What are Equity Capital Markets?

I am not sure what an ED does in America but in Asia (at least in my counrty ^-^), from my understanding ED usually works as a director of a branch. EDs are usually the local person and their jobs focus mainly on building relationships, getting the deals, and pushing them to move on. In addition, it is hardly to find a local person as a CEO.

are ECM's at all similar to debt capital markets, just obviously using debt financing instead of equity?

For what it's worth, I worked in ECM for a year as an analyst way back (although I'd assume the essential functions of what ECM does are more or less the same).

ECM essentially gets involved at the very beginning of the deal (pitching) and at the end of the deal (pricing).

In plain English, at the beginning of a potential deal, at the junior levels you're basically like a resource for the bankers. You keep track of all equity deals (both IPOs and follow on offerings) globally, and you compile this info for the bankers to use in their pitchbooks. Oftentimes, you are also responsible for putting together league tables (ranking the banks and essentially trying to find ways to make your bank look like it's #1).

ECM also acts as a conduit for pricing the issue (i.e. they decide in collaboration with the bankers, clients and equity sales what the price range will be which gets put in the prospectus, and then when the deal is ready to go, what the actual price per share will be - which ultimately is a compromise between what the sales people think they can sell it for, and what the client wants).

ECM also helps put together the term sheet for the deal (price range, number of shares, greenshoe option, etc.).

Also, in conjunction with equity sales, ECM will get involved in deciding allocation -- sales will provide a "master list" of investors who subscribe to the equity issue, and then ECM will work with sales to decide who gets what (i.e. if it's a "hot" issue, it may be say 20x oversubscribed, meaning that investors ordered 20x more shares than there are shares being issued - so ECM decides who gets what, based on which institutional investors they want more business with, screwing the other banks on the deal, and so forth).

In short, ECM can be a good job if the bank has strong deal flow - because most of your work will be helping to put together term sheets, working with sales on the actual transaction (allocating shares), helping with the roadshow, etc. Conversely, it can royally suck if deal flow sucks - because you end up spending all your time doing league tables and helping out on pitchbooks (mostly writing the "equity market conditions" section).

Damn, I can't believe I actually remember some of this... anyhow, some of this may have changed or may be slightly different from bank to bank, as the responsibilities are somewhat fluid since you are basically a go-between between sales/trading and investment banking - and you do sit on the trading floor.

Alex Chu

Thanks guys, that helped a lot.

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That post is wrong. Allocation is done by syndication not ecm at all times - ECM has input.

ECM origination at different banks do different things to some degree. The whole "no modeling" thing doesn't apply to all banks. A few of trhe ECM groups I've spoken with do indeed model ... in fact some desks not only have to understand banking models but make their own models to check the banking models as those tend to be usually "too optimistic" in terms of pricing.

As regards to comp - this year, ECM bankers at top BB's will make more than most IB's simply because ECM has been a blowout year. FIG ECM at GS made 100mm + on the Wellsfargo deal alone.

For some reference, ECm revenue at most banks with flow makes up about 60-70% of the IBD budget .Now the caveat is in banks in the US - ECM is a sizeable group - about 30-50 people at times (not including syndicate) so compared to IBD its maybe 25-30% the size but make more revenue. In asia, its much more disproportionate so ECM will make way more money.

However, at the same time, ECM will get cut quick if the markets die

yes that's true, since April (in France) it has just been an amazing year for ECM, on par or even better than 2007 with all types of products from convertible bonds to rights issues in the summer and then IPOs in the autumn. But it is also said that m&a transactions appear 6 months after the reopening of the market so 2010 should me more favorable to m&a (if financing follows ...)

Yes but the fees on ECM is still good. It's only in a bad market that ECM will not do as well as M&A. In an okay market where M&A and ECM are all active markets, ECM fees will far outpace that of M&A.

some good questions to ask the guy...

1. do you see many non-pe backed ipo's tapping the markets anytime soon?
2. convert issuances skyrockted... do you see the market slowing down?
3. what are some landmark transactions you've worked on recently?

the most watered down definition i can give you... piggybacking off cornelius ecm is the financing arm of the investment bank. ecm raises equity/equity-linked financing. dcm raises straight debt financing.

if you want to get more in-depth, do some research on private placements. who uses this market? companies that are not as established to tap the public markets. companies that are very information sensitive. companies that need more than simple bank loan financing. who are primary lenders? lifeco's and other insurance companies

1) Most of the IPOs have not been PE-backed .... those valuations are generally too rich 2) CB issuances slowed ... they only skyrocketed when the pure equity market wasn't back in full swing

GS has EDs as well