The Impact of Current Events on Public and Private Markets with Craig Clay, DFIN’s President of Global Capital Markets

Dana Barrett - Welcome to the Insider by DFIN, I'm Dana Barrett, and today, we're flipping the script, because we've got Craig Clay in the hot seat. He is, of course, the President of DFIN Global Capital Markets. Craig, thank you for being in the other chair.

Craig Clay - It's good to be here.

Dana Barrett - Good to see you. We got you in this other chair, because we want to talk about, kind of a big picture. There's a lot going on in the world right now, and we want to get into current events. We're not going to make you do a news report, but we want to know how it's affecting public and private markets.

Craig Clay - Right.

Dana Barrett - And we thought, who better than you to talk about this? But before we get to all of that, I would love for you to share a little bit about your background and how you came to be in this role for DFIN.

Craig Clay - Sure, I joined the company, it's had many iterations, a long time ago, 20 plus years ago.

Dana Barrett - Okay.

Craig Clay - So I've been in the industry for quite some time and sort of a “What is that industry?” We're supporting the public and private market in their fundraising and their process of going public, their continued reporting, M & A. We have several software products, so it's really been a transformational journey from when I started to where we sit today in 2022.

Dana Barrett - Yeah, well add in, I imagine the software products all sort of that became more and more important as time has worn on.

Craig Clay - It is the most important thing.

Dana Barrett - Yeah, absolutely, can't do anything without it now.

Craig Clay - No, you cannot.

Dana Barrett - All right, well, let's dig into the public and private markets and what's happening today, because obviously, again, a lot of volatility in the world. So, talk to me a little bit about how current events across the board, not just today, but how the news essentially and what's happening in our world impacts these markets.

Craig Clay - Yeah. The market loves surety, so they love when they know what's going to happen and when, and they loathe volatility.

Dana Barrett - Yes.

Craig Clay - And so, today is probably one of the heights of volatility, and you have really just a collection of situations. You have the threat of nuclear war, which we haven't had, you know, in many people's lifetimes.

Dana Barrett - Right.

Craig Clay - So that goes back to the '50s. You then have the '70s inflation, which is certainly headline grabbing. You have crime, you have COVID, you have monetary policy, interest rates going up, so it's really that whole collection that has impacted the market negatively. And started to unwind what really was a post-COVID extraordinary run.

Dana Barrett - Right.

Craig Clay - So people were obviously, two years ago, extremely fearful. The market was in panic as well, another time of volatility. And then the market found its footing. They founded their footing, primarily because of the money that was being put into the market, and then being put to work, and while people were at home, we started to do virtual deals. So to the software process, to working virtually, the market took off in the last half of '20.

Dana Barrett - Okay.

Craig Clay - And then, 2021 was an extraordinary year for IPOs, for SPACs, for M & A. And all of that really started to come to a screeching halt, primarily, in sort of the February-March time-frame, which coincided with geopolitical issues.

Dana Barrett - Okay. So, is there any difference in terms of the public market versus the private market and how these things impact? You know, like we all know, we all see on the news every day when the stock market's going up and down, but in terms of the deal market and when to IPO, are there differences in the way these events impact it, or is it kind of, you can kind of assume the same thing across the board?

Craig Clay - There are differences, however, at the same time, it impacts both in a similar fashion.

Dana Barrett - Okay.

Craig Clay - So you have an IPO that goes out, and if it's not as well received, that starts to impact a private company, who may be looking to fundraise, or who may have planned an IPO to be their next fundraise.

Dana Barrett - Right.

Craig Clay - So if it makes that not possible or less attractive, then that private company is then going to be seeking money in the private market, not the public market, and that market is constrained as well.

Dana Barrett - By those same.

Craig Clay - Yeah, by the same events.

Dana Barrett - That makes sense.

Craig Clay - So, they operate differently, but they're certainly operating in concert.

Dana Barrett - So, you talked about some of the historical events, you know, the '50s with nuclear threat, and the '70s, the gas prices and inflation and all the things we saw, and it feels like, and the nuclear threat, all the things, it feels like many of those things are happening at once.

Craig Clay - Yes.

Dana Barrett - And, of course, this global pandemic, which seems, we keep thinking it's going to be done, and then it's not done.

Craig Clay - Yeah, and there's a new variant.

