Page 1
SPRING 2020
IN THIS EDITION
Global M&A Market Commentary 2
Assessing Precedent Market
Downturns3
U.S. Private Equity & Corporate
Finance Commentary4
COVID-19 Deal Making
Implications5
M&A Market Statistics 6
Economic Corner 7
Raymond James Appoints Co-
Head of European Investment
Banking
9
About Raymond James 10
RJ Advisory Transactions 11
RJ Capital Markets Transactions 13
Raymond James & Associates, Inc., member New York Stock Exchange/SIPC.
SPRING 2020
Steve Hufford – St. Petersburg / London
Chief Operating Officer & Co-Head of
European Investment Banking I
727.567.2631
[email protected]
Allan Bertie – London
Managing Director & Co-Head of European
Investment Banking I 44.20.3798.5701
[email protected]
Dennis Zhang – Asia
Managing Director & Head of Asia
Investment Banking I 415.616.8917
[email protected]
Jeff Maxwell – St. Petersburg
Managing Director & Head of M&A Investment
Banking I 727.567.5222
[email protected]
Don Blair – St. Petersburg
Managing Director I 727.567.5018
[email protected]
Brent Kriegshauser – St. Petersburg
Managing Director I 727.567.4339
[email protected]
FOR INSTITUTIONAL USE ONLY
Page 2
SPRING 2020
60
70
80
90
100
110
120 NASDAQ S&P 500
Financial Times Stock Exchange Germany DAX Index
Shanghai Stock Exchange Japan Nikkei 225 Index
GLOBAL M&A MARKET COMMENTARY
Sequential quarter-over-quarter M&A
announced deal value and volume
decreased in the first quarter by 36.0% and
11.0%, respectively. The decline was driven
by a sharp decrease in deal activity during
March, particularly for larger strategic
mergers, as the COVID-19 pandemic has
caused large corporations to shift their near
term priorities. While many businesses
expect to resume M&A initiatives as the
economy begins to show signs of
improvement, the length of the COVID-19
impact on global economies has yet to be
determined.
(1) Source: FactSet; Number of transactions includes those with undisclosed values; Includes transactions with disclosed values over $10MM.
(2) Source: Capital IQ. 2
Global equity indices displayed sharp
declines in the first quarter of 2020 as the
COVID-19 pandemic has led to widespread
uncertainties impacting market valuations.
As of late, equity markets have rebounded
from their March lows but have not yet
recovered to the levels seen at the start of
2020.
HISTORICAL ANNUAL M&A ACTIVITY(1)
HISTORICAL QUARTERLY M&A ACTIVITY(1)
GLOBAL PUBLIC EQUITIES(2)
As of
4/30
(18.9%)
(10.6%)
(22.4%)
(7.3%)
(14.6%)
(2.2%)
As of
3/31
(25.8%)
(20.7%)
(25.4%)
(10.9%)
(20.0%)
(15.3%)
3/31
Total year-over-year (“y-o-y”) M&A deal
counts involving targets based in the U.S.,
Europe and Asia Pacific decreased by a
moderate 3.4% in the first two months of
2020 as many regions of the world were only
beginning to feel the emergence of COVID-
19. However, the rapid spread of the virus
around the world drove a sharp decline in
deal activity during March as y-o-y volumes
fell by 23.9%. The combination of this
dramatic drop in deal counts and fewer
announced mega-deals in many regions led
to steeper declines in global deal value with
large drop-offs in U.S. and Asia Pacific deal
value being partially offset by the benefits
Europe experienced of a y-o-y uptick in
multi-billion dollar mergers.
0
5,000
10,000
15,000
20,000
25,000
30,000
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2015 2016 2017 2018 2019 Jan + Feb2019
Jan + Feb2020
Mar 2019 Mar 2020
Europe Disclosed Value ($B) Asia Pacific Disclosed Value ($B)
Total Disclosed value Total Number of Transactions
Y-O-Y
Volume Change
US: 5.2%
EU: (10.6%)
AP: (3.9%)
Total: (3.4%)
Y-O-Y
Volume Change
US: (14.7%)
EU: (34.4%)
AP: (16.1%)
Total: (23.9%)
0
2,000
4,000
6,000
8,000
$0
$250
$500
$750
$1,000
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
U.S. Disclosed Value ($B) Europe Disclosed Value ($B)
Asia Pacific Disclosed Value ($B) Total Number of Transactions
Page 3
SPRING 2020
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
S&P 500 Market Expansion Market DeclineQuarterly M&A Volume
S&
P 5
00
Qu
arte
rly M
&A
Vo
lum
e
~30 Months ~60 Months ~17 Months ~131 Months TBD
ASSESSING PRECEDENT MARKET DOWNTURNS
Source: FactSet. Includes deals where the target firm is headquartered in the United States; Number of transactions includes those with undisclosed values; Includes transactions with
disclosed values over $10MM. 3
COVID-19 COMPARED TO PRIOR MARKET SHOCKS
M&A RECOVERY CYCLES
The COVID 19 outbreak led to a sharper, more immediate decline in the S&P 500 when compared to prior equity market shocks. While
markets have rebounded from their lows, significant uncertainty persists and questions around whether the lows will be retested and
how long the downturn will last remain to be answered.
U.S. M&A activity showed resiliency following the Financial Crisis with its recovery being quicker and more pronounced than that of the
Dotcom Bubble as deal counts increased by over 60% in a similar 19-quarter timeframe after the market trough.
~11 Quarters ~19 Quarters ~7 Quarters ~43 Quarters
DotCom
Bubble
Financial
Crisis
COVID-19
Pandemic
DotCom
Bubble
Financial
Crisis
S&P 500 Market Expansion Market DeclineS&P 500 Peak-to-Trough
3/31/20
Quarterly M&A Volume Growth
Page 4
SPRING 2020
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2015 2016 2017 2018 2019 2020
Fed Funds Rate1-Yr. Treasury5-Yr. Treasury10-Yr. TreasuryBAML US Corp. BBB Option-Adj. Spread
(5.0%)
(4.0%)
(3.0%)
(2.0%)
(1.0%)
0.0%
1.0%
2.0%
3.0%
4.0%
(25.0%)
(20.0%)
(15.0%)
(10.0%)
(5.0%)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Announced M&A Volume Y-O-Y % Change Real GDP, S.A.A.R.
