The slowest start to closing transactions in a decade is expected to lead to further consolidation in the investment banking industry as more boutiques and brokers are snapped up by bigger players.
Higher interest rates and a transatlantic banking crisis choked M&A in the first quarter, cutting the value of transactions nearly in half, according to data from Refinitiv.
The decline extended a downturn that started last year and stands in stark contrast to 2021, when booming stock markets and pandemic stimulus drove M&A activity to a record high.
Mizuho and Deutsche Bank have benefited from the drought of recent weeks by buying ailing US investment bank Greenhill & Co and struggling UK broker Numis, respectively.
While specific factors played a role in each transaction — Numis, for instance, has been hit hard this year by the near disappearance of IPOs in London — bankers say if the broader background remains grim, more acquisitions are likely to occur among companies whose lifeblood advises on deals.
“It’s a much tougher year, so if someone offers you a good solution with good economic numbers, people may be tempted to sell,” said a financial banker at a boutique firm.
At the same time, larger banks are sitting on profits fattened by rising interest rates over the past 18 months and have an opportunity to diversify their earnings by strengthening their investment banking or asset management businesses.
“There are other integrated banks that I think are looking at the market opportunistically,” said Nick Millar, general manager for financial institutions at Lazard, referring to large banks with multiple business units.
Deutsche Bank said the £410m purchase of Numis at the end of April was part of an effort to bolster its investment banking business in anticipation of a recovery in mergers and acquisitions in coming years. Germany’s largest bank offered a 72 percent premium to the Numis share price, which plummeted last year.
Japan’s Mizuho, meanwhile, is betting that its $550 million acquisition of Greenhill, one of the first M&A boutiques to go public, will help it expand its investment banking business in the US. One of Japan’s largest banks agreed late last month to pay more than double for a share price that had fallen about 80 percent from a recent high in 2018.
Rival Daiwa Securities said last week it would consider acquiring boutique M&A firms.
“Volumes have been subdued for a while,” said Matt Moon, a KBW analyst who covers US boutique advisories. “I do think the smaller private boutiques are definitely in a position where they would consider selling themselves.”
Smaller boutiques focused on providing advice in sectors such as technology and private equity may be attractive as buyers expect an eventual uptick in deal closing, bankers said.
Sales may also appeal to consulting firms that are doing better as they look to accelerate expansion plans. Last month, Italy’s Mediobanca closed a deal with London-based Arma Partners, a company focused on the technology sector.
“Arma has just completed three record years and is on a record pipeline. It’s more about building more, faster, which we can’t do alone,” said Arma’s founder and managing partner Paul-Noël Guély, a former senior banker at Goldman Sachs. “In the United States, we plan to do business with the help of Mediobanca and the firepower of Mediobanca.”
While the tougher conditions suggest more deals are likely, bankers say more successful companies, including boutiques, will also try to expand by shelling out key personnel.
According to people familiar with the matter, Moelis & Co, the Wall Street firm founded by veteran dealmaker Ken Moelis, has hired about a dozen tech bankers from the bankrupt Silicon Valley Bank, reducing the need to call a takeover. doing.