Investment Banking

The J.P. Morgan Circle: The Advisory Agenda

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ANU: Welcome to the J.P. Morgan Circle. I'm Anu Iyengar, the global head of Advisory and M&A, and I'm delighted to be joined by my colleagues on the Global Advisory Leadership Team. And we're going to talk a little bit about our perspectives, expectations, and outlook for 2025. The animal spirits seem to be back and there is an extreme level of optimism in the market.

ANU: The sentiment seems to have changed such that people are expecting rainbows and sunshine, but it feels like with the elections behind us, the world seems to have chosen change.

RAMA: I mean, look, the world has definitely chosen change. [00:01:00] We had something like a hundred elections, federal elections. About half the global population went to the ballot in the last 12 months.

RAMA: And about 80 percent of incumbents lost some ground in these elections. So change was definitely what voters voted for. Also agree with the animal spirits point. We have had two years now in the U. S. equity markets of 20 percent plus returns, and that's quite unprecedented. Additionally, when we have a trifecta government in the U.S., which is The White House and the Senate and the House all controlled by the same party. The first year of such a trifecta government usually sees an 80 percent outperformance in the equity markets relative to the average.

ANU: Yet, all the elections are not quite done, right? I mean, there's still not just election uncertainty, but also uncertainty around geopolitical risk.

DWAYNE: I think you're right, Anu. We've got the Russian Ukraine situation, which is unresolved, and we have numerous presidential elections across Europe, Middle East, and Africa, and a number of those in the kind of Central Eastern Europe. That plays to confidence, and confidence, as we know in our business, is the main driver.

ANU: 2024 ended up being a much better year than most people forecast. We ended the year with 3. 5 trillion in global volumes and a 12 percent year over year growth. And it feels like 2025 building on that should be at least 12 percent of growth, if not even higher. Does every part of the world feel as optimistic?

ROHIT: From an Asian standpoint, Japan definitely, you know, feels that way. Now, the outbound appetite from Japan continues to be very strong. Replacement of expiring patents and searching for new growth pillars, particularly in the industrial tech sector. The growth of activism in Japan, the change in mindset and receptivity now to combining domestically, being taken private.

ROHIT: We will also see with the support of the regulatory environment there. Significant inbounds, particularly if, for instance, you see a very strong U. S. dollar. Many of these Japanese companies have very strong business models and foreign exchange earnings. The favorable exchange ratio might actually mean that Japan continues to be a very active recipient of inbound strategic interest as well.

RAFAEL: Yeah, and Latin America, as you know, has always been an area where there's some uncertainty. And we're not going to be absent of that next year, but we are ending the year with a lot of optimism, a lot of it driven by the cross border activity that we see, which in Latin America happens to be 60 to 70 percent of the wallet.

RAFAEL: And the interesting thing is that it's no longer only the North America and EMEA corridors that are impacting that volume, but we're seeing a lot more activity from the likes of China, the Middle East, also playing a role. And most importantly. The emergence of Latin American champions that are taking advantage of these opportunities to grow within borders and across within Latin America.

RAMA: You said that global M& A volumes were 3. 5 trillion dollars last year, expected to be perhaps, you know, materially higher. We looked at the level of GDP growth, the level of equity multiples, level of interest rates, and forecasted using a statistical model, the likely M& A volumes, and that range has been up to 20 percent higher.

RAMA: That's just based on these kind of fundamental factors, and then Rohit you touched on the regulatory environment. Massive expectations. We'll see how far we end up going of deregulation in the U. S. under the new government. That should be a new and pretty material tailwind to the M& A volume as well.

REBECCA: Given the regulatory market that we've been in the last couple of years, not surprisingly, we've seen a lot of boards reaching out to us for regulatory talent or talent who could help maybe unlock or open their eyes to different pathways and how to make this work and come together more efficiently.

ANU: Yeah, this expectation on a more favorable regulatory environment is actually quite broad. It's also how much money companies are going to be spending in being regulatory compliant. In addition to that, I think companies will probably continue doing self help. We saw a spate of that happen in terms of corporate clarity transactions across the globe.

ANU: And when you combine that with the valuation differential between the U.S. and the rest of the world, we are certainly expecting that the focus on corporate clarity and the focus on U. S. markets will likely continue.

ALFREDO: Yeah, that is likely to happen. There is an increased amount of that activity that we're seeing in terms of corporate clarity, and there's no reason why it would end.

ALFREDO: I think that, coupled with the M& A outlook that you are outlining, should spark quite a bit of, of activity more broadly. And it's both. Organic on the part of companies and then induced by external factors.