(1) Source: PitchBook.
(2) S&P LCD Report.
(3) Source: Bureau of Economic Analysis and Factset; GDP growth based on year 2012 dollars.
(4) Source: St. Louis Fed.
U.S. real GDP growth, historically an accurate indicator of M&A
activity, is estimated to have declined at an annualized pace of 4.8%
in 1Q20 – a sharp decrease from the 3.1% increase experienced in
1Q19. GDP growth for 4Q19 remained unchanged at 2.1%. The
1Q20 GDP decline, largely driven by the 7.8% decrease in real
personal spending, was principally due to the response to the
spread of COVID-19. As governments issued “stay at home” orders
in mid-March, businesses and schools switched to remote work or
canceled operations, and consumers canceled, restricted, or
redirected their spending.
U.S. GDP GROWTH VS. M&A ACTIVITY(3)
U.S. PRIVATE EQUITY DEAL FLOW(1)
U.S. PRIVATE EQUITY COMMENTARY
U.S. CORPORATE FINANCE COMMENTARY
In March, the Federal Reserve cut interest rates as a response to
the economic impact of COVID-19, while corporate spreads spiked
as investors demonstrated a rapid de-risking and flight to quality.
4
U.S. CORPORATE SPREADS(4)U.S. MIDDLE MARKET LBO DEBT MULTIPLES(2)
Up until the emergence of COVID-19, middle market companies had
continued to benefit from ready access to debt capital with total
leverage multiples reaching 5.5x. However, as uncertainty spread
March
Avg.
0.33%
0.73%
0.87%
0.59%
3.23%
Spot Rate
(3/31)
0.17%
0.08%
0.70%
0.37%
3.96%
Despite the emergence of the COVID-19 pandemic, U.S. private
equity activity remained strong in 1Q20 in comparison to 1Q19 with
nearly 940 transactions closing in the quarter, an 18.0% year-over-
year increase as transactions that had either previously signed or
had advanced into the late stages pre-pandemic were able to be
completed. In addition, as of 3/31/2020, approximately 445 private
equity transactions with an estimated aggregate deal value of
approximately $59.1 billion had been announced but had not yet
closed. While private equity firms continue to hold ~$1 trillion of dry
powder, prior to the impact of leverage, and most indicate that they
are “open for business and actively looking for new investments”,
the impact of COVID-19 has undoubtedly introduced near-term
uncertainty to the private equity deal making environment. Among
those firms who stand most likely to sustain, or even increase,
activity levels in the coming months are those with more flexible
mandates that allow them to deploy capital in scenarios beyond just
buyouts, such as minority structured equity, convertible debt, PIPEs,
bridge financings, etc.
rapidly, the credit markets experienced severe dislocation initially
before more recently showing positive signs of life again. While
underwriting terms, including from direct lenders, have become very
case specific, borrowers should expect higher pricing and reduced
leverage vs. pre-COVID levels. For those credits less suited to
more traditional debt financing, opportunistic credit and structured
equity investors are seeking to fill the void – albeit at a higher cost of
capital.
4.65.1 5.2
4.95.4 5.6 5.4 5.5
0.2
0.1 0.20.3
0.0 0.14.8x
5.3x 5.4x 5.2x
5.5x 5.6x 5.5x 5.5x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
2013 2014 2015 2016 2017 2018 2019 LTM 2020
Bank Debt/EBITDA Non-Bank Debt/EBITDA
$431
$544$506
$610$627
$747$727
$96$127
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2013 2014 2015 2016 2017 2018 2019 YTD2019
YTD2020
Capital Invested ($B) Number of Deals
Page 5
SPRING 2020
The emergence of COVID-19 has introduced near-term uncertainty
to M&A transactions across the spectrum. While many deals are
being impacted, at least from a timing perspective, certain others for
companies in later stage processes and/or for companies with more
limited perceptions of direct downside exposure are forging ahead
and getting signed. In addition to sharpening Buyers’ diligence focus
on what the impact of the pandemic could be on a business, there
are specific deal provisions that must be considered through a
different lens in any deal in light of the outbreak. Navigating the
negotiations around certain key deal points and other considerations
in this environment is evolving and fluid but critical to finding an
acceptable balance of risk between Buyers and Sellers.
Traditionally, transaction agreements contain interim operating
covenants requiring that the Seller continue to operate “in the
ordinary course of business” or consistent with how it has on a day-
to-day basis in the period leading up to signing, with any deviations
from such case requiring the Buyer’s consent. While proving a MAC
is very challenging for a Buyer to do, there have been recent public
examples of Buyers instead citing actions by a Seller such as
closing locations, furloughing employees and/or drawing down on
credit facilities as representing a failure by a Seller to comply with
its operating covenants between signing and closing and, therefore,
serving as cause for termination of or amendments to a signed
transaction agreement. Heightened negotiations should be
anticipated over these provisions as Sellers seek to retain the ability
to make decisions, often quickly, that deviate from past practice in
order to protect employee welfare, ensure business continuity,
comply with governmental or regulatory edicts, etc. while Buyers
want to ensure they aren’t saddled with negative, and potentially
irreversible, strategic or financial implications post-closing.
COVID-19 DEAL MAKING IMPLICATIONS
As Buyers and Sellers think through risk allocation both in-terms of
closing certainty and post-closing indemnification, both sides should
expect nearly every R&W in a purchase agreement to be carefully
scrutinized for how, if at all, it may be impacted by COVID-19. This
includes, but is not limited to, impact to common R&Ws such as
financial statements, customers & suppliers, compliance with
contracts, insurance policies, employee matters, etc. Buyers may
also seek even more specific comfort than usual in areas such as
business continuity planning and data security & privacy in
response to the rise in employees working from home. Additionally,
while the use of knowledge and materiality qualifiers and the
closing bring-down standards applied to the R&Ws are always
closely negotiated, parties to a transaction should expect even
greater sensitivity to these provisions as a result of COVID-19. Over
the past several years there has been a dramatic increase in the
use of RWI as a means to provide post-closing recourse for a Buyer
in the event of a R&W being breached. However, these policies are
subject to certain carve-outs and are meant to protect against
unanticipated and unknown circumstances. Accordingly, parties to
a transaction should expect insurers to carve-out COVID-19 related
risks from RWI policies, including any related business interruption
or losses due to the virus.
