After a summer of credit writedowns that devastated many capital market groups, investment banks face another threat as smaller independent rivals encroach on their share of mergers and acquisitions fees, the Financial News reports
Big banks such as Merrill Lynch, Goldman Sachs and Morgan Stanley have lost market share in M&A fees over the past eight years while boutiques and independent banks have gained.
In the US, this group has increased its market share of merger fees to almost the same level as commercial banks, including JP Morgan, Citigroup and Bank of America 8.4% for the independent and boutique banks, and 8.7% for the commercial banks.
Commercial banks and boutiques have grown their share of M&A fees while investment banks such as Morgan Stanley, Merrill and Goldman have dropped from 30.2% market share of fees in 1997 to 23% this year.
Banc of America Securities analyst Michael Hecht, relying on his estimates and Dealogic statistics, found that boutique investment banks have increased their share of merger revenues from 6% in 1999 to 8.4% of the estimated $24bn (19bn) fee pool this year. And that does not all come from small or mid-cap deals.
Independent investment banks advised on five of the 10 biggest completed global deals this year, including Rothschild and Greenhill’s advisory role on ABN Amro’s $95bn deal with Royal Bank of Scotland and Lazard’s work on the $32bn buyout of Texas electricity utility TXU.
Boutiques have fared particularly well with financial sponsors, which they advised on 36% of their deals this year, up from 4% in 1996, Hecht found.
Many independent investment banks have grown from boutique roots to encompass several businesses. Greenhill includes a private equity, restructuring group and advisory business, and Perella Weinberg Partners has moved into real estate and infrastructure investing. Houlihan Lokey Howard & Zukin linked up with Japan’s Orix last year to have a strong balance sheet behind it.
And boutiques including Evercore have been expanding in Europe and Latin America. Several are public companies, including Lazard, Greenhill and Duff & Phelps.
“These boutiques have grown up and now they are now broad-based financial firms,” says Brian McKay, head of European investment banking for Houlihan Lokey.
Marty Murrer, who left Merrill to help found investment banking firm Sagent Advisors, says, “There has been a substantial migration of talent out of the traditional investment banks into boutiques, so it may be the same people doing business but they’re no longer doing it within large investment banks.”
In Europe, independent firms control more of the market, with an 11.6% share of all revenues. Lazard and Rothschild alone controlled 68% of the boutique market, including $389bn of announced mergers.
Lazard, Rothschild and Greenhill lead the pack. Lazard has the highest share of M&A fees among independent firms, with an estimated $673m over the past 10 years, according to Hecht. Rothschild is close behind with $617m earned in the past decade and Greenhill is in third place with $140m, followed by Evercore with $90m, according to Hecht’s research.