Upstart M&A boutiques earn place at fee table
By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Upstart M&A boutiques are eating from Wall Street’s table. Two newish shops — Blair Effron’s Centerview and Frank Quattrone’s Qatalyst — helped Motorola Mobility strike a deal to sell itself to Google for $12.5 billion earlier this week. Along with two other firms opened over the last five years by Ken Moelis and Joseph Perella, this quartet is gnawing at the fee pool of big investment banks.
It wasn’t always clear there would be enough work to go around. In the aftermath of the crisis, flocks of bankers either went solo or joined veterans like Bob Greenhill and Roger Altman, who had done so years before. Effron, Perella and Moelis — who started their boutiques in 2006 and 2007 — had a head start on the 2008 crunch, enabling them to woo disenfranchised colleagues with the promise of independence and equity stakes. Meanwhile, Quattrone’s return to the industry in 2008 neatly coincided with resurgent demand for his Silicon Valley M&A expertise.
Global merger activity plunged from over $4 trillion in 2007 to about $2 trillion two years later. But the four relative newcomers are claiming their share. According to Thomson Reuters data, which double-counts deals involving more than one firm, they have advised on nearly $900 billion-worth of transactions since 2006. That’s about 5 percent of the worldwide volume over that span. Based on estimates by Freeman & Co using publicly disclosed figures, Centerview, Perella Weinberg, Moelis & Co and Qatalyst have pocketed a combined $1.3 billion of merger-related fees over five years.
The likes of Lazard, Evercore and Greenhill have picked up market share, too. It couldn’t be happening at a worse time for Wall Street’s giants, either. Their trading and lending arms are struggling, so even a modest loss of business on the advisory side stings.
But specialized M&A firms weren’t besieged during the crisis in the way mortgage bond trading behemoths were. Corporate boards are also sensitive to conflicts of interest when hiring advisers. And it helps the independent players that acquirers like Google are sitting on hoards of cash that lessen the appeal of the lending and capital-raising promised by bigger banks. With those factors in place, Effron, Quattrone, Moelis and Perella shouldn’t have much trouble keeping their firms nourished.