5
The dislocation of the macro environment and corresponding
decline in public equity markets has created widespread
uncertainties that can impact valuation negotiations. While the
impact can vary significantly by sector and company specific
dynamics, in certain cases Buyers and Sellers may seek to bridge a
potential valuation gap by introducing earn-outs, seller notes and/or
buyer stock into the mix alongside cash at closing. While they can,
in certain cases, be effective tools in bridging gaps, each of these
forms of consideration comes with a host of issues that must be
carefully thought through and addressed in negotiations. Things
such as: how earn-out targets are set and measured and over what
time period, and what assurances the Seller will have that the
business will be run in a way that enables the earn-out to be
achieved; what interest rate is ascribed to a seller note and whether
such interest is paid in cash or accrues onto the principal; and what
mechanism will be used to determine the value of any stock
consideration being conveyed are but a few of the critical questions
that must be addressed when contemplating the use of non-cash
consideration.
Historically, courts have been reluctant to find that a Buyer can walk
away from a transaction by claiming a MAC unless it can
demonstrate the Target suffered a substantial threat to “the
Company’s long-term earnings power over a commercially
reasonable period, which one would expect to be measured in years
rather than months.”(1) Given that the long-term effects of COVID-19
on most businesses remain largely uncertain, this standard would
seem to suggest that, at least for now, it could be difficult to
convince a court that the disease has impacted the overall earnings
capacity of most companies over a multi-year period of time. That
said, the unprecedented nature of the pandemic has the potential to
cause an uptick in attempts to cite a MAC and the specific wording
of MAC provisions significantly impacts the allocation of COVID-19
risk between the Buyer and Seller. Accordingly, specific exclusions
for “epidemics”, “pandemics” or “COVID-19” itself have begun
ALTERNATIVE FORMS OF CONSIDERATION
MATERIAL ADVERSE CHANGE (“MAC”) PROVISIONS
appearing as common carve-outs from MAC definitions in publicly
disclosed merger agreements (potentially subject to
disproportionate effect qualifiers) and will likely continue to in the
near-term.
INTERIM OPERATING COVENANTS
REPRESENTATIONS & WARRANTIES (“R&Ws”) AND
R&W INSURANCE (“RWI”)
(1) Source: Akorn, Inc., v. Fresenius Kabi AG, et al., C.A. No. 2018-0300-JTL.
Page 6
SPRING 2020
$162$176
$150
$224
$243
$206
$315
$45 $45
0
50
100
150
200
250
300
$0
$50
$100
$150
$200
$250
$300
$350
2013 2014 2015 2016 2017 2018 2019 YTD2019
YTD2020
Capital Raised ($B) # of Funds Closed
U.S. PRIVATE EQUITY FUNDRAISING(4)
CONSIDERATION OFFERED IN U.S. M&A TRANSACTIONS(1)
M&A MARKET STATISTICS
U.S. MEDIAN QUARTERLY EBITDA MULTIPLES(1)(2)
AVERAGE SIZE OF U.S. M&A TRANSACTIONS(1)(3)
CROSS BORDER M&A DEAL ACTIVITY – YTD 2020(1)(5)
6(1) Source: FactSet.
(2) Source: Capital IQ.
(3) Includes transactions with disclosed values over $10MM.
(4) Source: PitchBook.
(5) Includes all announced transactions from 1/1/2020 to 3/31/20.
$2.5B$3.0B
$40.0B
$3.0B
$2.8B`
United States Europe Asia Pacific$15.8B
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
$512
$613
$777 $774
$600
$785
$914
$525
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2013 2014 2015 2016 2017 2018 2019 YTD 2020
13%18% 16% 18% 17% 15%
23%17% 15%
10%9%
7%7% 8%
8%
8%
9%9%
77% 73%77% 74% 75% 77%
68%74% 76%
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
Combination Stock Cash
Page 7
SPRING 2020
7
ECONOMIC COMMENTARY
Scott J. Brown, Ph.D. | April 24th, 2020
• COVID-19 has affected the data collection process for the major economic reports, including employment, consumer
prices, retail sales, an industrial production. However, the incoming economic figures imply a stunningly swift, sharp
decline in economic activity. This is especially clear in the two best real-time indicators, weekly jobless claims, and the UM
Consumer Sentiment survey. We have not seen the economy bottom out, and forecasting the recovery is difficult. As Fed
Chair Powell noted in mid-March, “the economic outlook depends critically on the spread of the virus, the measures taken
to contain it and how long that goes on, and all that’s really not something that’s knowable.”
Parallels?
When considering the economic aspects of the pandemic, it’s important to ask if there are
any parallels, any examples of previous shocks and their impacts on the economy. The
2007-09 financial crisis reflected the collapse of a housing bubble, but was also an
unwinding of massive leverage within the financial sector. While financial strains are part
of the current weakness, they are not the primary cause. The Great Depression was also
caused by a financial crisis, but the reasons it was so severe and lasted so long was that
policymakers made all the wrong moves – the Fed raised interest rates to defend the
currency (because we were on the gold standard), the government raised taxes in the
middle of the depression because lawmakers were worried about the budget deficit, and
the government let thousands of banks fail, taking people’s life savings with them. The
current situation is somewhat like World War II, in that we are we are going through a
period self-sacrifice, but World War II also coincided with a redirection of capital into
defense goods, which isn’t really going on right now. Hence, this is really an
unprecedented event in economic history. Looking at past recessions for guidance is
unlikely to be useful.