RAMA: We talk about two things and they seem sometimes contradictory. One is the importance of scale. And yet we say corporate clarity matters.

RAMA: These are both true statements. Being a scaled player in your core competency is definitely something the market rewards. But having a disparate set of businesses where you may not be the lead player, I don't think the market likes.

DWAYNE: Corporates to get the clarity point. We see them seeking scale, but more focused scale and really trying to get ahead of Activist debates or otherwise also to enhance the value equation

ALFREDO: Activists continue to be very focused on value themes, but also on governance and certainly boards tend to be the areas Where they have most focus.

ALFREDO: Rebecca, how do you think about that and how do you advise boards of clients in terms of their refreshment?

REBECCA: Yeah, I think the best boards are always going to be in succession planning mode and so the best outcome is that they don't have an activist come knocking and have to defend their board, their composition, their You know, kind of investment thesis.

REBECCA: Um, but where you and I partner best, I think is where the doorbell has rung and there is something we need to solve for. We're often looking for operators. We're often looking for CEOs or C suite [00:07:00] executives who bring some sort of halo effect that can help not just answer the investment thesis, but also bring some value creation.

DWAYNE: That is a key component now of the broader advisory business in a mere one. We hope to continue to develop and develop very strongly and as well as the it. Connectivity between our clients.

REBECCA: Governance matters more today than it ever has. Stakeholders care, shareholders care, institutions care. But no matter if you're an early stage company, you're a late stage company, you've been public for a hundred years.

REBECCA: You're a family, you're a founder, your private equity, your venture, you're thinking about your governance really differently than you were 10 years ago.

ANU: The relationship between the company and the shareholders have also changed because there was a time when people would come and ask us for a vaccination to prevent the activist from coming in, whereas we've changed our practice to shareholder engagement, because as long as you have complete meeting of the minds between your strategy and what your shareholders want, then an activist may still be there.

ANU: But at least you have your shareholders as your stakeholders. First line of defense,

RAMA: It can ask question. You said India, right? India is in fact one of the markets that has the best valuations You know next to the US India might be the best, right? The fact that there is still interest in India is that because the growth expectations are commensurately very high as well.

ROHIT: Yeah. There seems to be now growing consensus that the midterm growth outlook in India purely driven by the domestic demand It's going to be very strong.

ROHIT: That's also driving the thought process around carve out IPOs of domestic business of multinational subsidiaries in India. The other thing that's driving valuation there is the growing pool of domestic savings that are moving into the equity capital markets. That are compensating for any volatility in the international investor demand for stocks in India

RAFAEL: As interesting because you point out this issue of valuation and relative valuation across different geographies, and you could say now with exceptionalism in the U.S. And high value multiples. Would that be a deterrent for inbound M and A into the U. S. But what I'm seeing in Latin America is actually in the country because for our clients who are seeing the U. S. as a long term investment on a risk adjusted basis, attractive still, not for the valuations that I have right now, but for what they could provide in the long term.

ANU: That's the most attractive thing about the U. S. market is the growth that it is offering. So from across the world, when you look at valuations, yes, valuations are high, but you either play that by taking your U. S. business and getting that valuation for the U. S. business, or you're saying, I'm buying into that market because it gives me access to a much deeper capital market, much deeper set of consumers who have been resilient.

RAMA: The other thing to your point, you know, there is the highest expectation of growth in the U. S. Yeah. In the developed market, but also the U. S. 's highest track record or the best track record of rewarding growth.

ROHIT: And it's true for how the Japanese think about the U. S. markets. Think about the addressable demand pool here and the growth.

ROHIT: And when you think about it in the context of now a stagnant GDP and a demographic profile that's going the wrong way in Japan, you kind of want to be and need to be in this market if you want to deliver long term growth.

ANU: Yeah, but even though we talk about U. S. High valuations, if you take away the mega seven companies, there still seems to be.

ANU: And even though we said the minimum bar for entering the S and P 500 was 18 billion, I think there's 100 companies in the S and P 500, which are not 18 billion in market cap. The activists certainly seem to continue to find those mispriced opportunities in the market.

ALFREDO: You're spot on there. The high valuations do not prevent people from identifying companies are underperforming or viewed as underperforming.

ALFREDO: But I do think there is a sense by the activists that opportunities do remain. And I think as we think about the markets that will also have a role to play with respect to the appetite on the part of private equity players coming in. When there is a dislocation of value, there are instances where a company is better valued in the private markets and can He operated better in the private markets than in the public ones.

