Bulge Brackets chasing MM fees
What’s your thought on the dynamic of bulge brackets moving into middle market territory?
Overall fees to the street have been declining YoY and EBs are gaining market share in the M&A world (particularly large cap deals). This is forcing BBs (GS, JPM, Baml to name a few) to enter the traditional middle market territory. Some have even opened up entire divisions focused on MM (why not just consolidate them into the same team?).
Is this temporary until fees rebound? Will the likes of HW, Baird and William Blair hold on to their share? Are bonuses screwed?
Big banks announce this type of stuff every few years, will amount to nothing. Plus who would want to go to GS from a boutique and work on small deals. Much better at a boutique working on mid-market deals. Nothing to worry about.
“who would want to go to GS from a boutique and work on small deals“
GS just started their cross market group focusing on $500mm-$2bn deals I wouldn’t call this ”small”. (But at the same time $1bn+ doesnt sound like a MM deal to begin with)
If I’m an analyst working at HW/WB/HL/RJ if the new groups at GS are legit I’d def consider it.
I think it would still serve analysts or associates well to work on these middle market deals in one their regional offices. Still have the GS brand regardless of the deal size.... just my opinion tho
This happens a lot in tech where BBs go after MM companies because they think they will be worth billions in the future and want to develop a relationship early on for a potential future IPO or M&A or capital raise opp.
It used to not be worth it for a BB to chase those smaller fees because large-deal advisory fees and especially lending fees were plentiful enough that it made sense for management to be 100% focused on building those platforms.
Now with a decade of cheap capital behind us and no end in sight, the economics may be different. First of all cheap capital means narrower spreads and smaller profits for the lending operation, which reduces its place as a strategic priority and leaves some available management focus for new areas like MM. Second, cheap capital makes it cheaper for the BB to chase projects (like building a MM platform) that might not have been as attractive back when capital was expensive.
That's all a bit speculative on my part, but fact that GS seems to have committed heavily to it is a signal of a long-term trend because IMHO GS has always been more long-term oriented and don't have a history of just dipping their toes into things because of market conditions.
So to the extent this is a more permanent development, which I think it is somewhat, that's not great news for Blair, Baird etc. They'll be fine, I don't think its a sea change, but they'll have a few more competitors and lose some share.
I think one thing people forget is that even the banks that aren’t particularly focusing on MM deals still do smaller deals. Take the top M&A groups for example, they still work on deals below $500MM if the large fee is there. Healthcare deals for example are sometimes small but have high fees ($150-400MM range)
Don't forget OP that this occurred in the mid-2000s. Citi, JP, GS and probably others built up MM divisions/groups in Tier 2 finance cities (i.e. Dallas) and did well for a number of years before things blew up. Those divisions were quickly disposed of once deal flow dried up.
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