Change Is In The Air

By Kelly Holman, M&A Magazine

November 10, 2008

Change is a word that can encompass a lot. It served as the basis of a slogan that helped propel Barack Obama to President-elect and soon to be the nation’s next Commander-in-Chief.

It’s also what has swept across Wall Street since the housing finance market collapsed last summer, spurring the credit markets to freeze over. The collapse of Bear Stearns, Lehman Brothers and the transformation of large investment banks into bank holding companies altered, without question, the deal advisory business. The ranks of investment bankers at flagship banking houses that brokered transactions have been winnowed in short order.

With change, though, comes opportunity.

For independent M&A advisory firms—a tier of investment banks that have been overshadowed by the bulge bracket for the last several years—there’s a bright spot in the whole mess. These M&A shops haven’t just held their own during the credit crunch as larger domestic and foreign banks have written down billions in debt, some have taken strategic steps like expanding their operations to capitalize on the market dislocation. For instance, New York’s Greenhill & Co. launched a new office in Chicago earlier this month to serve industrial clients and Midwestern businesses, while Moelis & Co., a Los Angeles and New York-based firm established in 2007 by former UBS and Donaldson, Lufkin & Jenrette veteran Ken Moelis, has opened a new office in London.

There’s concern, of course, that the boutique banking business will suffer a decline in advisory fees as M&A processes get put on hold because of the liquidity crisis and economic downturn. But, in the meantime banker talent displaced by mass layoffs on Wall Street has already started making up the personnel infrastructure within some non-bulge bracket investment banks. Watch Hill Partners, a New York boutique investment bank, has a former Merrill Lynch financial sponsor banker and an ex-Lehman dealmaker. And, as Robert W. Baird & Co. chairman Paul Purcell recently told Mergers and Acquisitions sister publication IDD magazine: “the difficulties felt by bulge-bracket competitors have led to a recruitment goldmine.”

A Milwaukee, Wis.-based firm, Robert W. Baird has opened an office in Charlotte, N.C., hiring a pair of former Wachovia M&A veterans to bolster its corporate advisory business in the Southeast.

It’s anyone’s guess now how it all plays out in the M&A league tables. Goldman Sachs, of course, will retain a top slot in the year and continue grabbing large cap mandates but it could find itself facing more intense competition from groups like Houlihan Lokey and Jefferies & Co. or others such as KPMG Corporate Finance. Unlike the bulge brackets, this class of corporate advisors is well positioned to tackle a slew of new assignments once the merger market rebounds.

I’m not saying it will be the end of travails for the middle market, but the idea of new opportunities in the wake of change might just not be a bad place to start looking for a new source of optimism.

Kelly Holman
Kelly.holman@sourcemedia.com