The key aspects of the coronavirus are its asymptomatic transmission (the fact that one
can show no symptoms and still spread it) and its relatively long incubation period. That
makes it difficult to contain. The death rate varies by age and the initial health of the
individual. It’s more deadly if you’re older or have health issues, such as respiratory
problems, diabetes, or heart disease. While many of the infected exhibit mild symptoms,
about 20% of the cases are serious and require hospitalization. As with any virus, the
spread appears to start slow, but builds exponentially, doubling every few days until it
either runs out of potential hosts or is met by mitigation (efforts to contain it). This is
where social distancing comes in. Social distancing (staying at home and avoiding
crowds) slows the spread of the virus, helping to insure that hospitals won’t be overrun
with infected patients, and buys time for the development of palliatives (treatments or a
vaccine). States and countries that adopted social distancing earlier have had better
results in containing the virus. Testing is improving, but has long been inadequate. As a
consequence, we haven’t had a good handle on how many people have had the virus
and it has been much more difficult to track the spread. In a best case scenario, it will
take 12-18 months to develop a vaccine, although that process has already begun. To
date, we don’t have an effective treatment, which will be a key factor in re-opening the
economy.
Ending social distancing too soon risks generating a wider outbreak of the virus and a
more significant impact on the economy (as self-imposed social distancing would last a
lot longer). The key is whether we can test enough people, and be able to detect and
isolate infected individuals and those with whom they have come into contact. Coming up
with an effective treatment will help to ease public fears and having a vaccine would be
ideal.
There’s a lot of uncertainty now about how to loosen the social distancing and what the
new normal is going to look like. Eventually, the pandemic will be behind us. However,
the severity of the economic decline implies that this won’t be a V-shaped recovery.
The Economic Impact
When we started to look at the economic impact of COVID-19, it initially looked like there
was going to be a large, temporary effect in China, which would disrupt supply chains for
U.S. manufacturers and reduce sales for U.S. firms into China. As the virus quickly
spread to other countries, the implication was that we would see significantly slower
global growth, further supply chain problems, and a substantial reduction in global trade.
As the virus has spread throughout the U.S., social distancing soon became the main
mitigating effort. There was an immediate effect on restaurants, air travel, hotels, cruise
lines, sporting and spectator events, and retail shopping. We now worry about second-
round effects. As people lose jobs, the lost income reduces spending, which is someone
else’s income. Credit problems will cascade. State and local government revenue
shortfalls show up quickly. Economic weakness will tend to snowball. Policymakers have
reacted rapidly to counter this.
While the near-term picture of the economy remains muddled, the incoming data have
provided some clarity. The base-case outlook is that economic activity contracted in
1Q20. The advance estimate of GDP growth will be reported on April 29, and is likely to
be around a -4% annual rate). A huge decline is anticipated for 2Q20 (advance estimate
to be reported in late July). Bear in mind that GDP is a quarterly figure, but it’s reported at
an annual rate. So, an 8% decline in a single quarter would be reported as a -30%
annual rate (as if that 8% decline were compounded over four quarters). At this point,
with limited data, it looks as if second quarter GDP growth may be between -25% and -
35%. We probably get a rebound in the second half of the year, leaving 4Q20 GDP 5%,
or 10%, maybe even 20%, below the level of 4Q19.
Economic data are generally backward-looking and noisy. There’s a lot of statistical
uncertainty and seasonal adjustment difficulties even in the best of times. Prior to
seasonal adjustment, March through June is a strong period for the U.S economy. We
normally see more business creation and big gains in jobs, retail sales, and housing
activity. Hence, the virus has hit at a very bad time. COVID-19 has had an effect on the
collection of economic data, including many of the key figures (employment, consumer
and producer prices, retail sales, and industrial production). So one should take the
reported numbers with a grain of salt. However, the direction is pretty clear and the
magnitude is large. Retail sales were reported to have fallen 8.7% in March. That
reflected weakness in restaurants, department stores, clothing stores, gas stations, and
auto dealerships. The March weakness was enough to push the retail sales for the first
quarter to a -9.2% annual rate (relative to 4Q19). Prior to seasonal adjustment, retail
sales edged up 0.2%, but rose 16.5% in March 2019 – that’s a big shortfall relative to the
usual seasonal pattern. Manufacturing output was reported down 6.3%, with sharp
weakness in motor vehicle production, leaving a -7.1% annual rate in 1Q20. These are
indicative of a sharp recession. Single-family housing starts are normally choppy, but fell
17.5% in March, down at a 3.5% annual rate in 1Q20.
We have two good real-time indicators for the economy, weekly jobless claims and the
University of Michigan’s Consumer Sentiment Index. The claims figures have been
horrific, totaling more than 26 million over the last five weeks. That is inflated somewhat
by the seasonal adjustment (unadjusted claims typically run low during this time of year).
Prior to seasonal adjustment, 24.4 million have filed claims in the last five weeks –
representing about 15% of the labor force (that’s one out of seven workers). However, the
claims data understate the weakness in the job market, many laid-off individuals (such as
part-time workers or the self-employed) haven’t been able to file (and some states have
had problems processing claims). The CARES Act expands eligibility, so the claims
numbers are going to remain elevated and in the near term.
The UM Consumer Sentiment Index and other confidence measures are widely followed
by financial market participants, but consumers don’t spend sentiment. Income is the key
driver of consumer spending, along with wealth and the ability to borrow. Consumer
sentiment doesn’t add much to the spending outlook. However, sentiment figures are
indicative of the fundamentals and arrive earlier than data on jobs and income. So when
you see a big drop in consumer sentiment, that decline reflects a deterioration in the
household sector fundamentals. The drop in April was the largest on record.
Policy Support
In early March, we started to see dislocations in the credit markets, including the
Treasury market (the most liquid market in the world). While there is limited evidence so
far, we can expect to see issues with missed debt payments. Delinquencies are expected
to build in the near term. There are mitigating efforts through the CARES Act, but these
problems are still going to be there. Longer-term, insolvency and bankruptcy will be an
issue for at a lot of companies. These are all very serious concerns.
In response to liquidity and credit concerns, the Federal Reserve has taken aggressive
action. In two intermeeting cuts, the Fed lowered the target range for the fed funds rate to
0-0.25% and issued forward guidance (the Fed indicated that it expects to maintain these
low levels of short- term rates until it’s confident that economy has weathered recent
events and is on track to achieve its goals maximum appointment and priced stability).
