WSJ article - Banker's Worst Nightmare

Anyone see this? Is the M&A banker bubble popping?

More companies are deciding to do without bankers when they make acquisitions.

One day late last month, two big companies announced takeovers that had something in common: Neither Comcast Corp. nor AbbVie Inc. used a banker.

Comcast and AbbVie, both giants in corporate America, aren’t alone. More companies are deciding to do without bankers when they make acquisitions.

In 2015, the buyers in public-company deals valued at more than $1 billion didn’t use financial advisers in 70 instances, or 26% of the time, according to Dealogic. That is the second-highest total on record and far surpasses the 25 cases, or 13% share, in 2014.

In 2016, there have already been 23 examples, or 27% of deals in question. While merger volume has been surging, the rise in deals without a bank since 2014 is more pronounced.

That is bad news for Wall Street firms, which bring in enormous fees—sometimes measuring in the tens or even hundreds of millions of dollars—from takeover advice. The timing could hardly be worse for big banks as they lose market share to smaller upstarts known as boutiques and grapple with new regulations and low interest rates.

Interesting read.

 

Great article and post. A good friend of mine works for Comcast in their corp dev department and they have been super busy. IMO, while this trend is interesting, only the really big firms that do a lot of acquisitions, etc, can truly get value from having this level of corporate development internally. For many (if not most) it makes sense to go external, get bids and hire an advisor.

 

Those were also my thoughts - unless you have a true business need to have sustained M&A knowledge and talent in-house, banks will be necessary in some aspect. It will be interesting to see how banks respond to this. I doubt middle market banks will have any issues.

 

I think a significant driving part of this on the supply-side (in terms of talent) in that now many of these companies have corp dev departments staffed with the needed expertise. In the financial crisis times, I had a lot of friends in banking get laid off and move over to corp dev and stay there. As such, now I'm guessing many of companies have the human resource capabilities to run their M&A activities in-house.

 

part of the value of getting a bank to advise, particularly if you are looking to buy, is that you are constant having conversations with other companies about strategy, direction, what might be for sale, etc. A competitor is far less likely to share that information (at least up front before discussions begin)

As has been noted above, it is also a matter of having someone to throw under the bus in things go sideways (i.e. comparable to why MBB are now used for what seems to be every management decision)

 

This is a very interesting read. I had a question I was hoping someone could answer. If they're foregoing banks, who are the ones providing the valuations? I saw earlier someone said Corp Dev teams but they certainly do not have the expertise to value a multibillion dollar company off the bat. Think about it- even if a few people were ex-bankers, most people who go into Corp Dev do not have a background with valuation of this size.

 

You don't think a few ex-bankers could value a multibillion dollar company? Why? I'm an analyst one of the biggest val firms and I have a hard time believing they couldn't do it.

I've valued multibillion dollar companies (obviously with help from VP's/MD's, but think I could take a solid first shot at it without them) and I've only been in my role for ~9 months.

 

Very naive question. Worked in Corp Dev for 4 years and have valued multibillion dollar companies in-house nearly every time. Only reason we use bank is if we need capital raise in conjunction with acquisition.

 
Best Response

As some posters have pointed out, I think that it comes down to the size of the firm. Larger firms with corporate development teams full of ex-bankers are well-positioned to complete M&A transactions sans an investment bank. The issue, however, will come from shareholders. One of the biggest reason, from what I've been told by senior bankers, that larger corporations hire investment bankers is for an arms-length M&A adviser for when transactions go bad. It's easy to tell shareholders "Well...the transaction went south, but we hired Goldman Sachs, so we did our best."

For MM and smaller companies, I doubt anything changes. My MM's clients frequently are experts in their space, but not the best at running a business. Without an investment bank, these companies would surely sell for a lower valuation. And when it comes time for complex securitizations and debt raises, all bets are off.

 

Every I banker I see on here significantly underestimates corporate development teams. These guys know their industries far better than anyone at a bank from my experience. They also have a very good understanding of the synergies as they know their own company better than an outside banker. And valuations are the easiest part for these guys. But if they ever want a pair of eyes to look over their numbers they can just hire consultants.

 
JMar:

Every I banker I see on here significantly underestimates corporate development teams. These guys know their industries far better than anyone at a bank from my experience. They also have a very good understanding of the synergies as they know their own company better than an outside banker. And valuations are the easiest part for these guys. But if they ever want a pair of eyes to look over their numbers they can just hire consultants.

I agree on all your points. For those with sophisticated corp dev teams, it can make a lot of sense to do without a banker. But I can see smaller and less sophisticated firms benefitting from a boutique or MM bank.

 
sofib09:
JMar:

Every I banker I see on here significantly underestimates corporate development teams. These guys know their industries far better than anyone at a bank from my experience. They also have a very good understanding of the synergies as they know their own company better than an outside banker. And valuations are the easiest part for these guys. But if they ever want a pair of eyes to look over their numbers they can just hire consultants.

I agree on all your points. For those with sophisticated corp dev teams, it can make a lot of sense to do without a banker. But I can see smaller and less sophisticated firms benefitting from a boutique or MM bank.

That's true. There will always be smaller companies needing to outsource to boutique or MM banks.

 

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