Some M&A bankers are having a busy 2018. In Europe, the Middle East and Africa, the value of M&A deals was up 50% on 2017 in the first half of the year, helped along by big deals like Bayer's $66.3bn acquisition of Monsanto.
When you work in M&A, big deals don't necessarily translate to big fees. While deals were up 50%, M&A fees were up only 18% and Dealogic says banks' EMEA M&A revenues were up only 5%. Something got lost in translation.
In an article on the nature of the M&A profession, the Financial Times observes that M&A fees are tiny as a proportion of deal value and that the final payment for the deal covers long years of hand-holding ahead of it. 'The average fee for selling a company worth between $10bn and $25bn is about 0.3%, and can cover years of unpaid work," says the FT. This isn't to say M&A bankers aren't doing ok: in the case of Fox's planned $71bn asset sale to Walt Disney, Goldman Sachs bankers alone earned fees of $58m. Not bad for a bit of advice.
How is that M&A fees haven't been squeezed lower? Blame the febrile atmosphere in which M&A deals take place. The FT quotes a banker who says he and his contemporaries are like surgeons wheeling patients onto the operating table: the patient needs the best possible treatment and is in no position to quibble on fees. It helps too that the fees are paid with other people's money - the acquiring company covers them in the asking price, and a few million is usually inconsequential.
How is it too that M&A roles haven't been split into routine tasks and automated away? While this is happening with pitch-books and valuations at the junior end, the FT notes that senior bankers have a human factor that's worth millions in the fraught conditions of a billion dollar company sale: 'The senior banker’s tone of voice conveys a mixture of financial advice, human judgment and comfort.'
If you work in M&A - more than any other area of banking - you therefore need to stick around for the long term. Only as an MD are you really adding value, and only as an MD will you therefore get paid really big money. And at this point, you might want to make the most of your accumulated assets. "The boutiques are full of guys cashing in at the end of their careers,” one M&A banker tells the FT. It helps that leading boutiques like Robey Warshaw charge the same fees as banks, but with a far lower cost base. Some M&A bankers in big banks get a bit "sniffy" about this. Others are happy to see their counterparts monetizing their assets at 'advisory kiosks': "They get a bit of a free ride," the big bank M&A banker says.
Separately, last year's bonuses at Goldman Sachs continue to cause problems. Following various exits from the London rates and equity derivatives teams, in which poor bonuses were held partly to blame, Zerohedge says recent modest bonuses also precipitated exits from Goldman's high yield desk. One of those to quit was Sam Berberian, a 32 year-old high yield trader who's gone to run junk bond trading at Citi. It's not clear whether Berberian's exit was impelled by his bonus or the prospect of a bigger title elsewhere.
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