M&A Pros Seeking Other Pastures
As M&A mandates and fees dry up, M&A pros are turning to opportunities that are not specifically deal-driven
April 4, 2008
Freeman & Co. released an oft-cited stat last week, first reported in Bloomberg, that showed M&A fees were down 35% over last year. It doesn't take a Fed Chairman to realize that if this trend continues, jobs will be at stake. Indeed, thousands of jobs in the M&A business have already been cut, and many more have been left wondering where greener pastures lie.
“From the investment banking standpoint, it’s no secret that business is down,” Ron Ainsworth, chief executive officer of Trenwith Group, LLC said, “Last year, [our revenues] were 60% M&A, and that has really fallen off.”
James Kennedy, a former investment banker who is now manager of corporate development for a software firm in Southern California, compares the popularity of investment banking in previous years to the dot-com bubble of the late 1990s. “Everyone was jumping into it,” he says.
If the period that Kennedy describes as “chasing the next gold rush” has waned for M&A dealmakers, then what opportunities are deal pros moving into as the deal landscape continues to worsen?
The answer to that question is difficult to gauge, as it seems lately that professionals are moving in many directions. The most common sentiment is that financial advisers are increasingly moving toward operational capacities or joining boutique banks that service strategic M&A clients. Joe Perella, former head of Morgan Stanley’s investment bank and current head of Perella Weinberg Partners told Reuters that he anticipates demand will grow for independent financial advisory firms.
Meanwhile, a move to private equity may be possible for the bigger names in the space. David Baylor, for instance, previously the chief financial officer and chief operating officer of Thomas Weisel Partners joined Vector Capital, a technology-focused private equity firm, last month, and Bear Stearns' Louis Friedman, the former chairman of M&A at the bank, left to join P. Schoenfeld Asset Management, a merger arbitrage firm, where he'll be charged with building a new alternatives platform.
Meanwhile, investment banking firms themselves will shift into other areas outside of M&A, and it's likely that many employees will simply transition with their respective companies. Ainsworth, for example, said that he has shifted the focus of Trenwith to three areas that he finds to be more profitable, such as corporate finance, including all forms of junior capital; special situations such as turnaround and bankruptcy work; and exploring opportunities in Asia. To this last point, Trenwith announced that the firm was opened a new office in China this month.
He confirmed that generalist deal pros were certain to see a decline in compensation because “[bankers] were earning huge amounts of money on deals that were not sustainable.” He expects some professionals may move into other professional services, such as law, accounting, or other capacities that are not specifically deal-driven.
Michael Lacovara, chief executive officer of Rodman & Renshaw, has emphasized to his team his profound belief that in order for deal pros to remain successful, they must be ready to serve primarily as a source of research and information. He doesn’t believe that there is any future in financial advisers acting strictly as dealmakers anymore.
When asked if this has created a different focus among the professionals on his team, Lacovara responded, “I have created exactly the kind of tension necessary to achieve the results that I want — where people either change, or get out.”
One private equity pro confirms this sentiment, saying, “middlemen are a dime a dozen.”
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