Investment Banking

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Investment Banking

  1. 1. chapter 3 / business divisions / Investment Banking 01 Partnership and continuity 02 Operating profit 03 Key transactions 04 Relationship management BUSINESS DIVISIONS Investment Banking investment banking is sal. oppenheim’s second strategic core business division after asset Management. With its broad range of client relationships and a comprehensive product offering, the Bank ranks among Germany’s leading investment banks. 01 Investment Banking aims to establish comprehensive and ongoing partnerships with its clients, the emphasis being on providing products and services characterised by individuality and dynamic innovation. This strategic approach, which the Bank has been putting into practice for several years now, once again sustained the division’s positive re- 02 sults in the financial year under review. In 2004, Sal. Oppenheim was in a position to increase its market share in a number of fields, and at the same time improve on the good operating result recorded in the previous year, albeit not to the extent that the exceptional level of business in the first quarter of 2004 led us to expect. 03 Investment Banking’s successful positioning is reflected in a number of transactions which were the subject of much public interest. The Bank was involved in the sale of GAGFAH (Gemeinnützige Aktien-Gesellschaft für Angestellten-Heimstätten) and its portfolio of more than 78,000 residential units, providing advisory services to the seller in what was Germany’s largest M&A transaction in 2004. Sal. Oppenheim provided successful New Economy ventures with a new platform for further business development with the sale of the mobile service provider debitel, the Internet portal mobile.de and a significant share in the Internet mail-order pharmacy Doc- Morris. As in previous years, the Bank played a leading role in the privatisation of public shareholdings and the issue of derivative instruments; two fields that demonstrate the vast scope of business covered by Sal. Oppenheim’s modern Investment Banking division. 04 The expertise offered by Investment Banking benefits large listed companies, small and medium-sized en- terprises, public investors, institutional investors and high-net-worth individuals alike. Our experienced rela- tionship managers provide support for clients from the Banking/Insurance, Energy/Public Sector, Financial Investors, Healthcare, Trade/Consumer Goods and Technology/Media/Telecommunications (TMT)/Logistics sectors. At the beginning of the financial year, a team of relationship managers was also formed to support 84 sal. oppenheim jr. & cie. | annual report 2004
  2. 2. Investment Banking / business divisions / chapter 3 RANKING Investmentbank Volume IN US$ BILLIONS 1. Deutsche Bank 21.3 2. Goldman Sachs 17.3 3. Lazard 15.3 4. Morgan Stanley 13.5 5. Dresdner Kleinwort Wasserstein 12.1 6. Sal. Oppenheim 11.2 7. JP Morgan 10.9 8. Rothschild 10.5 9. Credit Suisse First Boston 10.4 10. UBS 10.3 11. Citigroup 9.7 12. Lehman Brothers 6.3 13. BNP Paribas 6.0 14. ABN AMRO 3.4 15. Merrill Lynch 3.1 Source: Thomson Financial, January 2005 M&A TRANSACTIONS, BASED ON GERMAN TARGET COMPANIES ranking according to transaction volume in 2004 annual report 2004 | sal. oppenheim jr. & cie. 85
  3. 3. chapter 3 / business divisions / Investment Banking LARGEST GERMAN M&A TRANSACTION IN 2004 The German Federal Institution for Employees (Bundesversicherungsanstalt für Angestellte – BfA) has sold its 99.87 % stake in GAGFAH. As part of a structured tender process, BfA’s Managing Board accepted the majority purchase offer submitted by the globally active investment company Fortress Invest- ment Group LLC – the highest price offered – on 15 July 2004. GAGFAH’s portfolio includes a total of more than 78,000 residential flats at 147 loca- tions across Germany. With a total transaction vol- ume of € 3.5 billion, the Bank provided advisory services to the seller for this transaction, which is the largest private equity transaction to have been executed in Germany to date. 86 sal. oppenheim jr. & cie. | annual report 2004
