The average fee that commercial banks paid to investment bankers dropped from nearly 1% of total deal value in 1993 to roughly haft that much last year, according to statistics compiled for American Banker by SNL Securities.
Investment bankers questioned the statistics but acknowledged that banks are paying less for M&A help than they once did.
As banks' internal M&A staffs grow, they said, more of them are originating and structuring the deals in-house, while investment bankers are relegated to rendering fairness opinions and other end-of-transaction procedures.
As a result those deals, which still include fees to investment houses, may be distorting the average fee as a percentage of the deal price.
Just at Final Stages
"The banks are now doing the schmoozing," one investment banker said. "They then bring in the investment banker to negotiate and help with the final bid."
Another Wall Street investment banker noted that many of the larger banks are using less investment banking help, particularly after having so many deals under their belts.
But for smaller transactions, under $100 million in value, the fees are still closer to 2%, he said.
According to the SNL data, there were 23 deals in 1993's second quarter valued at less than $250 million. The fees in these deals came to almost 1%.
But in this year's second quarter, there were only. three deals of this size, and fees were were much less than 1%. In the first quarter this year there were 19 deals of this size, with fees representing half of 1% of deal value.
In one recently completed transaction, First Albany Corp. was paid $20,000 for its advice to North American Bank Corporation on its sale to Banknorth Group Inc. for $20.6 million.
Goldman Sachs & Co. received $800,000 for its advice to First Park Ridge Corp. on its $80 million sale to First of America Bank Corp.
And then Capital Consultants of Princeton, N.J., received $33,000 for its advice to Unity Bancorp on its $5 million sale to Citizens Bancshares.
Statistics from Securities Data Corp. show that a growing number of banks are completing deals without investment bankers' help. Of 264 deals announced in the first half of the year, SDC said more than 70 percent did not involve an investment banker at all.
One investment banker growled that bankers were losing out if they weren't taking advantage of investment bank services. The inventiveness required to choose and structure the best deals is just not part of the average banker's makeup, he said.
"Somewhere down the line someone whispered in bankers' ears 'Don't get your hands dirty,'" he said. Look at the Money Store, look at GE Capital, look at products like secured credit cards, this adviser said. Financial companies have all carved out high-margin niches in finance and specialty products, while bankers have remained content with the status quo, he said.
But another adviser conceded that the need for investment bankers does diminish as banks grow and accumulate personnel.
Buyers never used outside advisers very much, and the trend is accelerating, according to the SNL statistics. SNL said roughly 20% of buyers used investment banks in 1994, off from more than 25% the previous year.
Banc One Corp., one commercial bank M&A specialist noted, has not used an investment banker for years.
The investment bankers denied that downward pressure on fees, if them is any, could be ascribed to competition.
"It's competitive out there, but I don't think it is any more or less competitive out there than it was a few years ago," said one.
Within three years, however, the number of investment bankers should decrease as the number of thrifts and banks decrease through consolidation, a banker said.
But no amount of competition would allow an investment bank to bring fees down to the level SNL reports, he said, because that would be uneconomic.
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