Interesting insights from the high-paced and high-fee world of investment banking. But is it so high-fee after all? The ABN Amro - Barclays merger suggests that banking mergers result in much lower fees for investment banks compared to industrial M&A activities, but the end-game involves much more. Bloomberg reports:
Bankers hired for the proposed merger of Barclays and ABN Amro may share about $100 million for what would be the biggest marriage in financial services based on comparable fees from previous deals. That's about one-third less than advisers charged last year for AT&T Inc.'s $73 billion purchase of BellSouth Corp., estimates compiled by New York-based Freeman & Co. show.
``Financial institutions understand particularly well the fee world because they live in it,'' said Frederick Lane, a founding partner and chairman of Boston-based investment bank Lane, Berry & Co. and a former co-head of mergers at Donaldson, Lufkin & Jenrette Inc., which Credit Suisse Group bought in 2000. ``They know what they should be paying.'' <..>
``It may not be the same profit margin as many other deals, but it's not bad business if you can get it,'' said Scott Moeller, a professor specializing in M&A at City University's Cass Business School and a former adviser at Morgan Stanley and Deutsche Bank. ``There are the bragging rights from working on that particular deal given how large it is.''
The banks can use the league-table credit to win other assignments, said Teck Tjuan Yap, a managing director at Freeman in New York. Share sales in Europe typically command fees of 2.3 percent and fees from debt offerings average about 1.6 percent for high-yield bonds, according to Bloomberg data.
Citigroup, Deutsche Bank, ING Groep NV, JPMorgan and ABN Amro advised buyout firms, including Thomas H. Lee Partners LP in Boston and Kohlberg Kravis Roberts 'n' Co. in New York, on their 8.9 billion-euro leveraged takeover of Dutch media company VNU Group BV last year. They also arranged the financing package, which included a $5.17 billion term loan in euros and dollars, a $688 million revolving credit and $2.4 billion of bonds. <...>
Citigroup's Biglari advised NYSE Group Inc. CEO John Thain last year on his successful bid for Euronext, Europe's second- largest stock exchange. TCI, led by Chris Hohn, had favored an alternative approach by Deutsche Boerse AG.
Boards retain external advisers to ``demonstrate to shareholders that they have looked at the deal with an independent view,'' said Moeller of Cass Business School. <...>
Hiring multiple advisers shrinks the pool of potential rival bidders for ABN Amro. Citigroup, the biggest U.S. bank, joined the list advising Barclays on March 28, squashing speculation that the company would make a counteroffer.