors. And so, a lot of earmarked, those companies as IPO candidates, but they too want to see a little bit more, business momentum and market momentum.

Roman Dubczak: Yeah. No, we’ve got it. And I guess the alternative is a private equity investor in, private company is, either to go public or the aforementioned M&A. So, Jacqueline, you mentioned M&A financing. And is there anything specific to financing an M&A transaction in this market that’s worth surfacing and kind of pointing out perhaps new dynamics in the market? For sure there’s liquidity and you’ve mentioned that. But is there anything from a practitioner’s perspective worth getting out there.

Jacqueline Green: Thanks, Roman. Yeah I’m going to actually just touch on one of the comments I made earlier, which is that M&A is actually a really small component of the overall bank market. And I think that’s important to surface because to your point, it gives the impression that there’s actually not a lot of liquidity when in reality we’re actually seeing a huge amount of liquidity for deals that do come to market. And I would say the deals that have come to market over the last year, they’ve predominantly been weighted towards the resources sectors and the tech, media and telecom, sectors. It’s really more reflective of M&A volumes itself and the fact that when we do see it, there’s been less of a reliance on the debt markets than there has, you know, going back a number of years, what we have started to observe in the bank market specifically for M&A financing, is that, because there hasn’t been a lot of activity, it’s creating quite a bit of competition amongst banks, and that is driving more favourable terms than we might have seen. You know, over the last couple of years. And one good example of that is the use of term loans in lieu of traditional capital markets bridges.

Term loans, generally speaking, are more flexible. They tend to be slightly more cost effective. And the reason that banks are willing to provide them in the context of M&A is they’re trying to position themselves as best as possible for the fees that might be affiliated in conjunction with that transaction. And so we saw a big resurgence of what I call the term loan, this past year.

And that’s a trend that we expect to continue heading into next year. Probably one of the best examples of this from 2024, which is quite notable, is, the US $11 billion that we saw raised for Hewlett-Packard. That was for their Juniper acquisition. That’s that’s a tremendous size even for the US market to raise, in traditional term loan financing. But just more generally, some things to think about and actually highlight some things that I’ve touched on in the past because I think they continue to be valid. One is that in a M&A context you have to engage your banks early.

They tend to be really fluid, dynamic situations. It’s important to have your partners alongside you as you work through the most optimal financing. The second thing is to think about what the best balance is between size, tenor, structural flexibility, and cost. They’re obviously all very important factors that are important to your syndicate members as well, but you may not be able to get the perfect balance of all of them.

And so it’s important to think about what are the priorities. The next thing is we’re in a declining rate environment by all accounts. And so what is the best mix between prepayable floating rate debt and fixed rate debt. What we expect is that there may be a little bit more reliance on floating rate debt in a declining rate environment, especially in cases where companies require having prepayable debt in their structure to deliver. And then lastly, always really important to think about syndicate composition. Who are your long-term bank partners? Who is going to be a recipient of fees affiliated with that transaction?

Those are going to be your best partners, and they’re going to drive the best execution in in conjunction with an M&A financing. So, you know, I would just finish with the overarching comment that I think that, in anticipation of what will hopefully be a pick up in the M&A market, there is going to be a lot of liquidity in the bank market. And in fact, I would say that, that banks are going to welcome that, should it come.

Roman Dubczak: Okay. And then Scott maybe going to go over to you, a seasoned veteran, like some of us on the desk here. Over the years, we’ve seen M&A evolve, trends, you know, started heavily strategic on strategic and the presence of private equity. And, you know, where to where do we find ourselves today, like what has evolved over the years and which had some takeaways versus what the flavour of M&A is going to look like prospectively?

Scott Keyworth: Yeah, I think one of the biggest observations I’d make is just the evolution of private markets and private M&A. You know, when I think about public M&A, in a lot of cases, absent a cash deal, it’s about relative value. In a private market context, it’s more about absolute value where the focus shifts to IRR and multiple of invested capital. And certainly as private equity has become a much bigger player in the M&A market, the emphasis has shift to the mindset of more of a true or pure investor. And so I think what that means from a deal perspective is that, you know, our deals are taking longer.

Our materiality thresholds are getting smaller. And the level of detail that, that our buyers are paying is much greater because, you know, the factors that drive value now are more about, actual revenue growth, margin expansion as opposed to the more traditional potential for multiple expansion.

That’s driven value in the past. So, you know, from our perspective, it’s taking a lot more time. I think folks are being a lot more cautious as they go forward and in a dynamic environment. Not unwarranted. So, you know, I’m still encouraged by a lot of, what everybody’s had to say. And I think, frankly, going forward, I’m looking forward to that. A much more productive, M&A year.

Roman Dubczak: Great. Well, that’s a good into what was a very, very rich conversation. And, I share your view. I’m looking forward to, the coming year or two, because I think we’re in a very interesting, sweet spot of, liquidity, corporate ambition, ambitions being fulfilled, and, you know, the economy growing and expanding in a nice way. So, I want to thank you all Dan, Tyler, Jacqueline, Scott and Andrew on the screen. Thank you all for joining us here today. It was a great conversation and I want to thank you all our clients for joining. I hope you have a terrific holiday season and a great New Year, and we look forward to seeing you again soon. Thanks.