The Fed also restarted large scale asset purchase (what most people call quantitative
easing) and then made that unlimited. The Fed will expand its balance sheet, buying as
much as needed to provide liquidity it to the markets. The Fed has restarted a number of
emergency credit and lending facilities that it had employed in response to the financial
crisis and added a number of new ones. It’s important to note that the Fed cannot give
grants or take credit risk, but the Treasury can through the Fed. Some of the features of
the CARES Act, such as the paycheck protection program are Treasury efforts done
through the Fed (and the Fed can lever those up to some extent).
Page 8
SPRING 2020
8
ECONOMIC COMMENTARY – CONTINUED
Scott J. Brown, Ph.D. | April 24th, 2020
• COVID-19 has affected the data collection process for the major economic reports, including employment, consumer
prices, retail sales, an industrial production. However, the incoming economic figures imply a stunningly swift, sharp
decline in economic activity. This is especially clear in the two best real-time indicators, weekly jobless claims, and the UM
Consumer Sentiment survey. We have not seen the economy bottom out, and forecasting the recovery is difficult. As Fed
Chair Powell noted in mid-March, “the economic outlook depends critically on the spread of the virus, the measures taken
to contain it and how long that goes on, and all that’s really not something that’s knowable.”
We’ve now had four phases of fiscal support from lawmakers in Washington, totaling
about $4 trillion or about 18% of GDP. These efforts include public health expenditures,
an expansion of unemployment benefits, lending to small businesses, $1200 “recovery
rebate” checks to individuals, and additional funding for state and local governments.
There have been some issues in implementation, especially in lending to small business,
but that’s not unusual. These things are rarely smooth. However, support has come
rapidly.
One of the key concerns in the recovery process will be budget strains at the state and
local government level. This was a problem in the recovery from the financial crisis. In the
$837 billion American Recovery and Reinvestment Act of 2009 (ARRA), a third of that
was aid to the states. State and local governments have balanced budget requirements.
In a downturn, spending increases and revenues decline. Even with federal support,
strains on state and local government budget led to a huge amount of public-sector job
losses in the early stages of the recovery. That was unusual. Normally, government jobs
and spending provide some cushion in an economic downturn. Instead, government
subtracted from GDP growth, weakening the pace of recovery. From late 2009, we lost
about 700,000 state and local government jobs. These included police, firefighters, and
teachers. It was only within the last year that we saw the level of state and local
government payrolls recover. Legislators have provided support for state and local
governments, but we know that a lot more will be needed.
In FY09, amid the worst of the financial crisis, the federal budget deficit hit $1.4 trillion, or
about 10% of GDP. Ahead of COVID-19, with the economy operating near full
employment, the budget deficit had been running at a little more than $1 trillion per year,
or about 4.7% of GDP. Fiscal support measures to counter the effects of the virus will add
another $3 trillion, bring the deficit to around $4 trillion or about 18% of GDP – and we
will need more support in the weeks ahead.
Many investors are concerned about the expansion in the Fed’s balance sheet and the
increase in government borrowing. Will the Fed’s actions lead to higher inflation? Will the
surge in government borrowing create problems later on and how are we going to pay off
the debt? These questions had also come up in the aftermath of the financial crisis and
the answers are the same as they were then. Currently, deflation is more of a concern
than inflation. Over the last several years, the Fed has struggled to achieve its 2%
inflation goal (as measured by the PCE Price Index). In the near term, with demand
weak, there should be little upward pressure on prices. There may be some concern that
productive capacity will be diminished and supply chains disrupted enough to lead to
shortages once demand picks up, but that doesn’t seem likely. The Federal Reserve and
other central banks have not abandoned their commitments to keep inflation under
control over the long term. Amid strong demand for “safe” assets, the government has no
problem borrowing. Interest rates are low. We, our kids, and our grandkids do not have to
pay off the debt. We never paid off the debt from WWII. All we have to do is be able to roll
over the debt and meet the interest payments – and that should not be a problem.
The Rest of the World
While the focus of investors has been on the domestic economy, developments in the
rest of the world will have significant implications on the U.S. economy and firms doing
business abroad. In the April update to its World Economic Outlook, the IMF lowered its
estimate for global growth in 2020 from +3% (in January) to -3% and stressed that the
risks are weighted to the downside. China reported negative GDP growth for the first
quarter. Its recovery will depend a lot on what happens in Europe and the U.S., as they
are the country’s key export markets. China has some fiscal and monetary space to
support its economy. Europe’s economy is undergoing a major contraction. There are
limited prospects for fiscal coordination across Europe. Germany still favors tight
budgets, while the southern economies will experience severe budget strains. This will
seem familiar to Spain, Italy, and Greece, and we are likely to see a renewed euro crisis
(which, if you recall, was a big deal for U.S. financial markets in the early part of our
recovery). Emerging economies are unprepared. They have limited capacity in their
healthcare systems to deal with the pandemic, and limited fiscal space to counter the
economic impact. The outlook for the rest of the world implies a substantial hit to U.S.
exports in the near term and probably lower export growth once the virus has passed. In
addition, with the virus circulating around the world, there is a possibility it could return to
the U.S., especially if we were to drop our vigilance. By definition, a pandemic is a
worldwide phenomenon. To fight it, we need global coordination and cooperation.
Opening up the Economy
Unwinding social distancing should be coordinated, gradual, in phases, with widespread
testing, continued elevated hygiene, plenty of personal protective equipment, and contact
tracing. The key to slowing a pandemic is to identify and isolate those infected. We need
more testing. We need to identify those infected, trace who they have come into contact
with, and isolate those individuals. The process should be dynamic, so that if the virus
appears to be spreading more rapidly in one area, we can resume social distancing to
tap that down. However, we could find that the opening up is uncoordinated, haphazard,
and self-defeating. If we move too quickly, the virus will spread a lot more and social
distancing, largely self-imposed, will last longer and the economic impact will be a lot
larger.
