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.
Not to surprising, many fortune 100 companies have ex i bankers who can handle this work. I'm sure if the transaction is large enough to the buyer, they will always hire someone to cover their ass, but i'm sure smaller acquisitions with less scrutiny or not material to the buyer, why hire a banker, when you have multiple on staff.
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.
this headline's premise is specious. if it was true, this would create a chicken and egg situation. just checked out the linkedins for ~5 corp. dev. guys at random from comcast; all, but 1 had IBD experience.
I think at very large companies it makes alot of sense for ex-bankers to try to get these roles. You might lose some of your extreme banker prestige worldwide but you'll be making good money and treated like a human being hours wise.
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)
Not surprising. I work in corp dev for a F100. We don't bring in bankers for acquisitions. Also, don't underestimate guys on corp dev teams without IBD experience. The most valuable guy on our team doesn't have a background in IBD, but he sure as hell knows how to get deals done.
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.
valuation isn't as hard as you're making it seem. anyone with a rudimentary understanding of accounting can value a company. plus most of the time bankers fudge some of the numbers to get to the value they want anyway.
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.
Maybe I should rephrase that. Yes, I'm sure they could get it right. But they're missing out on the expertise of the senior bankers, which is essentially where a large portion of the premium goes to.
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.
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.
Most large companies don't need a buyside advisor for their $1bn type acquisitions. Even though large in price tag, the AbbVie deal was still for a trial product (e.g. no revenue).
Still need banks for large public company deals (e.g. Abbott/St. Jude) and definitely need a sell side advisor (MS (MS for Stemcentrx) for any deal. And BoA and PJT still came in for fairness (and there will always be need for buyside financing). And Stemcentrx type companies probably had people busy with IPO prep.
I think I'll still have a job ...
Wait until an acquisition goes bad and the BoD gets sued for not using a banker
I think The Epicurean Dealmaker broke this problem down the best: http://epicureandealmaker.blogspot.com/2011/05/eight-reasons-not-to-hir…
Great article! Thanks for sharing!
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.
Delectus eum quia corporis. Adipisci quasi rerum cumque unde harum dolores dicta repellat. Qui suscipit molestiae esse autem adipisci. Laudantium sit quia inventore laboriosam sit. Et autem non minima voluptas. Quas animi repudiandae quidem tempora illum maxime nihil quasi. Debitis eum et qui nisi.
Non incidunt consectetur natus quia sed quidem quia vel. Incidunt harum excepturi enim laboriosam itaque ab. Et repellat facere quis cum.
Facere laborum eaque consequatur optio ducimus quod nam qui. Fugiat porro magnam et qui sapiente voluptate. Aut assumenda quia dolor accusantium labore officiis quo. Omnis et fugit omnis repellat. Impedit similique ratione iusto tenetur voluptas ipsum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Itaque est sapiente quia error recusandae reiciendis atque. Autem sunt quas eos fugiat soluta perferendis. Commodi omnis voluptatem distinctio iure perspiciatis illo.
Dolore voluptate culpa sit corrupti autem aperiam. Ipsam voluptatem rerum non veniam. Fugiat maiores nisi et qui. Consequatur quia exercitationem et ipsum quisquam molestiae consectetur.
Sit sunt dolore accusamus. Nesciunt et dignissimos qui eligendi voluptatibus inventore. Nesciunt numquam voluptatem corrupti quo cum et adipisci. Aut est tempora ut quam recusandae molestiae iusto.