REBECCA: And we've been seeing a huge uptick in private equity, engaging to professionalize their boards earlier. They want to make sure that they have the very best talent that they can have, make sure they're bringing independence, have that operating profile that can help that CEO and management team really be the best in class that they can be.

RAMA: If you look at the private equity data in the last year or two, they're tracking at about a quarter of the rate of monetization that they've historically had. And then you go back to what we started the conversation with, this in spite equity valuations being so strong.

ANU: In 20 and 21, most of it was domestic and cross border has been a little bit muted for a few years.

ANU: Where do we see activity? Where was it? Where is it going?

DWAYNE: I start in the UK.

ANU: All right.

DWAYNE: Okay.

ANU: That's certainly been the most active part of the locket.

DWAYNE: We had a bad 2023. I'm gonna be honest. And 2024 came back very strong.

ANU: I expected 23 actually to be better. To be better. Right. I remember we were kind of positioned for Brexit, then something changed.

DWAYNE: So I think, generally speaking, there was a concern around how the UK was emerging out of COVID, the Brexit effect. Valuations were at a low point. We kept talking about the opportunity in the UK in particular, on the relative valuation trade. And I think as a result, people saw that. And people also just kind of decided now is the time to move.

DWAYNE: So we've seen a 43 percent increase. We're back to kind of normal trends.

ROHIT: What's driving that? Is it that the buyers are looking for the UK domestic market? Is it they're focused on companies with global earnings, but sitting in an undervalued jurisdiction?

DWAYNE: I think the people mix up slightly as they say UK company, but actually when you look at the earnings, they're not coming from the UK.

DWAYNE: The actual exposure is quite relatively low. They are that kind of truly broad global businesses. I think

ROHIT: that exact dynamic. It's true for a lot of companies in Japan and for a lot of companies in Australia. The same open shareholder registers, strong corporates with global earnings, but traded in a market where foreign exchange movement can actually make them look, on a relative basis, very attractively valued.

DWAYNE: I think it's almost been people have over indexed on kind of very localized issues. Rather than recognizing here are low valuation global companies that actually when you look at a lot of the tech, et cetera, and it's one of my points that I think actually we underdo the commercialization of a lot of UK tech and actually a lot of U.S. companies pick up that tech and commercialize it much better.

RAFAEL: Yeah. And the activity in the UK is mainly within Europe or you're seeing? cross border with Asia or North America?

DWAYNE: We're seeing it with cross border with, uh, with all, actually. It's probably one of the most open markets in terms of allowing foreign companies take out U.K. businesses. Now, equally, we also see it in reverse. And quite a bit of cross border out of the U. K. has been happening over the years. And, you know, Rama, it's part of the valuation trade. They're looking to balance boards. They're seeking to pull more U. S. orientated people on to be acceptable to the U. S. investor base.

ALFREDO: And I do think with the internationalization of shareholder bases across the world, there is going to be more of a push from the owners of companies for more of international expertise and different skills that don't need to be necessarily local.

REBECCA: The other things that we continue to see a lot more interest in People from different parts of the world, whether they're listing in the UK or they're listing in the US, they want people who are global citizens at sort of table stakes and understand what it takes to operate successfully in those different markets.

REBECCA: And these sort of single issue directors really aren't in favor as much as, you know, the best athlete who can tick a number of different box in the composition table.

ALFREDO: And Rohit, when you think about Asia, so Japan is a clear proven case, we've seen the growth, the number of dollars going into that market, the activity levels, the changes to the regulatory framework that makes it easier.

ALFREDO: What other areas do you think are going to be particularly in focus?

ROHIT: I'd say India is a market where there's a lot of strategic and financial sponsor interest, and that means that India, for the addressable domestic market, It's a very attractive opportunity.

ANU: I feel like everybody is so optimistic about valuations and growth in that market.

ANU: But at least in the last 12, 18 months, that has sort of been true. Valuations in the Indian market. Maybe the only place which is even higher than U. S.

ROHIT: That is true.

ANU: why are the activists suddenly interested in Japan? Because it's the same activists. It's one of the most successful U. S. Exports to Japan. Why is Japan in fashion?

ALFREDO: So it's an interesting question. There's always gonna be opportunities in the U. S. But I do think one of the phenomena in the globalized market is that you're always trying to streamline your investment thesis. And so you've identified a company That you have done a good investment in in the U.S. Then you start looking at Canada. Then you move into Europe and then you decide whether there's something in the APAC region that applies and has a similar logic. And so you have a tremendous amount of capital going. into chasing growth. Some of it will remain in the U. S. But some of it will have to go elsewhere.

