Advantage of seperate M&A product team?
Hi,
Some banks have separated M&A product teams such as JPM/ML/Citi.
Other banks such as GS/Lazard don't...
What are the advantages and disadvantages of these different organizational structure models?
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A lot of people in the industry groups will tell you that they don't even need the M&A people. Afterall, in my opinion, the hardest part of an M&A transaction is initiating it. Once it's rolling the process is relatively simple to execute. Usually the buyer and seller will do a lot of the price negotiation themselves. The buyer, for obvious reasons, likes to play a big role in the due diligence. They know the business they are in, and are probably better at it than any banker out there.
Lots of banks feel the same way about this and have integrated their M&A teams into the coverage groups. To me it makes sense. Other people (mainly those working in M&A) claim they add value to the deal because they are "specialized." I think it has more to do with pride and not wanting to give up the sexy ring of "Mergers & Acquisitions" on their business card.
I believe that in the future you will continue to see fewer and fewer banks with a separate M&A product group. The industry people have a much better understanding of the, well, industry and obviously are more up-to-date with the public comps and recent transactions that have occurred. This makes them a more valuable advisor than someone in a separate M&A group. Plus, consider this....if you spent your entire life building a business, and have developed a trusting relationship with a coverage officer, do you just want to be passed along to someone else in the bank that you don't know when you finally decide to sell it and retire? Probably not, it's much too important of an event for you.
Anyway, sorry for the book. Just my two cents.
I respect streetmoney's opinion, but I disagree with it for a variety of reasons. Take the example of the selling shareholder - if you're selling your company do you really want to leave that in the hands of the RM? He's probably great as a relationship manager, but you'd probably prefer to enlist the guy who fights it out with the other side's M&A bankers for a living.
M&A is a highly technical product area. Some aspects are relatively simple (like tech M&A, or small cap stuff), but there's no substitute for sitting on a bulge bracket M&A floor to get the experience that is a prerequisite for being a high quality senior M&A banker.
Look at the top echelons of any bulge bracket firm. Are any of their top M&A bankers former coverage officers? Not really. Even firms that have [temporarily I'd argue] phased out stand-alone M&A groups rely on bankers raised in those groups, and now still rely on M&A specialists within their coverage groups.
History has shown that it is extremely difficult for coverage bankers to make a transition into an M&A group later in their careers and thrive. With all due respect, I think our coverage bankers are very good investment banking professionals, but for the client's sake none of them should be running an M&A deal without me or one of my colleagues.
Also, why do you think the firms that phased out stand alone M&A product groups will eventually bring them back? Do you find that clients want a separate M&A group?
I know when I was interviewing at Lehman, one of the VPs there mentioned that Lehman restarted their M&A product group because some of their clients felt more secure knowing that the bank had a separate M&A group to handle their transactions.
GenghisKhan, I agree with you that a senior M&A banker may add some value because of their experience, but if the industry groups start closing their own deals they too will eventually have the same set of skills.
I don't necessarily agree that M&A is a "highly technical" product. At least not to the degree that people in other groups couldn't learn it with relative ease. Most of them have at least a little experience with the product already and clearly have the intellectual capacity. Besides, it's not like all the M&A bankers are disappearing...they're just being integrated. The talent/experience is still there to contribute.
Obviously there are arguments for either side. Hence why some banks still have a separate M&A group and others do not. I actually discussed this same topic with an SMD at BSC last time I was there. His thoughts were that although the points you mentioned are accurate, the integrated model seems to be working well for Bear. The bank I work for still has a separate M&A group. They seem to like it that way.
hmm but how about all people who want to do IB, but hate pitching, they alll want to be in M&A product team or LevFin product because of the strong excel modeling skills instead of power point pitching...
Yes, this is interesting, tell me about this... especially the case of GS.. are there any plans for resurrecting the M&A product team? Any insights? GSBanker, ExGSBanker?
