Commercial Awareness Discussion Thread

[Naomi U]

Hi guys! In regards to reading news articles in the ft for example- how do you go about analysing them? I know there won’t be a set structure but I’m not sure what I should be thinking about when I do read them

Hi @rianna2810

Just linking a recent response I made to this which may help. Best of luck!

Hi @Lawgirl123

I don't think there is a specific answer to this question as I think what interviewers are looking for here is your reason why. I think I would advise following a few stories/deals that you are particularly interested in. When you are researching these stories/deals ask yourself:

What market/ industry was this achieved in, and what are the current trends e.g. is this an emerging market, a declining market?

Was this the first deal of this kind and why? When was the last/similar deal completed and what were the reasons for the time lag?

Was this deal particularly more complex and why? (Consider cultural, financial, environmental, tax and competition implications)

I think if you approach your preparation for this question from this angle, this will really help to tailor your answer!

Hope this helps and best of luck!

 

[Ricky]

Hi @rianna2810

Just linking a recent response I made to this which may help. Best of luck!

Would also add that it is worth discussing the impact of the article on the firm and its clients.

 

[Lily721]

Hi! Is anyone able to explain the whole GameStop frenzy in a more friendly way? I am trying to understand what is happening but so far what I've read doesn't seem too straightforward.

 

[AH97]

Hi! Is anyone able to explain the whole GameStop frenzy in a more friendly way? I am trying to understand what is happening but so far what I've read doesn't seem too straightforward.

https://www.instagram.com/p/CKm7psBgEt_/ - I think this could be helpful for you!

 

[Lisa Lowe]

Ha same - I'm trying to understand why/how a broker should 'lend' its shares out in the first place.

 

[Lily721]

https://www.instagram.com/p/CKm7psBgEt_/ - I think this could be helpful for you!

Thanks!

 

[Lastseasonwonder]

Hi folks,

Can someone please direct me to a comprehensive guide/explanation regarding real estate funds. Everything I seem to read about this area is general.

Thank you.

 

[AA99]

Hi all,

I've been reading that some companies are bypassing the traditional method of listing via an IPO and are instead listing via the SPAC route.

I understand that at the time of listing SPACs have no business operations and are formed for the purpose of acquiring another company, but I'm a bit confused so I wondered if anybody could explain why they're increasing in popularity now specifically, the benefits/drawbacks of listing this way, and whether this trend is likely to continue?

Hope that makes sense and thanks for any help👍

 

[Yoryis]

Ha same - I'm trying to understand why/how a broker should 'lend' its shares out in the first place.

Why would you have your shares just sit there? By lending them you can get some extra income in the meantime (ie the fees payable by the borrower). Of course, there is the risk of not getting the shares back because the counterparty is unable to buy them back (what happened), but in normal times this is a rather remote risk.

 

[ebitda]

Hi all,

I've been reading that some companies are bypassing the traditional method of listing via an IPO and are instead listing via the SPAC route.

I understand that at the time of listing SPACs have no business operations and are formed for the purpose of acquiring another company, but I'm a bit confused so I wondered if anybody could explain why they're increasing in popularity now specifically, the benefits/drawbacks of listing this way, and whether this trend is likely to continue?

Hope that makes sense and thanks for any help👍

In essence, both methods provide a mechanism for private companies to enter into public markets. The key difference is the WAY in which this is done.

In a traditional process, the way a company goes public is as you mentioned, through the traditional process of an IPO. For ordinary investors, the way to participate in the IPO offering is to participate at the start of the IPO process (i.e. roadshows), which is time-consuming and cumbersome due to stringent regulatory requirements.

SPACs are an alternative product that allows investors to participate in newly-listed securities but through a much more cost and time-efficient manner. In a SPAC process, a reverse merger occurs, resulting in the target private company becoming a public entity by virtue of the acquiring SPAC vehicle already being a public entity.

