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Credit Suisse First Boston Corp., Merrill Lynch & Co. and Goldman Sachs & Co. were in a league of their own as M&A advisors to financial services companies during the first half of 2000. Each advised on deals worth more than $20 billion. Lehman Brothers, which finished fourth, was well behind the top three, having advised on $6.2 billion in deals. The rankings are supplied by Sheshunoff Information Services, an affiliate of U.S. Banker.
But Keefe, Bruyette & Woods, the New York-based boutique, made a strong showing, coming in fourth with $5.4 billion of deals under its belt. Keefe had to work extra hard for its share of the pie because its deals were relatively small, averaging $258 million while the average deal for each of the top three were well into the billions.
That doesn't mean the big guys didn't have to work hard either, especially CSFB and Merrill, which advised both winners in the bitter battle over who would acquire Wachovia Corp. First Union or SunTrust. Ultimately, First Union won out. That thrilled First Union CEO Ken Thompson and Wachovia CEO Bud Baker, and made their respective advisors, Merrill and CSFB, a lot richer.
But poor Goldman Sachs. It advised loser SunTrust and ended up getting little for its time and trouble. Investment bankers get paid to get the deal done and if a deal falls through, as SunTrust's did, so does the compensation. That arrangement, "provides the right kind of motivation," says Gregory Fleming, who co-heads the global financial institutions investment banking group at Merrill Lynch. Merrill advised First Union and walked away with a pocket full of dough. "We put our hearts into it, we got wrapped up in it. We'd been living the First Union-Wachovia deal day in and day out," he says.
Despite Goldman's failure with SunTrust, it managed to make money advising Grupo Financiero Banamex-Accival in its $12.5 billion sale to Citigroup. Citigroup, naturally, tapped its Salomon Smith Barney unit to advise it on the deal. (When an investment bank advises on a deal for an affiliated company, the figures are not included in the Sheshunoff rankings.) Apart from that transaction, Salomon's advised on deals worth $1 billion.
In addition to working with Wachovia on its sale to First Union, Credit Suisse First Boston advised another target company, Dime Bancorp, on its sale to Washington Mutual. That was a $5.1 billion transaction. "We have a big footprint in the business and expect to maintain a leading market share," says Richard Barrett, managing director and head of the financial institutions group at CSFB, which regularly finishes at or near the top of the heap.
The biggest surprise was the steep fall taken by J.P. Morgan Chase & Co., which plummeted to 21st place, from No. 2 in the first six months of 2000. This year it advised on only one deal, representing First International Bancorp in its $78.5 million sale to United Parcel Service. In the first half of 2000, it advised on 3 deals worth $5.2 billion.
Advising on the big deals is what put the winners in the top spots. But such deals were fewer than they had been in the past, and M&A advisors competed desperately for business they might not have cared about in previous periods.
"This is a very, very competitive business," says Andrew Senchak, vice chairman and head of investment banking at KBW. "Relationships are important, but they are more fluid nowadays. Those bigger than we are trying to get our clients, and those smaller are trying to move up and push us out," he says. KBW advised on by far the largest number of deals 21, with a total value of $5.4 billion. The company is already well ahead of its pace for all of last year, when it advised on 19 deals with a value of $3.1 billion.
Senchak points to KBW's deep customer base of mid-size banks. "We're not counting on just a few big deals," he says. Banks seeking advice come to KBW "when they can't be certain of the service they'd receive from the bulge bracket advisors," he says. In terms of research and analysis, "we're as good as those that serve the bigger banks," says Senchak, whose firm focuses exclusively on financial services companies.
In contrast, Merrill as everyone knows acts as advisor for the entire spectrum of industries, and Fleming contends that such breadth helps in a period in which there's a lot of cross-industry activity. "There's going to be a lot of consolidation across previously distinct business lines," he says. Fleming thinks much M&A business in the future will be acquisitions by banks of asset-management and insurance companies. Merrill has been doing its homework in these areas, he says. "We're not a hundred percent in absolutely everything," he adds, "but we're strong in many, many areas."