  4. 4. Investment Banking / business divisions / chapter 3 IKB Deutsche Industriebank AG 05 M&A transactions 06 Fairness opinions 07 Privatisations 08 automotive manufacturers and suppliers. Client support is not geared towards the sale of off-the-shelf products for specific situations, but instead focuses on developing individual and detailed product solutions based on com- prehensive industry expertise that are tailored to meet client requirements. Sal. Oppenheim’s partnership with IKB Deutsche Industriebank AG plays a key role in the work of the In- 05 vestment Banking division. In the reporting year, a wide range of transactions were successfully completed in co- operation with IKB. mergers and acquisitions Sal. Oppenheim succeeded in boosting its M&A activities in 2004. In Thomson Financial’s M&A ranking 06 for transactions with German target companies, the volume of transactions (which totalled 21) rose from US$ 2.8 billion in 2003 to US$ 11.2 billion (€ 8.9 billion) in 2004. Based on volume, Sal. Oppenheim achieved sixth place in this key ranking for the first time. The transactions for which Sal. Oppenheim provided advisory services covered the entire scope of M&A business and involved target companies from all of the sectors supported by the Bank. Particularly on the buyer side, there was notable growth in interest among both German and inter- national financial investors for equity investments in Germany. In addition to several real estate transactions, the acquisitions of the generics manufacturer betapharm, the mobile service provider debitel, the dental technology company MW Dental, the corrosion protection company SGL Carbon and the 46 % share in DocMorris (to name but a few) are testimony to this recent surge in interest. As an independent investment bank, Sal. Oppenheim is also well positioned in terms of valuation expertise, 07 which is becoming increasingly important in light of the delisting trend. Thus, the Bank prepared fairness opin- ions on the takeover offers submitted by RB Brauholding for Brau & Brunnen and by Continental for Phoenix. As far as privatisation activities are concerned, Sal. Oppenheim acted as an advisor in the parallel sale of the 08 utilities and refuse business areas of Zweckverband Ostholstein (ZVO) to different buyers - a first for the Bank annual report 2004 | sal. oppenheim jr. & cie. 87
  5. 5. chapter 3 / business divisions / Investment Banking 09 Real estate specialist team 10 GAGFAH sale 11 IVG Immobilien AG 12 Selective lending policy in this field. It coordinated and moderated 26 municipalities and the administrative district of Ostholstein, which, as members of ZVO, had passed an unanimous decision to sell. In addition to the successful search for a partner for Ahlen public utilities, the Bank advised the Danish gas provider DONG in its successful entry onto the German market by means of the purchase of shares in Energie- und Wasserversorgung Lübeck. The State of North Rhine-Westphalia commissioned Sal. Oppenheim to prepare the sale of a portfolio of assets amounting to several hundred million euros. real estate 09 In view of the growing significance of real estate transactions, the Bank set up the largest specialist real estate team in Germany. This makes Sal. Oppenheim the market leader in large public real estate transactions, fusing expertise in real estate, privatisation and M&A. 10 With a volume of € 3.5 billion, the sale of GAGFAH and its portfolio of over 78,000 residential units to a private financial investor on behalf of the Federal Institution for Employees (Bundesversicherungsanstalt für Angestellte - BfA), was both the year’s largest M&A transaction and the largest private equity transaction in Ger- many to date, as well as the ninth largest transaction in Europe in 2004. GSW Gemeinnützige Siedlungs- und Wohnungsbau-Gesellschaft Berlin mbH, which boasts a portfolio of over 65,000 residential units and for whom Sal. Oppenheim prepared and executed a structured tender procedure for the State of Berlin, was also purchased for around € 2.1 billion by a consortium of private financial investors. Sal. Oppenheim has also been entrusted with the development, and possible execution, of sale options for Vivico Real Estate GmbH, a federal company and co-owner of former commercial real estate of Deutsche Bahn AG. Similarly, the Bank is currently structur- ing a larger portfolio of commercial real estate to be sold for the city of Hamburg. Both transactions highlight the emerging trend towards privatising public real estate and infrastructure assets beyond the residential sector. 11 Investment Banking also provided support for the purchase of Sal. Oppenheim’s stake in IVG Immobilien AG, the changes to the shareholder structure at Oppenheim Immobilien-Kapitalanlagegesellschaft mbH (OIK), and thus the creation of the world’s largest real estate asset management company, with assets under management totalling € 15 billion. financing 12 Sal. Oppenheim sustained a low level of commercial lending as part of its restrained, risk-oriented and selective lending policy. The Bank arranged acquisition financing to enable Wüstenrot Holding to fund the purchase of shares in W&W AG. It also participated in borrower’s note lending and syndicated loans, mainly involving clients 88 sal. oppenheim jr. & cie. | annual report 2004
