I just finished reading "The Accidental Investment Banker", and for those of you who haven't read it (spoiler ahead, I suppose), the main premise is how investment banks cannot really be trusted by corporations anymore for unbiased and objective advice. Knee talks about the loss of the "relationship banker".
So my question is, why don't these corporations just hire their own individuals to complete M&A advisory services? This would eliminate the conflict of interest regarding the desire to complete as many deals as possible, and they could have an individual that solely focuses on their company and its prospects.
I realize this may be a totally ignorant question, but I was just wondering and had to ask.
Yes, bigger corporations that do a lot of M&A have in-house departments.
M&A bankers still have value though. In-house departments won't give you all the expertise you might need, for instance, if a particular tax issue comes up.
The central irony of the industry is that the bankers that have EXPERTISE (meaning they've done lots of deals) have the most CONFLICTS (because they've done lots of deals -- for everyone and their competitors).
From the client's perspective, they just have to understand that their bank is biased and conflicted, and get used to it. (there's a quote floating around, I can't think of it just now).
Thanks.
If you don't mind me asking, what is the compensation like for M&A at an in-house dept. of a large corp.? Are the hours the same? Is the job just as hard to get as being hired for M&A by a Wall Street firm?
My hunch is that it's a more selective group that doesn't recruit a lot of entry level people (if any), thus harder to get in.
Probably reasonable corporate hours, and less compensation. You're not generating fees for the company. The compensation has to be enough to retain good talent, but you're not going to see the same level of bonuses as Wall Street sell side.
I'm actually meeting with a former CFO of a large Fortune 500 sometime within the next month, who did a lot of buy-side M&A in his day. I'll see if I can get further insight.
IB's are first and foremost securities dealers. They do more than just assign a floor value, but also help on the financing side whether all-cash via debt issuance, stock-for-stock, or cash/stock. Partial and full stock swaps always require a dealer agent, cash via debt issuance requires syndicated loan depts. and strong bond desks, to help raise funds from the capital markets.
For transactions involving stock swaps with volatile stock prices on the target and buyer side, IB's add much value when arranging earnouts and other contingent forms of payment which often depends on stock prices after closing.
They also do a much better job in organizing auctions, driving up the purchase price by enticing strategics and financial buyers to overpay, and also arranging financing for the participants. Corporate development departments just don't have these resources, other than spotting targets, valuation, and maybe strategic due diligence.
Last, because securities are involved, any securities transfer/exchange such as stock swaps or buybacks require a certified securities dealer, SEC & FTC approval, most of which corp dev. just cannot provide.
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