From the issuer (company that wants to go public) perspective, a SPAC represents a relatively more certain way of participating in the public markets within a faster timeline. In the traditional IPO, the issuer will need to organise a lengthy book building process to seek investors/underwriters. In a SPAC, the money is already there. You deal with one entity (the SPAC vehicle) rather than negotiating with a ton of underwriters/subscribers.

From an investor perspective, any underwriting and subscription arrangements have already been done when the SPAC vehicle IPO'ed originally. The SPAC IPO process is much quicker than the target company pursuing an IPO because as you rightly noted, the SPAC vehicle lacks meaningful business history and operations (meaning less DD, disclosure requirements etc.). The downside is that investors lack visibility on the target company the SPAC will acquire (which is in effect, what they are investing in). SPAC investors are in effect taking a punt on the credibility of the SPAC management team seeking depressed valuations and generating meaningful value. In an IPO, investors know what and who they are investing in and can draw independent conclusions about the investment viability.

SPACs have been red-hot lately because there's a lot of liquidity now looking for yield (interest rates are ultra-low) and the stock market has been resilient despite the pandemic. There are other complicated reasons (don't worry, unlikely to be asked for interview purposes) why SPACs are attractive (e.g. share/warrant structure, valuation intricacies). There is currently a lot of controversy about the perceived cost savings for SPAC investors which will definitely shape its future popularity.

Hope this helps!

 

[AA99]

In essence, both methods provide a mechanism for private companies to enter into public markets. The key difference is the WAY in which this is done.

In a traditional process, the way a company goes public is as you mentioned, through the traditional process of an IPO. For ordinary investors, the way to participate in the IPO offering is to participate at the start of the IPO process (i.e. roadshows), which is time-consuming and cumbersome due to stringent regulatory requirements.

SPACs are an alternative product that allows investors to participate in newly-listed securities but through a much more cost and time-efficient manner. In a SPAC process, a reverse merger occurs, resulting in the target private company becoming a public entity by virtue of the acquiring SPAC vehicle already being a public entity.

From the issuer (company that wants to go public) perspective, a SPAC represents a relatively more certain way of participating in the public markets within a faster timeline. In the traditional IPO, the issuer will need to organise a lengthy book building process to seek investors/underwriters. In a SPAC, the money is already there. You deal with one entity (the SPAC vehicle) rather than negotiating with a ton of underwriters/subscribers.

From an investor perspective, any underwriting and subscription arrangements have already been done when the SPAC vehicle IPO'ed originally. The SPAC IPO process is much quicker than the target company pursuing an IPO because as you rightly noted, the SPAC vehicle lacks meaningful business history and operations (meaning less DD, disclosure requirements etc.). The downside is that investors lack visibility on the target company the SPAC will acquire (which is in effect, what they are investing in). SPAC investors are in effect taking a punt on the credibility of the SPAC management team seeking depressed valuations and generating meaningful value. In an IPO, investors know what and who they are investing in and can draw independent conclusions about the investment viability.

SPACs have been red-hot lately because there's a lot of liquidity now looking for yield (interest rates are ultra-low) and the stock market has been resilient despite the pandemic. There are other complicated reasons (don't worry, unlikely to be asked for interview purposes) why SPACs are attractive (e.g. share/warrant structure, valuation intricacies). There is currently a lot of controversy about the perceived cost savings for SPAC investors which will definitely shape its future popularity.

Hope this helps!

That's fantastic - it makes much more sense now, thank you!

 

[Osh]

This q is in the context of the sale of ASDA to Issa bros/TDR Capital

My initial understanding was a share purchase acquisition involves purchasing all of the shares of a company. Therefore, given that this deal structure has Walmart retaining some shares in ASDA. Is it the case that the shares Issa bros/TDR Capital are acquiring, are those that will not belong to Walmart, i.e they're acquiring 90% because Walmart are retaining 10%?

 

[Jaysen]

In essence, both methods provide a mechanism for private companies to enter into public markets. The key difference is the WAY in which this is done.

