Goldman set to lead M&A for 2018 after buyout firms lift business
Boutique banks climbed the ranks of the world’s leading merger advisers, while Deutsche Bank AG dropped out of the top 10. But for all of the shuffling, familiar names remained at the head of the pack.
Goldman Sachs Group Inc., for the second year in a row, is poised to be the top bank for takeover advice -- pushed forward by a strategy of courting smaller clients and buyout firms. New York-based Goldman set out about two years ago to work more closely with private equity firms, and estimates that about 30 percent of the global M&A volume is now comprised of such deals.
“It’s going to continue to stay at a high level for us,” Dusty Philip, who was named co-head of global M&A at Goldman this year, said in an interview about the bank’s work with private equity firms. Goldman’s share of global dealmaking is set to exceed 28 percent this year, up from 26.4 percent in 2017, according to data compiled by Bloomberg as of Dec. 28.
While the firm’s average deal value decreased since 2015, it worked on more transactions. A banker of Philip’s position would normally be flying around the world for big-ticket clients, but more recently he said he’s found himself in Dallas, Atlanta and even Delaware, Ohio, where he helped a mid-sized packaging firm acquire a rival.
M&A Top 10 for 2018
After a strong start to 2018, overall deal volume fell shy of the $3.4 trillion record set in 2007 as large-scale transactions were deterred and a rocky fourth quarter caused many firms to put takeover aspirations on hold. Volume in 2018 has risen 15 percent from a year earlier to $3.1 trillion.
Rising interest rates, political turmoil and whipsawing stock markets are some factors that may slow transactions in 2019. Here’s who is winning and losing in the meantime:
Deutsche Bank Drops Off
Deutsche Bank had a tumultuous year, shrinking its presence and facing the exodus of senior staff such as Charles Dupree, the top M&A banker in the Americas, and global financials co-head Tadhg Flood. Germany’s largest lender is poised to fall out of the Top 10 for the first time since 2002.
A leading lender to buyout firms for deals, Deutsche Bank lost investment bankers in that arena as well. While it was among the top five arrangers of leveraged loans before the financial crisis, it’s at No. 8 this year, data compiled by Bloomberg show.
Other European lenders struggled to gain ground in 2018. Credit Suisse Group AG, immersed in a global turnaround plan for its trading and wealth-management divisions, stood at No. 9 for the second year in a row. Just three years ago, it was among the top five. UBS Group AG isn’t among the 10 biggest M&A advisers, and its total deal value and market share slipped from a year earlier, as investment-bank head Andrea Orcel left to become Banco Santander SA’s chief executive officer. Still, advisory revenue for both firms have risen in the first nine months of the year.
Barclays Tops BofA
In the global shuffle, there’s one European firm that stands out. Barclays Plc has been aggressively expanding its investment bank since CEO Jes Staley -- a former JPMorgan Chase & Co. star -- took over in late 2015. The London-based firm’s share of M&A is about 17 percent this year, up from 13 percent a year ago. It advised on $525 billion of deals, a 50 percent surge from 2017.
“There’s no magic secret to our recent success,” said Gary Posternack, global head of M&A at Barclays Plc. “It’s been a matter of consistently bringing together, in a seamless way, all parts of the firm to help our clients address the strategic and financial issues they’re facing.”
For the second year in a row, Barclays is ahead of Bank of America Corp. on the league tables as the U.S. firm lost bankers, pared back on risk and parted with its top dealmaker, Christian Meissner. Posternack said Barclays has also been landing a larger share of European deals.
“I view the whole notion of a dichotomy between U.S. firms and European firms as a fallacy,” he said. “‘Clients choose their advisers based on the quality of their advice, not based on their domicile.”
Boutiques Gain Share
Evercore Inc. surpassed Lazard Ltd. this year for the first time since 2009. This year, it advised Takeda Pharmaceutical Co. on an $80 billion deal to buy Shire Plc, and worked on T-Mobile US Inc.’s $57 billion agreement to acquire Sprint Corp. Other smaller firms also rose.
‘There’s no question that independent firms as a group are gaining share versus the larger firms. Evercore is benefiting disproportionately from that,’ Evercore CEO Ralph Schlosstein said in an interview. His firm generated more advisory revenue in the first nine months of 2018 than many larger banks, including surpassing Bank of America. He has often said that the fees are a better indicator than the league tables for the success of investment bank, because large firms often get credit for providing financing, rather than advice.
Centerview Partners, the firm co-founded in 2006 by Blair Effron and Robert Pruzan, sits among the Top 10 just by working on a few dozen major transactions, the data show. That includes its work alongside Lazard in Cigna Corp.’s purchase of Express Scripts Holding Co. for about $66 billion. Centerview also worked on a fairness opinion for Sprint.
Some of the largest deals are still pending and face scrutiny from regulators, unions and consumer advocates as they approach completion, when advisers get their fees. That uncertainty and fear of a slowdown in global deals amid escalating trade tensions have pushed the shares of both Lazard and Evercore down more than 39 percent from their record highs earlier this year.
Evercore’s pipeline provides ‘no indication of a slowdown in M&A activity,’ Schlosstein said. ‘Investors are worried about future M&A activity, but our backlogs don’t substantiate that thought.’
Private Equity Push
For Goldman, the push to court private equity firms as well as work on smaller deals is a hedge against big-ticket transactions falling apart. Lazard also has a large middle-market business, while JPMorgan, Wells Fargo & Co. and Bank of America have been focusing on small companies in America’s heartland, particularly.
Buyout firms raised record sums in recent years and have been waiting for equity valuations to dip. The big hurdle to a buying spree next year: High-yield loan markets, where debt is often raised to finance acquisitions, have been drying up. Still, banks see plenty of opportunity in advising on IPOs and deals among portfolio companies, and Goldman’s Philip cited a bigger push into acquisition financing, long a focus for David Solomon, who rose to CEO this year.
“There’s a huge amount of liquidity in that space, and while the financing markets for now have gotten choppy, they’re not going to stay shut for next year,” Philip said. “You’ll have slightly more expensive financing for private equity but a cheaper market.”