Make no mistake, there is a trade-off between the economy and lives. That may sound
cold, but as a society, we make these kind of choices all the time. In food and product
safety, for example, there’s always a trade-off between doing more to prevent
unnecessary deaths and the cost of doing so. We could save tens of thousands of lives
per year by setting the speed limit at 20 miles an hour, but we don’t. We could prevent
thousands of deaths from the flu by adopting social distancing every year, but we don’t.
Social distancing has helped to flatten the curve, slow the spread of the virus, and
prevent our hospitals from being overrun. Without a widely available vaccine, we will
make a trade-off. However, we clearly want to reduce that possibility of additional deaths
as much as possible.
Forecasting the economy has been especially difficult over the last several weeks. The
worst-case scenario one week becomes the base-case scenario the next week. Figures
on jobless claims have been horrific in recent weeks, leading to a very rapid deterioration
in the near-term economic outlook. COVID-19 has affected data collection for most GDP
components, adding to the usual noise and uncertainty in the headline growth figure.
However, the March figures appear weak enough to push 1Q20 GDP growth below zero.
Second quarter GDP will be much more severe.
There is a wider dispersion in expectations for the economy in the third and fourth quarter
of this year and beyond. Clearly, the recovery is going to depend on how we end social
distancing and how rapidly that occurs. Going into social distancing was uneven across
states. Without central coordination, re-opening the economy will also be uneven. Some
may go too soon, leading to a wider outbreak of the virus and greater economic damage
in the long run.
In summary, there is still a lot of uncertainty about the virus and the economic impact.
The economic data will be distorted in the near term, but we do know that this is going to
be a very large sharp hit to GDP growth in 2Q20. The U.S. economy should rebound, but
gradually – and there are downside risks in getting the re-opening wrong. Credit
conditions are worrisome in the near term. There are a lot of questions about missed debt
payments and so on, but we should see strains helped somewhat by the Fed’s liquidity
injections. Fiscal support is large. It won’t prevent the economy from weakening, but it
should help to lessen the damage and should aid in the recovery. Anecdotally, there is
severe hardship for those at the lower rungs of the economy. The Fed’s survey of
consumer finances had noted that half of all households did not have the means to deal
with an unexpected bill of $400. Food banks around the country have been
overwhelmed, although we should see some improvement as food distribution networks
are re-worked.
There will be some significant long-term changes to the U.S. economy once the
pandemic has passed. Individuals may be less likely to travel, to go out to restaurants, or
to go to theaters and sporting events. Households may increase their savings (spending
less out of income). We will definitely see some changes in global trade, not just in
supply chain issues, but in the amount of the global trade.
This ought to be a stock pickers market. Investors should focus on companies with strong
balance sheets, adequate cash flows, and good prospects for survival. The market focus
is long-term and investors remain generally optimistic, but there is likely to be a lot of
volatility in the near term as the outlook shifts.
Page 9
SPRING 2020
Raymond James appoints Allan Bertie as co-head of European Investment
Banking
LONDON – Raymond James has appointed Allan Bertie as co-head of its European Investment Banking practice. Bertie
will co-lead the firm’s fast-growing European investment banking practice alongside current Head of European Investment
Banking and Chief Operating Officer Steve Hufford.
Bertie will bring his three decades of investment banking and market experience to Raymond James to continue to grow
the team of over 75 investment banking professionals in Europe. He will build on the firm’s strategic vision to continue to
offer content-rich, sector-specific, high-value middle-market investment banking services on a global basis.
“Allan is a very skilled and talented banker who has deep relationships with many of the preeminent middle-market private
equity houses in the UK and continental Europe. He also has a stellar reputation in those markets, and is known for his
strategic insight, keen eye for a transaction and straightforward manner. We look forward to leveraging his deep
relationships and expertise for the benefit of the firm and its clients,” said Jim Bunn, president of Global Equities and
Investment Banking. “Since we launched our European operations in 2016, we have achieved significant growth. Allan’s
appointment signifies an exciting new chapter and positions us for even greater expansion and success in European
markets.”
Bertie joins from Jefferies International, where he was managing director in the European M&A group based in London.
Prior to this role, he held the position of senior managing director of Macquarie Capital’s Industrials, Communications and
Sponsors (ICS) team. Bertie has also worked at GCA Savvian, Dresdner Kleinwort and Credit Suisse First Boston. He is
also a member of the Campaign Leadership Board for the University of Glasgow.
“I’m thrilled to welcome Allan as co-head of our European team,” said Hufford. “We have continued to grow our revenues,
deal counts and employee counts in London, Munich and Frankfurt, and as a strong investment banking leader, Allan is
joining at an exciting time and will be a great addition to our client-focused team.”
“I’m delighted to be joining the experienced and respected team at Raymond James,” said Bertie. “As co-head I look
forward to building upon the excellent work of Steve and my new colleagues.”
9
Allan Bertie
Managing Director, Co-Head of European Investment Banking
+44-20-3798-5701
[email protected]
Page 10
SPRING 2020
10
Raymond James is one of the largest
full-service investment firms and New
York Stock Exchange members
headquartered in the Southeast. Founded
in 1962, Raymond James Financial,
together with its subsidiaries Raymond
James Financial Services and Raymond
James Ltd., has 3,000 offices covering all
50 states. With more than 100 institutional
sales professionals and approximately
8,100 affiliated financial advisors, as of
3/31/20, in North America, and Europe,
Raymond James boasts one of the
largest sales forces among all U.S.
brokerage firms.
Industry knowledge and distribution power
are central to helping Raymond James’
investment bankers serve the needs of
growth companies in the areas of public
equity and debt underwriting, private
equity and debt placement, and merger
and acquisition advisory services.
Raymond James investment banking
offices are located in 18 North American
cities, including Atlanta, Baltimore,
Boston, Calgary, Chicago, Dallas,
Denver, Greater Washington D.C.,
Houston, Los Angeles Memphis,
Nashville, New York, Raleigh, San
Francisco, St. Petersburg, Toronto and
Vancouver, along with Munich, Frankfurt
and London in Europe.
