Investment Banking

What’s The Deal? | 2024 Investment Banking Outlook

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David Rawlings: Hi, I'm David Rawlings. I'm the country head for JP Morgan in Canada, and I'm also one of the hosts of JP Morgans What's The Deal podcast. I'm thrilled to be joined today by Jay Horine, North America head of investment banking, to which he was recently appointed, but also our global co-head of energy, power, renewable, and mining businesses. Jay, thanks so much for being with us today.

Jay Horine: Thanks, David. Great to be with you.

David Rawlings: We're gonna discuss some of the themes we're seeing across the business currently, and also what we expect in 2024, and the convergence in trends we're seeing both in terms of our client business and within our own business. Jay let's start at the beginning. You've obviously done this for some time. What brought you into the business?

Jay Horine: So I began my career in public accounting, and in 1994 came to Wall Street. I joined as a generalist and worked my way up to be a managing director. I came to JP Morgan in 2006 and led the power and utilities practice. I then became the global head about a decade ago. And then two months ago, was asked to become the head of our North American investment banking practice.

David Rawlings: Give us one or two of the highlights along the way.

Jay Horine: The two things would be one, joining JP Morgan in 2006. It was an up-and-coming company. Jamie Dimon was here kinda just getting going. We had an ability to grow our investment banking practice over that period of time. So that was a really exciting period and has been exciting as we've continued to grow and join the very top echelon of the industry. And then it's been a lot of fun the last two months to have this new role, to interact with so many people that I hadn't spend as much time with here in North America. So I'm looking forward to that on a go-forward basis.

David Rawlings: Awesome. Let's just spend a minute on that. You obviously have had global energy for a long time. You were recently asked to take on the North American business. You know, what does that mean for you? What are your early observations?

Jay Horine: Well, our global co-heads of investment banking Vis Raghavan and, and Jim Casey worked together with Jamie Dimon and Daniel Pinto, our CEO and president, to come up with a matrix structure basically of regions. One of which North America, I sit in, and then adding to products, M&A, equity and debt, all of the global industry groups. So we're now run truly on a global basis with the overlay of the regions. I think it's been extremely well received by our people and by our clients, and I think sets us up for great things to come.

David Rawlings: Listen, I would argue we've always operated in a global fashion. But it feels-

Jay Horine: True.

David Rawlings: ...to me like just solidifying this and the structure will just allow us to provide that cross-border expertise in even a more formal way going forward.

Jay Horine: I think that's well said.

David Rawlings: There's obviously a lot of unrest in the world, geopolitically and otherwise.

Jay Horine: Mm-hmm.

David Rawlings: You have an economy in North America that has been incredibly resilient, you could say that actually I think of other economies, too. But how important is the CHIPS Act and some of the other activities that we've seen, as well as just a flight to quality that's happening around some of the capital markets?

Jay Horine: Well, I think it was very important. I think both in terms of the absolute dollars, but also the signaling that the federal government wants to go after large projects. A lot of these things are very large kit, as people say. You think about LNG plants, you think about hydrogen plants, semiconductor plants. These things are all very large. They take a lot of people, large construction. They have issues with them around siding and other stuff, but nonetheless, it's exciting to see the US doing so many things on this front. So I think that's one thing that's going on is sort of that signaling that the US wants to bring more things back. I think that we've talked about it's probably going to be at the margin inflationary to go from lower-cost areas to higher-cost areas, but that's undoubtedly offset by some of the other qualitative issues. I'm also just very encouraged by the time I spend with legislative in Washington. The number of people who are down there, Department of Energy and other groups, it's actually very encouraging to see so many people trying to enact public policy that will propel things forward to get more green energy at an affordable basis, to have better airports, to have new and emerging technologies like small modular reactors and hydrogen. So, I'm extremely encouraged by what I see on an overall basis. I realize there can be days when it feels like it goes a little bit backwards, but the US economy has been resilient. The companies are very well capitalized, and our hope is that as we go into 2024, we'll see the ability for companies to go public. So, I'm cautiously optimistic as we go into 2024.

David Rawlings: Awesome. Let's get to '24 in a second, but before we do that, I think you've been very front footed on this conversation on convergence and you talk about hydrogen or nuclear reactors, or you could talk about technology broadly. How is this impacting the business, the types of clients that are showing up maybe unexpectedly in some of these situations, and how are we positioned for that opportunity?