  6. 6. Investment Banking / business divisions / chapter 3 Raising and structuring equity 13 Mezzanine financing 14 Institutional equity advice 15 Roadshows 16 where Sal. Oppenheim has special access to the respective sector as a result of its industry expertise, and where business development can be confidently projected by the Bank. Borrowers included financial services providers and industrial companies listed on the Deutsche Aktienindex (DAX). equity capital markets Investment Banking offers companies and majority shareholders the opportunity to raise and structure equity via 13 securities transactions at all stages of business development, from the initial public offering (IPO) right up to squeeze out. Thanks to this comprehensive approach, the division returned positive results, even in the difficult market en- vironment of 2004. In the largest German IPO of the year, Sal. Oppenheim, as co-lead manager, achieved a sus- tainable placement for shares of Deutsche Postbank. Investment Banking also arranged capital increases for Deutsche Beteiligungs AG, Evotec OAJ, Rheinland Holding and Tomorrow Focus. In the field of mezzanine fi- 14 nancing, Sal. Oppenheim coordinated the issue of participation certificates with a value of €70 million for the au- tomotive supplier Fritz Dräxlmaier. The Bank advised Giesecke & Devrient in the takeover offer for secunet Securities Networks, and Möller Holding in a corresponding offer for Felten & Guilleaume. RWE commissioned Sal. Op- penheim to carry out cash offers for the shares in Harpen and rhenag Rheinische Energie. The Bank was awarded a similar mandate by KarstadtQuelle for shares in SinnLeffers. institutional equity advice Once again, the Bank enjoyed an increased market share in equity business with institutional investors. As a re- 15 sult of its individual, demand-oriented client advice for German equities and European blue chips, Investment Banking increased its equity revenues by around 90 % year-on-year. A total of 25 sales managers provide support to around 280 institutional clients. The Bank formed a team for sales and sales trade in New York in order to pro- vide an even more comprehensive service for investors in the US. A seven-strong team in Frankfurt am Main has been providing support for institutional investors in the UK since January 2005. As a result of the keen interest shown by clients for direct contact to listed companies and Sal. Oppenheim’s 16 stock analysts, the Bank repeated the programme of events held in the previous year by hosting around 400 road- shows, where board members of many leading listed companies gave presentations on the development of their companies. In London, a large-scale conference on the topic of “German Opportunities” took place for the sec- ond time, and in Zurich, the Bank organised conferences on the subjects of “Chemicals” and “Banks and Insur- ance Companies”. Furthermore, at a symposium in Bonn, high-ranking experts, company representatives, investors and analysts discussed the effects of demographic change on the international capital markets. annual report 2004 | sal. oppenheim jr. & cie. 89
  7. 7. chapter 3 / business divisions / Investment Banking TOP MARKS IN DERIVATIVES COMPETITIONS The Bank’s leading position in derivatives busi- ness and trading is reflected in the broad public acknowledgement of its capabilities. Sal. Oppen- heim ranked second among all issuers at the “ZertifikateAwards 2004” based on the number of awards received. Overall, the Bank took three first prizes and four third prizes. 90 sal. oppenheim jr. & cie. | annual report 2004
  8. 8. Investment Banking / business divisions / chapter 3 trading books for exotic options 17 Derivatives competitions 18 Derivatives forum 19 Forex market advisory services 20 trading and derivatives Sal. Oppenheim was able to further expand business and trading in derivatives based on equities and other un- 17 derlyings, the focus of which lies on products for private investors, and on tailored solutions for affluent clients in particular. The Bank responded to demand for products that are comprehensible and transparent for investors, but which at the same time are based on increasingly complex option structures, by launching separate trading books for exotic options. These books, just like the equity derivatives books of small and medium-sized com- panies, made a significant contribution to the positive result. In view of the changed market conditions, team responsibilities were divided, along the lines of a