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Big mergers and acquisitions have largely disappeared in 2023. That has not stopped enterprising investment bankers from trying to drum up fees — any fees — in the hope of keeping their jobs.
When the market is humming, there is no better business in banking than selling transaction advice. A handful of spreadsheet wizards alongside a lone rainmaker can easily churn out a $10mn, $20mn or $30mn success fee with little capital investment other than pay. The latter is mostly a fixed cost for junior staff.
The problem, of course, is that not only is the deal market erratic, but those returns also make it intensely competitive. All sorts of big and small companies are trying to sell what is more or less the same product. There are only so many ways to structure a buyout or merger. Most chief executives and chief financial officers will tell you that the stream of New York bankers who make a twice-yearly pilgrimage to their company’s headquarters all basically look the same after a while.
Enter the “[official-sounding finance term] advisory service”. In my email inbox last week came a message from Houlihan Lokey, best known for providing fairness opinions and other formalistic corporate valuations. It also represents distressed debt vultures fighting with troubled companies.
According to the message, Houlihan is starting a “sustainability advisory services” practice that “will provide our clients with best-in-class insights and decision support impacting valuation, diligence, transaction structuring, and monitoring across the global ESG spectrum”.
Barbarians assembling at the gate this is not.
In previous incarnations, most investment banks formed activist investor defence groups to develop strategies that could fight off the likes of Elliott and Carl Icahn. Now these have morphed into plainer “shareholder advisory” services designed to help companies engage with important index fund managers such as BlackRock. Experts in geopolitics are also increasingly on call for Wall Street companies.
The conundrum is that the true “masters of the universe” do not particularly want more bodies involved who then dilute their bonus pools. These nascent “product” groups offer advice that is sometimes very far removed from buy-and-sale transactions. Their modest economics suggest as much; perhaps a six-figure retainer for a year.
Still, they are intended to help banks stay relevant to chiefs and directors and to keep them well informed about whatever is going on in the world. The hope is that when a company is ready to do a big deal, where actual money is changing hands, the bank is front of mind for a big pay-off.
Bankers fighting over who is credited with a fee is nothing new. It is similar to journalists jostling over whose name should go first at the top of an article. However, the current calculus is more complex with so many hungry mouths to feed. Varying degrees of proximity and influence decide what sort of returns are generated for a bank.
Interestingly, one banker at an advisory boutique told me that a fresh area that has proved promising takes advantage of structural changes in corporate lending markets. Private credit firms such as Ares Management and HPS Investment Partners are increasingly funding buyouts or refinancings. These replace the traditional syndicated loans arranged by balance sheet banks such as JPMorgan Chase.
Independent banks secure a fee for arranging a private loan. Fees for helping to place a debt deal of a few hundred million dollars can be in line with what an M&A transaction of the same size would yield.
Perhaps the job of running a company as chief or director is more complicated than ever in 2023. The good news is that there is no shortage of bankers, lawyers, consultants or public relations people willing to help you through by providing esoteric, customised counsel. But, of course, only for a fee.
Elsewhere on Wall Street
I took a look at the major bank M&A rescues this year, including the supposed deal of the century — UBS’s rescue of Credit Suisse — for the FT’s Alphaville blog.
Thanks for reading,
Wall Street editor
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