Martin Adams recounts his work on UK bank TSB’s IPO last year
On my first day at TSB in February 2014, I was immediately called into the office of Darren Pope, the chief financial officer, and briefed on the bank’s imminent IPO. The scale of the project quickly sank in as a to-do list as long as my arm formed – and continued to grow. That first day proved to be a perfect example of jumping straight in at the deep end, and it pretty much set the tone for the four months that would follow.
We were gearing up to list the business when the equity markets started to become increasingly active with a steady stream of companies coming to market. Competition for capital was high and use of the term ‘IPO fatigue’ had become commonplace in the press. It became increasingly important that we clearly articulate to investors why an investment in TSB was worth their time.
Martin Adams, TSB
‘If you cut through the smog of acronyms and jargon, an IPO is essentially a sales process, pure and simple’
As head of investor relations, my primary role in the process was very clear: I set about helping to shape the reasons for investors to consider investing in TSB and what we would commit to deliver to those that did invest. To some extent – but without wishing to say my job was easy – this was relatively straightforward.
TSB had plenty of room to grow but it was also born fully formed with more than 600 branches, 5 mn customers, 8,500 employees and a full range of internet, mobile and telephone banking services. It had the scale and infrastructure of an established player and a clear opportunity to grow significantly over the following five years.
Heading into the IPO process was to some degree a journey into the unknown but, if you cut through the smog of acronyms and jargon, it is essentially a sales process, pure and simple. The overriding principles, therefore, were to identify and inform potential buyers, and ensure the pricing was both fair and at a level that would be in a ballpark acceptable to both seller and buyers.
First steps
We achieved these through well-defined stages typical of an IPO process. The first stage was known as ‘pre-marketing’ or ‘pilot fishing’: meeting with a handful of investors early on to ascertain indicative demand and pricing.
Next our executive management team presented to the sell-side analysts who would represent the banks involved in the transaction, and who would later head out around the globe to help educate the investor community on the TSB investment case. Choosing the right banks and advisers is critical to the success of an IPO and we had six banks involved, all of which did a great job. In fact, we went on to select two of them, Citi and RBC, to be our corporate brokers.
The TSB team celebrates the company’s initial public offering in June at the London Stock Exchange
Once it was clear there was a good chance of pricing expectations being met, TSB released an ‘intention to float’ announcement, which is basically the starting pistol for the marketing to really begin. The sell-side analysts, now fully up to speed on the TSB story, set about meeting with hundreds of investors in a stage called pre-deal investor education (PDIE) to educate and enable them to make a decision with respect to their appetite for shares in TSB: how many, and at what price.
Investor feedback through the PDIE was extremely encouraging so we decided to progress to the formal issuance of TSB’s prospectus, a hefty 33-page document detailing everything an investor would need to know about the business, as well as the price range within which the transaction was expected to complete: £2.20-£2.90 ($3.40-$4.50) per share.
Intensive meeting schedule
Paul Pester – TSB’s chief executive – Darren and I then began an intensive two-week program of meetings with those investors identified through the PDIE as key targets based on their level of interest and capacity to invest.
Within days there were already enough offers on the table from investors for shares in TSB for the deal to be completed. It was clear the rest of the process would now be a question of how much would be sold – and at what price. So we pushed on with our intense diary-packed itinerary of meetings and phone calls, clocking up contact with more than 250 investors across the UK and the US; the strength of demand in the UK meant there simply wasn’t enough time to visit anywhere else. All the while, the pricing of the transaction developed as even more orders were placed for TSB shares.
At the end of two rewarding but grueling weeks of marketing, the process rounded off with a £2.60 offer price. Additionally, Lloyds – TSB’s former owner – was able to sell more shares than had been originally expected given the intensity of demand, and TSB’s shares rallied on their trading debut. The bank had opened a new chapter as a listed company with a high-quality share register of investors that understand the business, and support its strategy and management team.
These were all great outcomes for an initial public offering and, as months of hard work culminated, I was delighted to join Darren, Paul and many others who had committed so much throughout the process, at the London Stock Exchange in June 2014 to see TSB’s shares officially admitted to trade on the exchange.
Martin Adams is head of investor relations at TSB
Why TSB went public
The decision to float TSB has its origins in the bank rescues that marked the financial crisis of 2008, writes Tim Human. Lloyds Banking Group, which received bailout funds during the crisis and remains a quarter-owned by the UK government, must spin off TSB in full by the end of this year to comply with European Union rules around state aid. The IPO in June 2014 saw 38.5 percent of the new bank sold off to investors, with a further 11.5 percent released three months later.
The bank launched as the seventh largest in the UK, with a 4.2 percent share of the current account market. Politicians and regulators hope the new provider will help shake up the British banking industry, which has been criticized for a lack of competition. The UK’s Office of Fair Trading has required Lloyds to support TSB with £240 mn ($369 mn) over its first four years as a stand-alone entity, to help it compete with its high-street rivals.
Prior to the IPO, Lloyds had originally planned to sell TSB to the Co-operative Bank, but that deal collapsed after a £1.5 bn capital hole was revealed in the prospective buyer’s finances. When the plan switched to a listing on the London Stock Exchange, Lloyds decided to bring back the TSB brand, which had disappeared from the UK in the 1990s. TSB, which stands for Trustee Savings Bank, was originally founded in 1810.
Update, March 12, 2015: Spanish banking group Banco Sabadell has confirmed it is in talks with TSB over a possible takeover.