ALFREDO: And we think that the Japanese, Korean, and Australian markets tend to be places where there are those opportunities, both because of scale and growth profile that activists could be interested in.

RAFAEL: That's why, to me, it's very exciting to have these kind of discussions, because activism is a word that has not appeared in the board in Latin America for a long time because of the few companies that are truly public, concentration, and so on. But to your point, Eventually, activists are going to start looking at other regions and other areas where they're going to apply that expertise.

ROHIT: It is the same pattern recognition everywhere. Undervalued companies, cross ownerships, value unlocking, regulatory support for activism and deal flow. Lazy balance sheets.

RAMA: Lazy balance sheets,

ROHIT: capital efficiencies. And particularly in Japan, it is also the very low cost of domestic debt, which enables these activists to then drive these companies. Into possible transactions.

ANU: You know, the industry dynamic in Japan is, of course, always been both curious and interesting and a big driver.

ANU: But part of what private equity has been waiting for is going back to that industry environment where Money was almost free

RAMA: the period of zero interest rate is definitely not coming back I think we can say that with a high degree of certainty But having an idea of where interest rates might settle may be good enough Maybe not at zero, but if the 10 year is going to settle between four and four and a half percent Which is where it's been which

ANU: is not bad at all

RAMA: Just not bad from a very long term historical perspective and that clarity might actually be enough for investors to go out and borrow the money and make the investment rather than wait for zero interest rates again.

RAMA: Is it also that, you know, look, the world is moving pretty fast, you know, the emergence of topics like ESG or AI, the board having expertise in these emerging topics, or is that really not a focus area?

ALFREDO: I think activists do care that the business is equipped with the right people to kind of be a counterbalance to the management team, someone who can be a sounding board, who can be kind of a differentiated opinion, and who can probe where the direction of the company is going.

ALFREDO: So clearly, in sectors that are highly specialized, like AI, and other kind of industry spaces or regulatory spaces. It's important to know that in many countries across the globe, including in the U. S., there is a bit of a generational change at the board level.

REBECCA: Yeah, the best boards are always going to be in succession planning. There is this age cliff that we've been looking at for the last couple of years. So I think the best advice is to be out there looking at talent, but with the pace of change, with the pace of business, with A. I., making sure that you're not just exchanging one skill set for the next, but you're thinking five years ahead.

ALFREDO: And I do think there's a globalization of markets as a result of that, a globalization of companies. There's a globalization of issues that boards and managements have to deal with. And by so doing, there's also a globalization of boards.

RAFAEL: And to your point, this day and age, the talent at the board is not only sitting in the U. S. for North American companies or in Asia for Asian companies or Europe, it's everywhere.

ALFREDO: But I also push it further, which is. The place where growth might be might change very radically over five or six years. So it is important to one, have people who understand the core business, but also people who have the toolkit to be able to be deployed into a new geography, a new market, a new reality, and to quickly know what questions to ask, to be able to get that information that allows them to decide.

ANU: For a few years, we saw tech and healthcare being 50 percent of the M& A market. And then whether it was the regulatory focus on tech or Focus on covert from health care and then G. L. P. One this year. Actually, D. I. Had one of the biggest growth and particularly D. I. Europe saw a lot of activity. What do you see as the biggest sectors in each of the regions that is driving activity?

DWAYNE: Many do in in a mere for a number of reasons. I think there is the clarity play. There is a need for scale, and as a general theme, it has to continue. And we are seeing it in certain of the industrial plays, and I think the other key areas from EPRM, or is what we call EPRM in terms of the energy power, renewables, etc.

DWAYNE: We're 37 plus countries, so there's individual strategies. How do you overlay across them? So that naturally is going to be another main player. And I think FIG. Whether it's the evolution of the private equity firms, the big players, the KKRs, the Blackstones, etc. Um, it's the bank consolidation. Hopefully regulation relaxes itself.

DWAYNE: It allows inter country consolidation, because a lot of it is still needed. But then again, you can't get away from what happens in tech. Because, and that, to me, is just one of those imponderables as to where does it strike. And tech also goes across every sector, right? It's embedded in all of them. And it's a little bit like AI, data centers, energy transition.

ANU: There is no avoiding that. Interplay. And that interplay, and likewise, and the tech stripe across every sector. Those, those two trends will likely continue seeing across the board. And industrial tech as...