Jay Horine: I think it's an exciting time where people who didn't have any reason to interact with each other all of a sudden are. So people interested in hydrogen and what it means for transport go from utilities to car companies to chemical companies to any number of industrial companies. As people think about decarbonizing their operations, that’s steel companies, that's chemical companies, that’s cement companies. It's not just shutting down coal plants in the United States to produce electricity. So increasingly, people find themselves doing things you wouldn't have guessed. Who would think that small modular reactors would be part of the business plan for a chemical company or a steel company? And yet here we go. And so, people are starting to spend time together that didn't in the past. I think that's gonna impact things like who's gonna be on your board. You're gonna need to have a energy innovator on your board if you're a chemical company or steel company in a way that perhaps you didn't before. So, just as JPMorgan has companies that we compete with who are also customers of ours and the like, and we're making the transition to be a FinTech company in many respects. A lot of our companies across what I see in North America are looking for ways to not only green their operations but also improve their operations to make things better and faster. And so, I'm actually encouraged, but it can be uncomfortable for companies to have different people that they spend time with, different people that have a point of view about a product that they do. EV charging. Where should EV chargers be? Who should own them? These are all interesting questions that you didn't have to face until we had electric cars and sort of the second and third removes as you think about different people who will partner. So I expect there'll be more of convergence as companies move forward.

David Rawlings: Let's shift our attention to the current environment and what we expect to happen as we turn the calendar year into 2024. It feels like things are opening up. I wouldn't say they're robust yet but when you think about the business, and you look at our pipeline what should we expect as we enter the next calendar year?

Jay Horine: Yeah, I think that cautiously optimistic rates seem to be coming down. The market, certainly the US market is hanging in there pretty well. There are clearly challenges around the world. We don't have to go through all of them, but we can read in the paper every day about all the challenges. But certainly here with my North American hat on we have a presidential election coming up. But general consensus seems to be that the US needs to bring in a lot of manufacturing and other things back. The US needs to be energy independent. The US needs to continue to be a place that people wanna come and we have a great selection of the world's best and brightest. I think there's a possibility as we go out into '24 and beyond that building upon the idea of convergence, you'll see more of these Amazon, Whole Foods kind of moments where companies decide that they're going to step out and do something larger. You saw Exxon buy Denbury. You've seen some companies start to do more outside their necessarily historically core areas as they look at new areas for growth. And lastly, I think that for the most part the American companies are well-managed, well-led. Boards are better positioned than ever. And I think that they are reasonably well-capitalized. And as a result, I think that they're prepared to be more on the front foot on a go forward basis.

David Rawlings: You talked about growth, and while growth can be everywhere you say technology broadly people associate with growth and then also healthcare has been an important sector over time. Do you have a point of view on those two sectors in particular, and/or when you look across the overall book, are there other things that sort of pop out for you that we should be paying attention to?

Jay Horine: To see what's going on in healthcare is profound. To see what's going on with quantum computing is profound. It feels like we're early days into the next generation of computing power. So I'm really encouraged for those areas that you're gonna have the ability for people to do trials much faster, to have greater computing power. So it feels like innovation is being embraced by big companies, smaller companies. So my sense is that technology and innovation will visit every single area of the economy. Almost everything. I know that there's a bit of a step back right now. But longer term, I think that's exciting for jobs, exciting for capital formation, and the US continues to be very much at the forefront.

David Rawlings: Awesome. I had some time with Lorenzo Solar a couple of weeks ago and we talked about the pipeline for equity. You start with the highest quality names to reopen the market and then you kind of go from there. Do you have a sense of what could be done in the first quarter, and do we feel like we have that pipeline of high-quality names that clients will be super focused on?

Jay Horine: Yeah, I think we do. I think we have a fantastic lineup of companies that want to go public. For that matter, existing companies that would like to raise money to do some of the things we've been talking about. So, I'm encouraged. There's going to have to be a constructive backdrop, but my hope is that as we go into Q1, Q2 of 2024 that we'll see the markets accept these companies as they come. A number of them are very large. But a lot of innovation, a lot of interesting things being addressed and a very high quality group of companies across a wide variety of sectors, not just in healthcare and tech.

David Rawlings: Great. Let's spend a moment on the debt markets. As you alluded to earlier, the rates are coming down a little bit. It feels like that market is open for, I'd say, high quality issuers.