manufacturing process, into Sales and Marketing, Trading, and Product Development. In terms of turnover in derivatives, i.e. certificates, reverse convertibles, warrants and other leverage prod- ucts, Sal. Oppenheim increased its German market share by almost two percentage points in 2004 to 9.3 %, mov- ing up from fourth to third place in a growing market. More than 6,500 new securities were issued for investors in Germany, Switzerland, Italy and Austria, representing a year-on-year increase of 69 %. These consisted of stan- dard product updates as well as a variety of new certificates. The degree of public acceptance is reflected in the 18 top marks achieved by the Bank in derivatives competitions in German-speaking countries. Sal. Oppenheim ranked second among all issuers at the “ZertifikateAwards 2004” based on the number of awards received. Overall, the Bank took three first prizes and four third prizes. In order to enhance the derivatives expertise of investors and their advisors, Sal. Oppenheim, together with Deutsche Bank and UBS, lent support to a study by the European Business School (ebs) on “The benefits of derivative financial products for retail investors”. The Bank also initi- 19 ated the “Derivatives forum for private investment” in an effort to increase product and market transparency among derivatives for retail investors. Sal. Oppenheim’s success in proprietary equity trading is primarily attributable to small and mid-cap equi- ties. The Bank also arranged securities lending and repo transactions on equities for clients on an ongoing basis. Given the changed market conditions for shares in small and medium-sized companies, the Bank took the deci- sion to revert to the role of Designated Sponsor for trading in the equities of the respective companies. currency management Despite little price movement on the forex market, Currency Management achieved a positive result. The Bank 20 expanded its specialist advisory services in the forex market. In addition to top names among big industrial cor- porations, small and medium-sized enterprises and institutional investors, Currency Management’s client base now also includes affluent private investors. The Bank also extended the range of services it offers to corporate clients. This target group is offered not only currency management outsourcing by Sal. Oppenheim, but also dy- namic currency strategies that include a hedging component. annual report 2004 | sal. oppenheim jr. & cie. 91
  9. 9. chapter 3 / business divisions / Investment Banking TARGETED KNOWLEDGE TRANSFER In cooperation with Deutsche Bank and UBS, Sal. Oppenheim lent support to a study by the European Business School (ebs) on “The benefits of derivative financial products for retail investors”. The aim of the study was to compare derivative financial in- struments with traditional forms of investment in equities and fixed-income securities. The study’s findings confirm the advantages of derivative in- struments and provide valuable support for both in- vestors and their advisors in decision-making. The launch of the “Derivatives forum for private invest- ment” is intended to facilitate product evaluation and selection for retail investors by providing im- proved product and market transparency. 92 sal. oppenheim jr. & cie. | annual report 2004
  10. 10. Investment Banking / business divisions / chapter 3 Sector-oriented advisory approach 21 Figaro Currency Fund 22 outlook 2005 The prospects for Investment Banking are positive, even if improvements in the market environment remain muted. The following trends should go some way to bolstering better results: –> The sector-oriented advisory approach will continue to form a key cornerstone for success, not least due to 21 its sustainability. Clients are increasingly calling on the Bank’s expertise in a variety of sectors to support their transactions. –> The broad range of products means that M&A activities and Equity Capital Markets are well positioned for the high level of restructuring required among small and medium-sized enterprises and in the public sector in Germany. –> Investment in derivative products based on complex options will enable a growth drive in Trading and De- rivatives, as acceptance for these products as instruments for longer-term investment grows among private investors. –> The Bank will launch the Figaro Currency Fund, which, as an offshore hedge fund with initial assets of be- 22 tween € 20 million and € 50 million, will invest in all of the major freely convertible currencies on the basis of discretionary strategies. annual report 2004 | sal. oppenheim jr. & cie. 93

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