Most people hate pitching and want to be in M&A execution product team all their life...
student22, there are advantages and disavantages to working in any product group vs. any industry group. Some people do dislike pitching and so they choose a product like M&A of LevFin. Others, (like myself) enjoy getting a taste of all the different products so I choose to work in an industry. Plus, there is a certain amount of satisfaction that you get when your team wins a deal where you helped develop the pitch. At least I think so. It really comes down to personal preference and everyone has to decide that for themselves.
As to the other part of your question about GS, I can't answer that because I don't work there. Maybe someone else can. Anyways, good topic.
Its unfortunate, but my sense is that your posts indicate a lack of exposure to M&A. IMHO, it is a significantly specialized and technical area (more so than almost any other area of traditional corporate finance), and my experience is that "M&A bankers" see the world very differently than their coverage counterparts, even if there is not a dedicated M&A group.
Take, for example, five M&A deals I've worked on over the past few years: a two-step minority squeezeout that wound up a game of chicken between the buyer and the arbs, a sell side where we had to form private equity consortia immediately after indicative bids, a reverse morris trust, an auction where we wound up with two counterparties after indicative bids (who we played off each other for three months) and a Cross Border M&A deal with significant flowback issues. Each of these needed highly specialized M&A skills to get done and that was reflected in the senior bankers who worked on them.
The only way you develop these skills is by doing deal after deal after deal (I still have a long way to go myself), and that requires focus on the M&A product. You can get that sitting in an industry coverage group (and it is critical for M&A bankers to develop clients as well), but there is value to the osmosis and discipline that exists on the M&A floor.
what do you mean by client skills?
IMHO, in a M&A product team, M&A execution product bankers only execute the deal, explaining the client the progress/procedures and NOT generating any profit by bringing deals into the bank, is this correct?
Why did GS stick to their structure, do you learn the skills better and faster in the JPM M&A execution team or in an integrated environment such as a GS coverage team?
Many senior M&A bankers have excellent client relationships that are often stronger than their coverage bankers, and clients will often think of different bankers for their M&A work (which is more CEO intensive) than their financing work (which is more CFO/Treasurer intensive).
Goldman's coverage groups are broader than most other firms in their scope, and have dedicated M&A bankers within them. The specialization still exists.
Many senior M&A bankers have excellent client relationships that are often stronger than their coverage bankers, and clients will often think of different bankers for their M&A work (which is more CEO intensive) than their financing work (which is more CFO/Treasurer intensive).
Goldman's coverage groups are broader than most other firms in their scope, and have dedicated M&A bankers within them. The specialization still exists.
some BBs have gootten very high-profile M&A deals b/c of senior guys in the group. It's not the coverage officers that lead the group, but the head of the M&A group. Clients have specifically said they hired the bank b/c of senior level experience in the M&A group, not b/c of coverage officers.
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The first group to go when the economy turns south at the end of this economic cycle will be M&A. The best in the standlone M&A group will be integrated back into coverage groups, just something to keep in mind when choosing groups...
Patrick: Really? then I assume you better be in LevFin product team IBD instead of M&A product team IBD.. because in downturn you can change to do restructuring within IBD , wait till the storm passes and go back...
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How can one specialize in M&A at GS?
as a junior banker, you don't
As a senior how can one specialize at GS where there is no separate M&A execution team?
at the banks where there is no M&A group...presumably the senior bankers whose skill sets who are in M&A specialize in the product...remember at one point there was a dedicated product group at most of these banks
almost all banks have senior bankers that are relationship guys and senior bankers that are execution guys...from the largest bank down to the boutiques...however, the overarching 'popular' thing to do currently is to have well-rounded bankers that are good at everything
I'm fairly sure Goldman has a "Merger Leadership" group consisting of senior bankers that help execute. I met one analyst in that group, but he was a 3rd year who had been working there a while, and was invited to join the group by a senior banker. I don't think they take many junior bankers (even associates or VPs).
How do you become senior m&a bankers if you don't train junior m&a bankers? Everybody thinks they know how to do m&a... but really they're usually a bunch of jokers the real m&a guys laugh at behind their backs.
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