In a traditional process, the way a company goes public is as you mentioned, through the traditional process of an IPO. For ordinary investors, the way to participate in the IPO offering is to participate at the start of the IPO process (i.e. roadshows), which is time-consuming and cumbersome due to stringent regulatory requirements.

SPACs are an alternative product that allows investors to participate in newly-listed securities but through a much more cost and time-efficient manner. In a SPAC process, a reverse merger occurs, resulting in the target private company becoming a public entity by virtue of the acquiring SPAC vehicle already being a public entity.

From the issuer (company that wants to go public) perspective, a SPAC represents a relatively more certain way of participating in the public markets within a faster timeline. In the traditional IPO, the issuer will need to organise a lengthy book building process to seek investors/underwriters. In a SPAC, the money is already there. You deal with one entity (the SPAC vehicle) rather than negotiating with a ton of underwriters/subscribers.

From an investor perspective, any underwriting and subscription arrangements have already been done when the SPAC vehicle IPO'ed originally. The SPAC IPO process is much quicker than the target company pursuing an IPO because as you rightly noted, the SPAC vehicle lacks meaningful business history and operations (meaning less DD, disclosure requirements etc.). The downside is that investors lack visibility on the target company the SPAC will acquire (which is in effect, what they are investing in). SPAC investors are in effect taking a punt on the credibility of the SPAC management team seeking depressed valuations and generating meaningful value. In an IPO, investors know what and who they are investing in and can draw independent conclusions about the investment viability.

SPACs have been red-hot lately because there's a lot of liquidity now looking for yield (interest rates are ultra-low) and the stock market has been resilient despite the pandemic. There are other complicated reasons (don't worry, unlikely to be asked for interview purposes) why SPACs are attractive (e.g. share/warrant structure, valuation intricacies). There is currently a lot of controversy about the perceived cost savings for SPAC investors which will definitely shape its future popularity.

Hope this helps!

Great explanation and fitting username!

 

[Holly]

This q is in the context of the sale of ASDA to Issa bros/TDR Capital

My initial understanding was a share purchase acquisition involves purchasing all of the shares of a company. Therefore, given that this deal structure has Walmart retaining some shares in ASDA. Is it the case that the shares Issa bros/TDR Capital are acquiring, are those that will not belong to Walmart, i.e they're acquiring 90% because Walmart are retaining 10%?

Yeah Walmart are keeping their minority stake in ASDA. So Issa Brothers and TDR Capital will have a majority

 

[Ricky]

In essence, both methods provide a mechanism for private companies to enter into public markets. The key difference is the WAY in which this is done.

In a traditional process, the way a company goes public is as you mentioned, through the traditional process of an IPO. For ordinary investors, the way to participate in the IPO offering is to participate at the start of the IPO process (i.e. roadshows), which is time-consuming and cumbersome due to stringent regulatory requirements.

SPACs are an alternative product that allows investors to participate in newly-listed securities but through a much more cost and time-efficient manner. In a SPAC process, a reverse merger occurs, resulting in the target private company becoming a public entity by virtue of the acquiring SPAC vehicle already being a public entity.

From the issuer (company that wants to go public) perspective, a SPAC represents a relatively more certain way of participating in the public markets within a faster timeline. In the traditional IPO, the issuer will need to organise a lengthy book building process to seek investors/underwriters. In a SPAC, the money is already there. You deal with one entity (the SPAC vehicle) rather than negotiating with a ton of underwriters/subscribers.

From an investor perspective, any underwriting and subscription arrangements have already been done when the SPAC vehicle IPO'ed originally. The SPAC IPO process is much quicker than the target company pursuing an IPO because as you rightly noted, the SPAC vehicle lacks meaningful business history and operations (meaning less DD, disclosure requirements etc.). The downside is that investors lack visibility on the target company the SPAC will acquire (which is in effect, what they are investing in). SPAC investors are in effect taking a punt on the credibility of the SPAC management team seeking depressed valuations and generating meaningful value. In an IPO, investors know what and who they are investing in and can draw independent conclusions about the investment viability.

