AT&T deal may yet help more indie M&A shops

October 27, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

AT&T’s audacious $85 billion acquisition of Time Warner may yet help more independent M&A shops. The year’s biggest merger enlisted the services of boutiques Perella Weinberg and Allen & Co, alongside their bigger Wall Street brethren. If it emboldens other chief executives, the likes of Lazard and Moelis should benefit. They could use the help amid a patchy advice market.

Third-quarter results released this week have held up well despite a 22 percent decline in annual global deal volume, according to Thomson Reuters data. Only Greenhill reported a drop in M&A-related revenue from the end of June. It was nevertheless the boutique’s best showing in a while and top-line growth was 52 percent higher than a year ago. Lazard and Moelis, however, experienced little or no growth in merger fees from 2015.

The falloff from a record year of wheeling and dealing has taken its toll. Market values for Lazard, Greenhill and Moelis are each down by at least 10 percent this year. Meanwhile, shares of two of the top three M&A advisers – Morgan Stanley and JPMorgan – are up around 5 percent, while those of the third, Goldman Sachs, are down only slightly. Evercore stock, thanks in part to an industry-beating one-third increase in advisory revenue so far this year, is flat.

An uptick in new deals would help reverse this decline. The impact of merger fees on earnings is, after all, easier to divine than the ups and downs of trading stocks, bonds, currencies and commodities.

This week’s slew of announced transactions, including Qualcomm’s $47 billion agreed takeover of rival chipmaker NXP Semiconductors – which included Evercore, Centerview and Frank Quattrone’s Qatalyst among the list of advisers – is already having an effect. Lazard’s stock, for example, has jumped by almost a tenth since last Thursday’s market close. For investors, a few more mega-mergers could be enough to seal the deal.

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