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MSFT & YHOO: Whats it feel like to be an adviser?
 

ibdizzle's picture
IB
(Monkey, 58
 
Points)
 on 5/4/08 at 3:34am

So...doesn't look like the deal is going through...what does it feel like to be an adviser when a deal of this magnitude is not completed? Do those groups involved still earn a ridiculous amount of money for their strategic advice and work?

4damoney's picture

you move on

CF
(Baboon, 130
 
Points)
 on 5/4/08 at 12:41pm

to the next deal

dosk17's picture

In general bankers only get

IB
 
Points)
 on 5/4/08 at 1:54pm

In general bankers only get paid if a deal gets announced and then closes. There are some exceptions, for example if they deliver a Fairness Opinion for a deal (just before announcement) and the deal gets announced, they will get paid a small % of the overall fee for that.

And occasionally for some engagements a small monthly retainer will be paid (we're talking keep-the-lights-on type fee here).

But in general, bankers don't make much if a deal fails to 1) have a signed definitive agreement 2) fails to close.

giocatoredoro's picture

What does it feel like?

IB
 
Points)
 on 5/4/08 at 2:08pm

hmm... It feels like a first date... you do whatever you can and if you seal the deal then it all worked out, if you go home alone, then you wasted time/money.

GameTheory's picture

Bankers get reimbursed for

PE
(King Kong, 1,435
 
Points)
 on 5/4/08 at 4:37pm

Bankers get reimbursed for expenses incurred while working on deals, but that's about it. However, I think everyone knows that every deal has a significant chance of failure, and you guard yourself against getting too hopeful. Towards the end of my banking stint, I was staffed on a buyside M&A assignment that would have been almost 20 billion dollars. To top it off, we actually had our choice to take either the buyside or the sellside - both seller and buyer were longtime trusted clients of the MD involved (and I don't say this lightly, in this day and age this is very rare but both companies had complete loyalty to this particular MD). An LOI had already been signed, CEOs had met, everything seemed to be set in stone. Deal still fell through and noone seemed overly surprised. Just the nature of the game.

Londonbanker's picture

Question:

IB
 
Points)
 on 5/4/08 at 5:34pm

Does the advisor mandated for a defense (in this case Yahoo) not receive any compensation for the fact that Microsoft was effectively warded away? Or are the rewards to be found in future business that Yahoo will generate?

dosk17's picture

Londonbanker: probably not

IB
 
Points)
 on 5/4/08 at 5:44pm

I mean it's not out of the question but it would be highly unusual to be compensated for a deal NOT going through.

I am not extremely familiar with hostile takeover contracts, but generally an M&A engagement letter is structured such that the adviser is awarded a % of the total transaction value (on sub $1B deals, around 1% or slightly more and on larger ones obviously less than that).

Maybe someone who has worked on a hostile takeover could offer up first-hand knowledge here?

Londonbanker's picture

Seems like a perverse

IB
 
Points)
 on 5/4/08 at 5:45pm

Seems like a perverse incentive structure for the bankers who are meant to be fighting off a deal!

In reply to Londonbanker
gladiator's picture

Defense advisory

IB
(Monkey, 30
 
Points)
 on 5/4/08 at 11:54pm

I've wondered about that too.

For example, Goldman is/was advising Yahoo to fight off the deal (raid defense). So does Goldman get compensated if the deal goes through, or if it does not go through?

As LondonBanker said, doesn't it create a conflict of interest when defense advisor gets compensated if the defense fails?!!!

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