ROHIT: well. All elements of industrial tech. Clearly the center of gravity of competencies between China, Korean, and Japanese businesses in diversified industrials, that center of gravity will move around.

RAFAEL: It almost is a mirror to what is happening in Latin America, perhaps for, for different reasons. But the ones we see the most activity continue to be the diversified industries, like heavy manufacturing, oil and gas, energy. Perhaps because Latin America has the resources, but also we can call it nearshoring, frenshoring, reshoring.

RAFAEL: But at the end of the day, it's going to be important for the U. S. and manufacturing the U. S. to have capacity nearby. with a friendly country. And Mexico right now has surpassed China already in terms of the biggest exporter to the U. S. And that will continue. So with the right investment on the right political dynamics, we see that as a very positive going in 2025.

ANU: Another sector which is now actually become a sector is infrastructure. We've had a team doing infrastructure financing and advisory before infrastructure became cool. Even companies which you may traditionally have not thought of as infrastructure being viewed as infrastructure. The definition of infrastructure keeps expanding and so more and more things are now called infrastructure.

RAMA: So that always helps. But you're right. Look, I think, you know, whether it is the aging, you know, airports and bridges and toll roads around the globe, that's the reason why we need more financing to update the infrastructure. Then you have digital infrastructure, right? Whether it's fibers or data center or cell towers, that is obviously a more recent phenomenon, a lot of money going into that.

RAMA: And then energy transition, whether it's gas, LNG, whether it's hydrogen, whether it's green or otherwise, whether it's carbon capture. That's, again, a massive secular tailwind to invest. And then the infrastructure funds have come to kind of provide the capital. And you're right, I mean, we have a team in the infrastructure finance and advisory business within the corporate advisory practice that we keep expanding and we still feel like we don't have enough people or enough resources to deploy. It's a massive area for us.

ROHIT: For the last 10 years, the amount of capital that's moved into renewable energy in Japan and India and across the rest of Southeast Asia, Australia, that is now at the point where it needs to seek monetization of the first round of investments, the investments that are going into digital infrastructure, particularly data centers and the valuations that we've seen explode their monetization of embedded infrastructure out of operating companies like mining companies.

ROHIT: We're starting to see logistics, logistics, And also industrial infrastructure, gas pipe, gas supplies, industrial gases, etc.

ALFREDO: What is the role of governments there? Can governments play a supplemental role? In certain instances, or not so much these days? I think the idea of private public partnership is talked about all the time in infrastructure land, especially when it comes to, you know, energy transition.

RAMA: Absolutely, because a lot of these newer technologies, they are not quite, you know, commercially viable yet. So you need some level of concessionary capital, often in the form of public money, whether it's tax credits in the U. S. or, you know, direct investments in Europe and China, et cetera. You need that.

RAMA: So I would say governments have a massive role to play.

DWAYNE: I think it's become a, it's more and more specialized, particularly the advice clients need. Yeah. It's a different focus. It's got its own various levels of sophistication, whether it might be how do you monetize or how do you sell the actual physical assets underneath a fiber business or into a particular plant.

DWAYNE: And that's got various different forms in terms of the private equity element, which might be a minority investment to the actual full sale or otherwise.

RAMA: Absolutely. And the structuring of capital in many situations becomes very important, right? Because you have a lot of infrastructure assets that are embedded in otherwise in operating companies that are not infrastructure companies.

RAMA: How do you finance those infrastructure assets to, to finance them at the corporate level may not be the most efficient, right? And how do you kind of, again, bring the right investors and the capital providers? To the capital seekers is something obviously we do all day long.

ANU: As you've hopefully heard from the conversation, there is a high level of optimism across every part of the world, across every product.

ANU: But at the same time, hopefully you also got a sense that it's not a straight line between wanting to do something and getting it accomplished. The environment is complex, requires a very nuanced approach. Which sector it is in is also not clear, because the lines are getting blurred. And that's why we've brought a differentiated approach to help you navigate these situations.

ANU: And we look forward to continuing our conversations, maybe in smaller settings. With each and every one of you and help you navigate these complex markets successfully in 2025 and beyond. 

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[End of video]

Chris Grose: The future today, in my opinion, is as bright as it’s ever been. TMC is going to continue to be the engine for the U.S. economy. Now on the M&A side, companies remain cautious given the macro uncertainty. What’s the one lone bright spot? It’s been sponsor activity. So we’ve seen a good amount of take privates and we expect to see more. And the debt markets has just been, frankly, more resilient than the equity markets. And we expect a relatively healthy financing backdrop to support M&A going forward.

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