Jay Horine: Mm-hmm.

David Rawlings: Do you want to make a comment on what we see as we get into the first quarter?

Jay Horine: Yeah, well, our CEO has said that you should still be able to make money when the ten year's at 4% or just over. And so you've seen a number of people take advantage of the convert market. I believe that companies will access the debt capital markets. We have a fantastic leadership position in that. To your point, high quality companies, they want to innovate, they want to grow. That, in many cases, will take capital, and as well as there are some maturity trees coming. So I think together my hope is that in 2024 we'll have a constructive backdrop and rates will moderate and stay reasonably stable. And if so, I would expect that there would be a fair amount of activity around that.

David Rawlings: That all makes sense. How about we focus on M&A now? It feels to me like we've had a shift over the last couple of years as financing markets have gotten more expensive. More strategic activity as a part of the mix and maybe a little bit less in the private equity businesses. A, do you agree with that? And B, do you think that continues as we get into next year?

Jay Horine: Well, I think that the sponsor world has continued to evolve. We have a great sponsor practice led by my partner Avery Whitten here in North America. And they've just become part of the environment. I think that they have, in many cases, fantastic relationships with corporate service great partners. Sometimes we'll buy a company, sometimes we'll sell a company but increasingly spend a lot of time partnering with clients. And I have a number of mine where they've partnered it has been very successful. So I think that's a side of the business that is continuing to evolve. You got infrastructure capital, you got all the way to venture capital and sort of different cost of capital along the way. And then on the M&A side you're starting to see the beginnings of potentially some larger deals. We'll see how those are received both by investors and by the regulators, but you could have larger deals. And like I said, step out deals. I think one of the backdrops to this is as I spent time and our team spent time with boards and management teams, I think that they, like JP Morgan, have continued to upgrade the talent of their management teams and the boards and they're bringing in both homegrown people, people from the outside, new kinds of voices to the boards and to the management teams. And as a result, I think that they have a belief in their ability to not only prosecute their existing business plan but to also grow. And some of that growth will be organic and some of that growth will be through M&A. And I think that is a good balance for most of these management teams. And so we continue to believe that they will use the capital markets to help them go forth and I expect that there's reason to believe that we could have a pretty robust M&A backdrop on a go forward basis certainly here in North America.

David Rawlings: Yeah, I think your point on financial sponsors and just the broader private equity community is so right on. I was with a couple of executives last night, both of which have partnerships with private equity in different ways. And so I think they're just becoming such a ubiquitous part of the overall capital markets. Let's shift back to home for a second. So observations as you're head in North America. You've talked about conversions, you've talked about technology sort of everywhere. The repopulation of boards. What advice are you giving to our team to in turn give advice to our clients?

Jay Horine: A number of things. First, let's make sure that we're listening to our clients. We have a number of clients who have said I'm spending 50% of my time on things that my predecessor did not spend time on. Imagine if you're the head of a car company, the amount of time that you're spending on EV charging, hydrogen, other kinds of mobility, driverless cars, et cetera. It's important to listen to what your clients are thinking about, and not just the business that they have at hand. And then secondly, making sure that you continue to broaden or widen the aperture. So if you're covering a chemicals company, you're going to have to be smart about hydrogen. You didn't used to have to be. Now, you need to be. If you're going to cover a steel company, you're probably gonna have to know something about small modular reactors. So there's more to learn. I just think what the interactions that our clients are having is much wider and often quite different than the interactions that their predecessors would have had at the exact same company. And so my advice is to continue to listen to our clients and to make sure that we are thinking about the same kinds of things they are and not the things that their predecessors thought about. And I think our team is doing a pretty good job of that.

David Rawlings: I would agree. And I think one of our key strengths is this ability to partner. So this mindset of we can deliver deep expertise on X, but we'll bring in partners to bring in the adjacent expertise that we now need in the future. So I do think we're very well-positioned, and I think your leadership in that role will be very important.

Jay Horine: Thanks, David. I'm really excited about the opportunities ahead.

David Rawlings: Jay, I just wanna thank you for spending time with me today. We covered lots of topics. I think as you've said, there's this optimism as we get into 2024 and lots to be done, and I've really enjoyed spending time with you.

Jay Horine: Great, David. Always great to spend time with you. Thanks so much.

David Rawlings: And thank you to our listeners for tuning in. We hope you join us again next time.

 

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