Dana Barrett - Right, so does that, are we just becoming sort of, you know, like immune to it all in a way, like, I feel like there's still some deals happening, right, so it's not like we've had a total shutdown because of this. So are we just maybe not taking it all seriously? Or are we, what do you think is happening?

Craig Clay - I think a couple of things. I mean, if you look at the actual deal market itself, this is probably the third worst that we've had. So, you have two that are worse, so the .com implosion, and then the financial crisis.

Dana Barrett - Okay.

Craig Clay - And to your point, in those it was a very, it was a spigot just turned off. This is different, because you mentioned, there are deals that are going forward. We're happy that they're going forward. We have a lot of IPOs that continue to work and update their financials and communicate those with the SEC, so they're waiting for that opportunity. So I think what's happening is the market's looking for just that footing of just understanding, okay, I know now what's going to happen with interest rates, even if I don't like it, I know it.

Dana Barrett - Right.

Craig Clay - They are looking for surety from a geopolitical perspective. Certainly, the threat of larger wars is not ideal, and even just today, you got a pretty decent inflation number, which says, has it peaked? So now, you're sort of starting to get at this, all right, are we dealing with it? Is it starting to abate a little bit? And so with that, with sort of a floor in, and you can call the floor at any time, the market will adjust and will take off. It only needs to know what the future holds a little bit.

Dana Barrett - Right, some certainty.

Craig Clay - It doesn't have to like it.

Dana Barrett - Well, right, it doesn't have to be good certainty, just certainty.

Craig Clay - Yeah, just some certainty.

Dana Barrett - Yeah, so when there's something like, you know, the Ukraine war situation we're talking about, we really have no idea how far that's going to go or how long it's going to go on, and, you know, we also have certainly had wars that we've dealt with as Americans, you know, Afghanistan War, that went on forever. And it came to a certain point, where that was no longer impacting markets, right. So if something sort of levels out, and I think maybe that's your point, right. It's still, well, we know it's happening, so we know how to sort of behave around it.

Dana Barrett - Yes. Okay.

Craig Clay - And this war, unlike those other ones, felt contained. You didn't feel like this one was going to end up on a NATO doorstep or certainly that it was going to end up here.

Dana Barrett - Right.

Craig Clay - So, it's a very different experience to have that fear, right, so volatility is fear, the fear gauge, the vix.

Dana Barrett - Yeah.

Craig Clay - That's, what's driving this, is that difference in this one in relation to the others that you mentioned.

Dana Barrett - So, I'm going to like put myself in the, you know, in the executive chair of a company that is, you know, maybe thinking about IPO, or even the other direction, right. I'm thinking about making a change, whether it's to go by private, or it's to IPO, whatever it is. I'm focused on my company. I'm focused on financials. Is DFIN taking care of me, in terms of this geopolitical situation? Are you keeping your eye out for your customers and how are you communicating with them, this is what you need to do with this kind of market?

Craig Clay - So, the companies are going to have their own advisors, that are going to be telling them, you know, here's how to expand or contract or sell an asset. Within that, we're then providing the backstop of how they do it, how they communicate, how they would put those documents into a virtual deal room, how they would communicate with the SEC, how they would communicate with the public.

Dana Barrett - So it really has, for you guys, it really has more to do with sort of understanding where your customers are at.

Craig Clay - Are at, and what they're going to do.

Dana Barrett - I got it. Okay, I got it.

Craig Clay - And there are a lot of product lines and verticals that have been very active. So, going private has been very active. So, private equity is flushed with cash. There's a lot of cash out there, which is waiting, which is why the market is sort of waiting for an opportunity. So, there's been a lot of companies that are going private. What happens usually, is they go private, there's some restructuring. The intent is obviously to go public again.

Dana Barrett - Yeah.

Craig Clay - Maybe to combine with several portfolio companies and take out something that looks different. And then, you're having companies that are looking to break up, so that's been certainly a headline in the news of a large company that's going to break into two pieces, three pieces, or just announcing that they're considering that.

Dana Barrett - Right, and those things come for a variety of different reasons. That's not really related to current events, that's just.

Craig Clay - Correct.

Dana Barrett - Is this now the right time to do those things? Yeah.

Craig Clay - So DFIN, my company, is a part of a spin, so we were a part of RR Donnelley. It was announced in 2016, early 2016, it completed in 2016, and was broken into three completely separate public traded companies.

Dana Barrett - Mm, right.

