Q: WhatÆs the history of the Global Bio-chem Technology IPO?
Chia: We hired an investment banker called Catherine Lo, from Pacific Challenge. When she joined in August last year this was one of the mandates she brought across. The market has not been very good and there have been some hiccups in bringing it to market. Having said that, it is a solid company.
Q: Does this deal put you into direct competition with other China-focused investment banks?
Winter: No, we donÆt think we compete with other investment banks, especially the larger ones. We are very firmly focused on the middle market, and we donÆt feel there is much competition from larger scale investment banks in that area.
Q: When you say æmiddle marketÆ, what would be the biggest transaction you would envisage doing?
Winter: If there was a major transaction, weÆd still like to do it. WeÆd have to subcontract out much more of the work û especially the distribution and underwriting. Our focus is initiating the transaction and executing it, but when it comes to the distribution, sales and research û as with the Global Bio-chem deal û we work with other houses.
Q: Who did you work with on this particular deal?
Chia: GC Capital (Asia). ItÆs a fairly new house.
Q: So your model is to subcontract out the distribution?
Winter: We originate, we execute, we process the transaction with the stock exchange and the regulators, we write the prospectus. When it comes to the end of the transaction we havenÆt got research and stockbroking capabilities. So we work with other houses.
Q: And thatÆs not something you would envisage having?
Chia (pictured right): Research, yes. But not stockbroking. That requires capital.
Q: Why would a client choose Deloittes over a pure, normal investment bank?
Winter: When corporate finance was originally done in the UK, it was often done this way. The Sponsor did what we are doing and brought in other distributors. The client gets the better deal this way. We are on the clientÆs side. We want the highest pricing, and we want to make sure itÆs very successful. We arenÆt caught with a dilemma as to who our client is. Some of the investment banks are confused. Their investors are clients û because they come back for the next deal, and the next deal. And the corporate is the client too. So weÆve discovered that particularly in a weak market, the distributors tend to get nervous and try to renegotiate the structure of the transaction, and clients are stuck. If youÆre using one investment bank to do the sponsorship, write the research and underwrite it and distribute it, itÆs very difficult for the client to then jump shop and go with another horse. WeÆre on their side. If the underwriter gets nervous about the underwriting we can change the consortium.
Q: Your approach seems to run contrary to industry trends for consolidation?
Winter: Investment banks push the theory of one stop banking. But for the reasons IÆve mentioned, we think there is a strong and persuasive arguments and clients believe it. We now have 10 mandates ahead of us.
Q: How many are from China?
Chia: Around 40%.
Q: So you have 10 deals that could happen this year?
Chia: Hopefully!
Q: These deals are all medium-sized transactions?
Chia: Ninety-five percent of our clients are in small- to mid-size range. That is our client base, and that is our target area.
Q: And you think it is better for the clients to choose you?
Winter: It gives them more flexibility.
Chia: Yes, if youÆre the sponsor as well as the underwriter there is a conflict as to who is your client.
Winter: We look for the most appropriate distribution channel. If itÆs a small cap listing we go to small cap distributors.
Q: M&A is another business youÆre keen on. How do you position yourselves vis-a-vis the bigger investment banks here?
Chia: At the moment, a lot of the deals are also small- to mid-cap sized deals too. This part of our business can be driven by our international client base. A big multinational might want to invest in China. Obviously weÆd be interested in that transaction. But looking at the ones we are doing now, they tend to be HK$400 million.
Q: Will you run an Asian business from Hong Kong?
Chia: It is our aim to grow up in four key centres: Tokyo, Hong Kong, Singapore and Sydney.
Q: Are fairness opinions a good business for you?
Winter (pictured right): Yes, in fact I am going to Singapore on Friday to bid to do a valuation on quite a significant transaction, which has a lot of business in China.
That brings us into another area, we also feel the middle market is becoming depopulated by the investment banks. Five years ago, a lot of the household names û Schroders, Flemings, Warburg, Natwest û were doing deals in this area and theyÆre gone.
Chia: So there is a vacuum in this middle market.
Q: So youÆre saying the global consolidation has sucked people out of the middle market?
Chia: Hong KongÆs a good example. Four or five years ago, Standard Chartered, Schroders, Flemings, Barclays were the dominant players, but theyÆre not in this business anymore.
Winter: Investment banking radar screens now donÆt descend to the middle market.
Q: You obviously have a lower cost base than Goldman Sachs. Bearing that in mind, is the middle market therefore a lucrative business for Deloitte?
Chia: It is a good business. I donÆt know whether IÆd use the word lucrative. It is an extra, value added dimension for a professional services firm like ours. A growing company will always look for capital, so it adds another dimension to our client service.
Winter: The middle market is attractive because thereÆs less competition. And secondly, middle market players need to use professionals and are willing to do more creative things. The bigger corporations have their own professionals.
Q: Fees are on a negotiated basis?
Winter: Underwriting fees in Hong Kong tend to be fairly standardized, but advisory fees are negotiated.
Q: So you will position yourself going forward to be what Schroders were in the past?
Winter: Yes, what a Schroders or a Jardine Fleming or Morgan Grenfell was. We will do bigger deals too, but it wonÆt be our bread and butter.
Q: And you think a lot of deals will come out of China going forward?
Chia: We now have corporate finance offices in Shanghai and Beijing and are setting up in Shenzhen. We will see big things from China.
Q: How many in the Hong Kong corporate finance team?
Chia: 40.
Q: What are your backgrounds?
Chia: I have been from Deloittes from day one. I started in London on the audit side. Then I moved to Hong Kong and specialized with financial services clients. And I started doing M&A transactions five years ago. Then in 1998 we set up the corporate finance team.
Winter: I started off at Deloittes. I qualified with them in Edinburgh and then went with them to Kenya. I then decided to get into financial advisory and came out here in 1985. I joined Standard Chartered and worked in their corporate finance initiative for 12 years. Deloittes approached me in June 1999.