SPACs have been red-hot lately because there's a lot of liquidity now looking for yield (interest rates are ultra-low) and the stock market has been resilient despite the pandemic. There are other complicated reasons (don't worry, unlikely to be asked for interview purposes) why SPACs are attractive (e.g. share/warrant structure, valuation intricacies). There is currently a lot of controversy about the perceived cost savings for SPAC investors which will definitely shape its future popularity.

Hope this helps!

Nice article on SPACs here. Discusses the differences between US/UK.

SPACs: The London alternative

The use of special purpose acquisition companies (SPACs) as an alternative route to access the equity capital markets has fluctuated in popularity over the years as a result of changes in both market conditions and investor appetite.

www.nortonrosefulbright.com

 

[KB2020]

Nice article on SPACs here. Discusses the differences between US/UK.

SPACs: The London alternative

The use of special purpose acquisition companies (SPACs) as an alternative route to access the equity capital markets has fluctuated in popularity over the years as a result of changes in both market conditions and investor appetite.

www.nortonrosefulbright.com

What is a SPAC? Explaining one of Wall Street’s hottest trends

SPACs, which allow private companies to go public without a traditional IPO, raise billions of dollars in 2020. Here's how they work.

www.cnbc.com

Another article which explains what a SPAC is and the advantages/risks of using one. Watsons Daily also spoke about these on their podcast last week in relation to WeWork so worth also listening to that if you can!

 

[Jacob Miller]

Hi all,

I've been reading that some companies are bypassing the traditional method of listing via an IPO and are instead listing via the SPAC route.

I understand that at the time of listing SPACs have no business operations and are formed for the purpose of acquiring another company, but I'm a bit confused so I wondered if anybody could explain why they're increasing in popularity now specifically, the benefits/drawbacks of listing this way, and whether this trend is likely to continue?

Hope that makes sense and thanks for any help👍

Sorry it took a while to respond to this! Lots of great info been given already, I found this article quite good in explaining some of the reasons:

IPOs are popping like it’s 1999, and executives are fed up

The first-day trading pop in stocks is nice for investors, but not issuers.

qz.com

 

[Holly]

Hey, I was wondering if anyone could clarify the difference between a pre-pack sale and a distressed M&A? Seperately they make sense, but together, they seem very similar 🧐

 

[Jacob Miller]

Hey, I was wondering if anyone could clarify the difference between a pre-pack sale and a distressed M&A? Seperately they make sense, but together, they seem very similar 🧐

My understanding, in fairly simple terms, is as follows:
Pre-pack denotes a situation where the entity being sold is heading towards financial distress/ insolvency but this has not been formally declared, no insolvency practitioner has been appointed etc and it is essentially a private negotiation between the entity and creditors (normally secured - one of the major criticisms of pre-pack deals is that they frequently screw over unsecured and tort creditors). Some of the benefits include privacy/ not having to disclose insolvency which could cause reputational damage.

Distressed M&A, on the other hand, is generally where an entity is firmly in financial distress and usually where an administrator has already been appointed.

Remember that a company, at the stage of being at the hands of an administrator, is still considered a going concern and distressed M&A at this stage means it can still be sold as a solvent company on a share sale basis.

 

[ebitda]

Hey, I was wondering if anyone could clarify the difference between a pre-pack sale and a distressed M&A? Seperately they make sense, but together, they seem very similar 🧐

Distressed M&A is basically a broad term describing any M&A involving a company in financial distress. Pre-pack sales would fall within distressed M&A.

A pre-pack sale is a specific restructuring tool that involves the appointed (or soon to be appointed) administrator negotiating the asset sale on behalf of the company. The key reason this is done is (i) speed of execution (to do the deal before formal insolvency happens and to avoid dealing with creditors); and (ii) to avoid any post-closing issues of the transaction being clawed back (e.g. because the transaction was at undervalue) under insolvency laws which may arise if the company itself was negotiating the transaction.