Craig Clay - So our heritage includes a spinoff.

Dana Barrett - Got it, okay, so you know exactly how to deal with that, because you've been through it.

Craig Clay - Exactly.

Dana Barrett - Yeah, so obviously we can't predict the future, in terms of what's going to happen geopolitically. It's really just a matter of timing and keeping our eye on it.

Craig Clay - Yes.

Dana Barrett - What else do you feel like customers need to know, or even internally, what do staff need to know about keeping their eye on the news when they're seeing things happen? What should they be thinking about?

Craig Clay - Everything changes, I think. So, I was asked, you know, recently, you know, when's it going to end? And it will end, and it does change, and everything finds a floor and finds a way to come back. And so our message, from a company perspective and a software perspective, is to be prepared. So, it isn't about the news today and tomorrow, and it's really about preparation for any of probably an array of outcomes. It's having your financials ready. It's having your information in a deal room, where somebody could look at you to take you public, or conversely, your information, where you could look to go public.

Dana Barrett - Right.

Craig Clay - So private/public, it's being ready for those things, and that's where DFIN can really add value.

Dana Barrett - So in other words, regardless of whether you're going to do the deal when you originally thought you were, or you might wait, you still want to have all that preparedness.

Craig Clay - Right.

Dana Barrett - You want to make sure all your ducks are in a row, and in a way, maybe you get a little more time to make that happen, depending on the situation.

Craig Clay - Yeah, absolutely.

Dana Barrett - Yeah, interesting. Is there anything else you feel like we should, you know, we should talk about, think about, as it relates to connecting the bigger world to these markets and to these kinds of deals and preparation and all of that.

Craig Clay - I think, to me, what reminds me of the COVID time, where everyone thought this is, you know, this is the end. Like how can we ever recover from a global shutdown and us being at home? And how are we going to work from home? And, we're no longer going to the office. And there was a panic, there was an extraordinary fear. And you look at the resilience of the capital market during that time.

Dana Barrett - Yeah.

Craig Clay - That just months later that it found a footing. It found a way to work virtually. IPOs that had traditionally, people had gotten on a plane and hit, you know, hopscotched across America with, you know, books that they were handing out and meeting face-to-face, all that was virtual, and it was way more efficient. And so, we were powering these ways of working and how you communicate and high velocity documents and the securer transfer of information in that environment. So to me, you look back at that, and it shows the resilience of a market, and so you come to today's market, and I don't think it's as fearful as it was then.

Dana Barrett - Right, right.

Craig Clay - Even though there's a collection of things that we haven't experienced in a long time, that gives me great resolve that, at some point, the market will find its future, and everything will take off.

Dana Barrett - Well, it seems like, I think you bring up a really interesting point about that moment of shutdown and the months that, you know, that it followed that, because we didn't expect that. And we found new ways to work, and then new things came from that. I mean, we now are in this period of the great resignation, which I don't think really could have been predicted, and in part had to do with people coming back from in COVID and saying, "I don't have to do that anymore.”
"I don't have to travel.”
"I don't have to be in the office.”
"I'm not, I'm not going to."

Craig Clay - Right.

Dana Barrett - But that's changing one of the stakeholders' views of companies, you know, so I think all of that is things we're going to have to continue to adapt to.

Craig Clay - Yes.

Dana Barrett - So, you know, I guess it's it always comes back to that being prepared, does it not?

Craig Clay - Absolutely does. And it shows the resilience of the capital market.

Dana Barrett - Yeah, oh yeah.

Craig Clay - The capital market is efficient. It's going to find a way to do deals, and to make the capital market money, right, which is good for all of us.

Dana Barrett - Right.

Craig Clay - It's good when companies are out there and active and being successful.

Dana Barrett - Right, and I think you also made a good point, which I know most people in this industry get and know, that there's lots of money in private, that's waiting.

Craig Clay - That's waiting.

Dana Barrett - Yeah.

Craig Clay - Waiting to be put to use, somebody wants a higher return.

Dana Barrett - Yeah, yeah.

Craig Clay - Absolutely.

Dana Barrett - Absolutely, I feel like I could pick your brain about this stuff all day, but I won't. So Craig, thank you so much for sharing sort of your thoughts on the current market and for everything you're doing.

Craig Clay - Thank you.

Dana Barrett - This has been the Insider by DFIN. We'll see you next time.