Lehman Brothers, which is much smaller than Merrill, shares its game plan. "With regards to the largest banks, we are adding value in new areas non-depositary areas, such as insurance and asset management," says David Sherwood, who heads Lehman's global financial institutions group. Lehman, he says, has hired "top-notch research analysts, people who know these areas."
Meanwhile, Barrett of top-ranked CSFB says his firm "saw the trend toward restructurings earlier than the competition." As to the future, he says deals are going to be more complicated. It will not be a matter simply of deciding "who gets to be chairman of a merged company." The new environment will favor companies like his, which have the necessary skill sets, he says.
Indeed, investment bankers tend to sound like boxers before a big fight, each boasting of its muscle and telling how well they're prepared.
Merrill's Fleming: "You can't sit there and wait for the big deal to be announced." As Sherwood of Lehman puts it: "We don't stop living and breathing between transactions, our relationship is ongoing never underestimate the importance of the relationship."
Many banks clearly are fine-tuning or retooling their operations, which creates fodder for the investment banking mills. Examples include Mellon's recent sale of its retail franchise, and Huntington Bancshares' pending sale of its branches in Florida. These banks are "taking their franchises in specific focused directions," says Mark Burton, head of U.S. financial institutions at Lehman. Burton predicts there might be one more wave of mergers between big banks or thrifts, but that most M&A activity will take place among financial institutions with assets of $500 million to $3 billion "roughly speaking."
One of the brighter spots on the horizon is cross-border deals, particularly between European and U.S. banks. Lehman's Sherwood predicts it will be European banks that do the targeting, perhaps along the lines of Royal Bank of Scotland's purchase of Citizens Financial Group of Providence, RI, some years ago, and Citizens recent purchase of Mellon's retail business. "We think it's an emerging trend," says Sherwood.
Barrett of CSFB also sees great prospects overseas. He contends there's a "continued demand for scale" especially by European banks.
Companies like to do deals when the economy is on the upswing and prices are high, and neither is the case today. But while low prices and a slow economy will depress M&A activity, it may also prompt some companies to bail out and seek a merger partner.
Top Financial Advisors 2001 Bank and Thrift Mergers, Ranked by Announced Deal Value. Through June 30, 2001 (Excludes Hostile/Unsolicited & Terminated Deals.) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) Did not respond to survey (2) Value not available for at least one deal (3) Includes Trident Securities and The Wallach Company, subsidiaries of McDonald Investments (4) Includes Donaldson Lufkin & Jenrette Securities, a subsidiary of Credit Suisse First Boston Corp.
* Does not include advisory role on Citigroup-Banamex deal.
Source: Sheshunoff Information Services Inc., Austin, Texas, a subsidiary of Thomson Financial Corporation
To be added to the survey list, please call Jim Bradshaw at (512) 305-6561
Top Financial Advisors 2001 Thrift Mergers, Ranked by Announced Deal Value. Through June 30, 2001 (Excludes Hostile/Unsolicited & Terminated Deals.) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) Did not respond to survey (2) Value not available for at least one deal (3) Includes Trident Securities and The Wallach Company, subsidiaries of McDonald Investments (4) Includes Donaldson Lufkin & Jenrette Securities, a subsidiary of Credit Suisse First Boston Corp.
* Does not include advisory role on Citigroup-Banamex deal.
Source: Sheshunoff Information Services Inc., Austin, Texas, a subsidiary of Thomson Financial Corporation
To be added to the survey list, please call Jim Bradshaw at (512) 305-6561
Top Financial Advisors 2001 Bank Mergers Ranked by Announced Deal Value. Through June 30, 2001 (Excludes Hostile/Unsolicited & Terminated Deals.) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) Did not respond to survey (2) Value not available for at least one deal (3) Includes Trident Securities and The Wallach Company, subsidiaries of McDonald Investments (4) Includes Donaldson Lufkin & Jenrette Securities, asubsidiary of Credit Suisse First Boston Corp.
* Does not include advisory role on Citigroup-Banamex deal.
Source: Sheshunoff Information Services Inc., Austin, Texas, a subsidiary of Thomson Financial Corporation
To be added to the survey list, please call Jim Bradshaw at (512) 305-6561