Get Inspired: Bankers’ Creative Solutions to Overcome the M&A Fee Drought

Title: The Evolving Landscape of Investment Banking and Advisory Services

Introduction:
In the ever-changing world of investment banking, large mergers and acquisitions may be on the decline, but entrepreneurial investment bankers are finding new ways to stay relevant and collect fees. While selling transaction advice has traditionally been a lucrative business, the competitive market and erratic trading conditions have pushed banks to explore alternative revenue streams. This article examines the emergence of advisory services and how investment banks are adapting to offer unique insights and decision support to their clients.

1. The Changing Face of Investment Banking:
– Despite the decline in large-scale deals, investment bankers continue to seek opportunities to generate fees and secure their jobs.
– The fierce competition in the market requires banks to differentiate themselves and offer value-added services beyond traditional transaction advice.
– Investment banks are exploring new areas such as sustainability advisory services, shareholder advisory services, and geopolitical expertise to stay relevant.

2. Sustainability Advisory Services:
– With an increasing focus on Environmental, Social, and Governance (ESG) factors, investment banks like Houlihan Lokey are launching sustainability advisory services.
– These services provide insights and decision support that impact valuation, diligence, transaction structuring, and monitoring across the global ESG spectrum.
– While these services may not generate substantial immediate revenues, they aim to help banks build long-term relationships with clients and position themselves for future lucrative deals.

3. Shareholder Advisory Services:
– Traditional investor advocacy groups have transformed into shareholder advisory services.
– These services help companies engage with major index fund managers like BlackRock and develop strategies to navigate challenges posed by activist investors.
– By offering specialized advice and support, investment banks aim to assist clients in managing shareholder relationships and protecting their interests.

4. Geopolitical Expertise:
– Wall Street firms are increasingly offering geopolitical expertise to their clients.
– By analyzing global political landscapes, banks can help clients understand potential risks and opportunities in different markets.
– Geopolitical advice gives banks an added edge in providing comprehensive guidance to clients, particularly in complex cross-border transactions.

5. Structural Changes in Corporate Lending Markets:
– Investment banks are also adapting to changes in corporate lending markets.
– Private lending firms like Ares Management and HPS Investment Partners are increasingly financing acquisitions or refinancings, replacing traditional syndicated loans.
– Independent banks charge fees for processing private loans, which can be comparable to the fees generated from M&A transactions.
– This shift opens new revenue opportunities for investment banks and highlights the need for adaptable strategies in a dynamic market.

Conclusion:
In a market where large mergers and acquisitions may be on the decline, investment banks are reinventing themselves to remain relevant and generate fees. Advisory services, such as sustainability advisory, shareholder advisory, and geopolitical expertise, offer banks new avenues to provide value-added insights and decision support to their clients. By diversifying their offerings, investment banks aim to strengthen relationships, remain informed about market trends, and position themselves for future deals. Despite the complexities and competition, there is no shortage of professionals willing to offer specialized advice and guidance, demonstrating the ever-evolving landscape of investment banking.

Summary:
The investment banking landscape is evolving as large mergers and acquisitions decline. However, entrepreneurial investment bankers are finding new ways to generate fees and stay relevant. Advisory services, such as sustainability advisory, shareholder advisory, and geopolitical expertise, offer banks opportunities to provide value-added insights to their clients. By diversifying their services, investment banks aim to strengthen relationships, remain informed about market trends, and position themselves for future deals. As the market becomes more competitive, bankers must adapt to new revenue streams and offer specialized advice to differentiate themselves in the industry.

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Dear reader,

Large mergers and acquisitions have largely caused missing in 2023. That hasn’t stopped entrepreneurial investment bankers from trying to collect fees (any fees) in hopes of keeping their jobs.

When the market is humming, there is no better business in banking than selling transaction advice. A handful of spreadsheet wizards along with a lone rainmaker can easily generate a $10 million, $20 million, or $30 million success fee with little capital investment other than pay. The latter is mainly a fixed cost for junior staff.

The problem, of course, is that not only is the trading market erratic, but those returns also make it intensely competitive. All types of companies, large and small, try to sell more or less the same product. There are many ways to structure a purchase or merger. Most CEOs and CFOs will tell you that the stream of New York bankers who make a twice-yearly pilgrimage to their company headquarters basically look the same after a while.

Enter the “[official-sounding finance term] advisory service.” Last week I received a message in my email inbox from Houlihan Lokey, best known for providing unbiased opinions and other formalistic corporate valuations. He also represents distressed debt vultures struggling with companies in trouble. issues.

According to the message, Houlihan is launching a “sustainability advisory services” practice that will “provide our clients with the best insights and decision support that will impact valuation, diligence, transaction structuring and monitoring across the spectrum.” “global ESG”.

The barbarians gathering at the gate are not.

In previous incarnations, most investment banks formed investor advocacy groups to develop strategies that could fight people like Elliott and Carl Icahn. Now these have morphed into simpler “shareholder advisory” services designed to help companies engage with major index fund managers like BlackRock. Geopolitical experts are also increasingly available to Wall Street firms.

The puzzle is that the true “masters of the universe” do not particularly want more bodies involved that then dilute their bonuses. These nascent “product” groups offer advice that is sometimes far removed from buying and selling transactions. Its modest economy suggests so; maybe a six-figure retainer for a year.

Still, it aims to help banks remain relevant to bosses and directors and keep them well informed about what’s happening in the world. The hope is that when a company is ready to make a big deal, where real money is changing hands, the bank will have a big payoff in mind.

Bankers fighting over who gets credited a commission is nothing new. It’s similar to journalists fighting over whose name should appear first at the top of an article. However, the current calculation is more complex with so many hungry mouths to feed. Varying degrees of proximity and influence decide what kind of returns a bank generates.

Interestingly, a banker at an advisory boutique told me that one new area that has shown promise is taking advantage of structural changes in corporate lending markets. Private lending firms such as Ares Management and HPS Investment Partners are increasingly financing acquisitions or refinancings. These replace traditional syndicated loans arranged by balance sheet banks such as JPMorgan Chase.

Independent banks charge a fee for processing a private loan. Fees for helping close a debt deal of a few hundred million dollars may be in line with what an M&A transaction of the same size would produce.

Perhaps the job of running a company as a boss or director will be more complicated than ever in 2023. The good news is that there is no shortage of bankers, lawyers, consultants or public relations people willing to help you by providing esoteric and personalized advice. But of course only for a fee.

Elsewhere on Wall Street

I took a look at the M&A bailouts of major banks this year, including the supposed deal of the century (UBS’s bailout of Credit Suisse) for the Financial Times. Alphaville Blog.

Thank you for reading,

Sujeet Indap
Wall Street editor

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