MERGERS & ACQUISITIONS GROUP – MANAGING DIRECTORS
Jeff Maxwell | Head of M&A | 727-567-5222 | [email protected]
Don Blair | 727-567-5018 | [email protected]
Brent Kriegshauser | 727-567-4339 | [email protected]
RAYMOND JAMES INVESTMENT BANKING – SENIOR MANAGEMENT
Jim Bunn | President of Global Equities & Investment Banking, Head of Investment Banking | 727-567-5203 | [email protected]
Dav Mosby | Vice Chairman of Investment Banking | 727-567-5026 | [email protected]
Steve Hufford | Chief Operating Officer of Investment Banking & Co-Head of European Investment Banking | 727-567-2631 | [email protected]
STRATEGIC BUSINESS UNITS – MANAGING DIRECTORS
CONSUMER
Mark Goodman | Head of Consumer Group | 410-525-5171 | [email protected]
Robert Arnold | 415-616-8902 | [email protected]
John Barrymore | 415-616-8042 | [email protected]
Brian Boyle | 312-655-2713 | [email protected]
Jay Eastman | 410-525-5176 | [email protected]
CONVENIENCE STORE & FUEL PRODUCTS DISTRIBUTION
Scott Garfinkel | Head of Convenience Store & Fuel Products Distribution Group | 615-645-6796 | [email protected]
Roger Woodman | 404-240-6864 | [email protected]
DIVERSIFIED INDUSTRIALS
Alper Cetingok | Head of Diversified Industrials Group | 901-531-3203 | [email protected]
Gary Downing | Chief Operating Officer of Diversified Industrials Group | 727-567-1157 | [email protected]
Brent Cunningham | 212-856-5473 | [email protected]
David Fowkes | 713-278-5236 | [email protected]
Carl Gatenio | 312-655-2615 | [email protected]
Chip Grayson | 901-529-3701 | [email protected]
Sam Maness | 703-657-4646 | [email protected]
Tom Mullins | 727-567-1113 | [email protected]
Stephan Segouin | 212-297-6822 | [email protected]
Brendan Tierney | 212-856-4387 | [email protected]
ENERGY
Marshall Adkins | Head of Energy Group | 713-278-5239 | [email protected]
Mike Ames | Vice Chairman of Investment Banking | 713-278-5268 | [email protected]
Cory Daugard | 713-278-5263 | [email protected]
Bentsen Falb | 214-965-7653 | [email protected]
Darren Horowitz | 713-278-5269 | [email protected]
Mark Huhndorff | 214-965-7655 | [email protected]
FINANCIAL SERVICES
John Roddy | Head of Financial Services Group | 212-856-4880 | [email protected]
Pat DeLacey | Vice Chairman of Investment Banking | 312-612-7699 | [email protected]
Rick Durkes | Vice Chairman of Investment Banking | 312-655-2634 | [email protected]
Jeff Brand | 312-667-4721 | [email protected]
Chris Choate | 727-567-5022 | [email protected]
Aaron DiRusso | 415-616-8911 | [email protected]
Steven Egli | 415-616-8008 | [email protected]
Larry Herman | 901-531-3237 | [email protected]
Bob Hutchinson | 617-624-7026 | [email protected]
Ed Higham | 212-883-9405 | [email protected]
Jonathan Knauss | 312-612-7752 | [email protected]
Michael Mayes | 212-672-6833 | [email protected]
Elizabeth Nesvold | 212-883-9401 | [email protected]
Sanjay Patel | 312-612-7707 | [email protected]
Bob Toma | 312-612-7751 | [email protected]
Bill Wagner | 919-755-2601 | [email protected]
Michael Walker | 312-612-7702 | [email protected]
Dan Weber | 312-612-7703 | [email protected]
J.P. Young | 312-612-7731 | [email protected]
HEALTH CARE
Andrew Gitkin | Co-Head of Health Care Group | 424-281-2094 | [email protected]
Riley Sweat | Co-Head of Health Care Group | 615-645-6775 | [email protected]
Stu Barich | 212-885-1826 | [email protected]
Kee Colen | 212-885-1809 | [email protected]
Frank Hancock | 727-567-5016 | [email protected]
James Kim | 212-856-4894 | [email protected]
Burk Lindsey | 615-645-6778 | [email protected]
Steve Rzasnicki | 615-645-6774 | [email protected]
Reed Welch | 303-200-5528 | [email protected]
REAL ESTATE
Brad Butcher | Co-Head of Real Estate Group | 727-567-1029 | [email protected]
Jamie Graff | Co-Head of Real Estate Group | 727-567-5289 | [email protected]
Peter Fish | 404-442-5889 | [email protected]
Steven Loffman | 212-883-4605 | [email protected]
TECHNOLOGY & SERVICES
Brendan Ryan | Co-Head of Technology & Services Group | 617-624-7019 | [email protected]
Jon Steele | Co-Head of Technology & Services Group | 617-624-7020 | [email protected]
Dave Castagna | Vice Chairman of Investment Banking | 415-616-8904 | [email protected]
Charlie Uhrig | Vice Chairman of Investment Banking | 727-567-5020 | [email protected]
Leslie Ann B. Curry | Chief Operating Officer of Technology & Services Group | 404-442-5890 | [email protected]
Garrett DeNinno | 617-624-7018 | [email protected]
Bob Flanagan | 415-616-8952 | [email protected]
Paul Fricilone | 312-655-2608 | [email protected]
Chip Kelso | 404-442-5835 | [email protected]
Amar Krishnamurti | 212-883-4607 | [email protected]
Ian O’Neal | 617-624-7011 | ian.o’[email protected]
Geoff Tobin | 415-616-8908 | [email protected]
SPECIALTY TRANSACTION GROUPS – MANAGING DIRECTORS
BUSINESS DEVELOPMENT
Ken Grider | Head of Business Development | 727-567-5091 | [email protected]
CREDIT FINANCE
Raj Singh | Head of Credit Finance & Vice Chairman of Investment Banking | 212-885-1800 | [email protected]
FINANCIAL SPONSORS
David Clark | Head of Financial Sponsors Group | 617-624-7006 | [email protected]
Christian Bullitt | 212-856-5414 | [email protected]
Edward Lee | 212-883-6586 | [email protected]
Ben Rodman | 312-655-2633 | [email protected]
PRIVATE CAPITAL SOLUTIONS AND RECAPITALIZATION & RESTRUCTURING
Geoffrey Richards | Head of Private Capital Solutions and Recapitalization & Restructuring Group | 212-885-1885 | [email protected]
Michael Pokrassa | 212-885-1815 | [email protected]
Rob Schwarz | 212-885-1806 | [email protected]
EUROPEAN ADVISORY – MANAGING DIRECTORS
Alllan Bertie | Co-Head of European Investment Banking | 44-20-3798-5701 | [email protected]
Sarah Antor | Chief Operating Officer of European Investment Banking | 49-89-232377-74 | [email protected]
Dominic Emery | 44-20-3798-5704 | [email protected]
Joel Greenwood | 44-20-3798-5702 | [email protected]
Edward Griffin | 44-20-3798-5745 | [email protected]
Sven Harmsen | 49-69-219337-19 | [email protected]
Laura Maddison | 44-20-3798-5705 | [email protected]
Monika Nickl | 49-89-232377-66 | [email protected]
Alastair Rodgers | 44-20-3798-5744 | [email protected]
Stuart Sparkes | 44-20-3798-5703 | [email protected]
Philip Stein | 49-89-232377-50 | [email protected]
David Stubbs | 44-20-3798-5747 | [email protected]
Stuart Sweeney | 44-20-3798-5726 | [email protected]
Japhet Wuensch | 49-89-232377-38 | [email protected]
ASIA ADVISORY – MANAGING DIRECTOR
Dennis Zhang | Head of Asia Investment Banking | 415-616-8917 | [email protected]
Sources of data include FactSet, Capital IQ, PitchBook
and other news organizations. Information obtained
from third-party sources is considered reliable, but we
do not guarantee that the information herein is
accurate or complete. This report was prepared within
Raymond James’ Investment Banking Department and
is for information purposes only. This report is not a
product of Raymond James’ Research Department;
recipients of this report should not interpret the
information herein as sufficient grounds for an
investment decision or any other decision. The report
shall not constitute an offer to sell or the solicitation of
an offer to buy any of the securities mentioned herein;
past performance does not guarantee future results.
International Headquarters:
The Raymond James Financial Center
880 Carillon Parkway St. Petersburg, FL 33716
©2020 Raymond James & Associates, Inc., member
New York Stock Exchange/SIPC 14-ECMMA-0065
Int’l Headquarters IB Office
St. Petersburg
Page 11
SPRING 2020
RAYMOND JAMES RECENT ADVISORY TRANSACTIONS (1/1/20 – 3/31/20)
Past performance is not indicative of future results. 11
March 2020
Tri-County Financial Group, Inc.
The holding company for
Has acquired
H.F. Gehant Bancorp, Inc.
The holding company for
March 2020
Has acquired a majority stake in
March 2020
Has been acquired by
A portfolio company of
March 2020
Has been acquired by
March 2020
Oklahoma
Has been acquired by
March 2020
Has been acquired by
March 2020
Has been acquired by
March 2020
Has received a strategic
investment from
March 2020
Has sold its minority interest in
To
Kosmos Cement Company
March 2020
Has been acquired by
March 2020
Has entered into a definitive
agreement to be acquired by
A portfolio company of
March 2020
A subsidiary of
Has been acquired by
March 2020
Has completed a strategic
investment in
March 2020
Has been acquired by
A portfolio company of
March 2020
Has been acquired by
A portfolio company of
March 2020
Has been acquired by
February 2020
Has entered into a definitive
agreement to be acquired by
February 2020
A portfolio company of
Has entered into a definitive
agreement to be acquired by
March 2020
Has been recapitalized by
March 2020
Has been acquired by
Page 12
SPRING 2020
RAYMOND JAMES RECENT ADVISORY TRANSACTIONS (1/1/20 – 3/31/20)
Past performance is not indicative of future results. 12
January 2020
Has acquired
January 2020
Has been acquired by
February 2020
Has acquired
January 2020
Has been recapitalized by
January 2020
Has been acquired by
A portfolio company of
February 2020
Has been acquired by
February 2020
Has been acquired by
February 2020
Has acquired
January 2020
Has entered into a definitive
agreement to acquire
February 2020
Has merged with
February 2020
Has been acquired by
A portfolio company of
January 2020
Has been acquired by
January 2020
Has acquired
The holding company for
Maple Leaf Financial
January 2020
Has entered into a definitive
agreement to be acquired by
February 2020
A portfolio company of
Has entered into a definitive
agreement to acquire
February 2020
Has been acquired by
U.S. Sawmill Business
February 2020
Has received an
investment from
February 2020
Portfolio companies of
Have been acquired by
February 2020
Has acquired
A portfolio company of
January 2020
Have sold a majority interest to
Page 13
SPRING 2020
13
RAYMOND JAMES RECENT CAPITAL MARKETS TRANSACTIONS (1/1/20 – 3/31/20)
Past performance is not indicative of future results.
March 2020
$254,000,000
Follow-On Offering
March 2020
$175,000,000
Follow-On Offering
March 2020
$70,000,000
Follow-On Offering
March 2020
$1,425,000,000
Initial Public Offering
February 2020
$750,000,000
Follow-On Offering
February 2020
$863,000,000
Follow-On Offering
February 2020March 2020
$238,000,000
Follow-On Offering
$495,000,000
Follow-On Offering
February 2020
$23,000,000
Follow-On Offering
February 2020
$34,000,000
Follow-On Offering
February 2020
$64,000,000
Initial Public Offering
February 2020
$102,000,000
Initial Public Offering
January 2020
$74,000,000
Follow-On Offering
January 2020
$325,000,000
Follow-On Offering
January 2020
$40,000,000
Follow-On Offering
January 2020
$321,000,000
Follow-On Offering
January 2020
$48,000,000
Follow-On Offering
January 2020
$108,000,000
Initial Public Offering
January 2020
$89,000,000
Follow-On Offering
