Boutique Firms Grab Record Share of European Merger Advice Fees
Boutique Firms Grab Record Share European Merger Advice Fees
Antoine Antoniol/Bloomberg
Pedestrians pass the Rothschild & Cie headquarters in Paris.
Pedestrians pass the Rothschild & Cie headquarters in Paris. Photographer: Antoine Antoniol/Bloomberg
Boutique Firms Grab Record Share European Merger Advice Fees
Antoine Antoniol/Bloomberg
BNP Paribas SA and Lazard Ltd. are advising Vodafone.
BNP Paribas SA and Lazard Ltd. are advising Vodafone. Photographer: Antoine Antoniol/Bloomberg
Boutique Firms Grab Record Share European Merger Advice Fees
Fabrice Dimier/Bloomberg
Rothschild is advising the French media company on its $11.3 billion purchase of Vodafone’s stake in SFR, France’s second-largest mobile phone network operator.
Rothschild is advising the French media company on its $11.3 billion purchase of Vodafone’s stake in SFR, France’s second-largest mobile phone network operator. Photographer: Fabrice Dimier/Bloomberg
Vivendi SA (VIV) and Vodafone Group Plc (VOD) agreed on more than the price when they engineered the biggest takeover of a European company this year: They both turned to independent firms for advice.
Rothschild is advising the French media company on its $11.3 billion purchase of Vodafone’s stake in SFR, France’s second-largest mobile phone network operator. Lazard Ltd. (LAZ) and BNP Paribas SA are advising Vodafone.
European companies are increasingly favoring independent advice, helping Lazard, Rothschild and Perella Weinberg Partners LP grab a record share of merger advisory fees in Europe. The firms accounted for 37 percent of fees in the region last year, earning about $2.2 billion, according to New York-based research firm Freeman Consulting. That’s up from a 26 percent market- share in 2008 and 30 percent in 2009, the data show.
“There has been a pendulum swinging back to advisory-only firms,” Robert Leitao, Rothschild’s head of U.K. Global Financial Advisory, said in an interview in London before the Vivendi purchase was announced. It’s “been accelerated by the unraveling of the crisis and the fact that there are stresses and strains within the universal banking model, which aren’t always client friendly.”
Solange Maulini, a spokeswoman for Paris-based Vivendi, and officials at Vodafone, based in Newbury, England, declined to comment on their advisers on the deal, announced on April 3.
‘Pure Advisory Firm’
Lazard topped the list of independent advisers in Europe last year, ranking eighth among all banks, according to data compiled by Bloomberg. The firm was followed by Rothschild at ninth. Lazard was also the top-ranked independent in 2009, placing seventh among all banks, followed by Rothschild at ninth and Perella Weinberg at 20th, the data show.
“We like to use Lazard because they are a pure advisory firm,” said Mike Biggs, chairman of Resolution Ltd. (RSL), Britain’s biggest insurance buyout firm. They “have none of the balance- sheet related conflicts others may have from time to time.”
Lazard, headed in London by U.K. Chief Executive Officer William Rucker, provided Resolution with a fairness opinion on its 2.75 billion-pound ($4.4 billion) purchase of Axa SA’s U.K. life insurance unit, a deal completed in September. A fairness opinion gauges the price and terms of a transaction. Rothschild was the sole adviser to Royal Bank of Scotland Group Plc (RBS) in its sale of rehab clinics operator Priory Group Ltd. The $1.5 billion sale to private equity firm Advent International Corp. closed in January.
Larger Deals
Independent firms are increasingly working on larger transactions alongside their bigger competitors, gaining fees in the process. Ondra Partners, the firm started by Lehman Brothers Holdings Inc.’s former U.K. investment banking chief Michael Tory, helped advise on 2010’s top deal in Europe, GDF Suez SA’s purchase of International Power Plc. The previous year, Lazard helped to advise Kraft Foods Inc. (KFT) on the $21 billion purchase of Cadbury Plc, the British chocolate maker.
“Ten years ago, there were many transactions of scale, multi-billion dollar deals, with no independent adviser,” said Paulo Pereira, partner at Perella Weinberg Partners in London. “Now it’s almost the exception to have a significant transaction announced without one or more independents being involved.”
Companies are turning to independent advisers on concern that firms offering merger advice as well as additional services such as equity underwriting and trading may put their own interests before the client, says Philip Keevil, a partner at New York-based advisory firm Compass Advisers LLP and a former head of European mergers at Citigroup Inc. (C)
‘Guns for Hire’
“Conflicts frequently develop and when a full-service bank is retained on a deal, the team tends to push the client to do that deal as they may be conflicted on the next,” said Keevil. Independent firms “also don’t have to worry about quarterly earnings as much. They are less likely to act as guns for hire and more likely to advise a client not to do something that would be harmful to its long-term interests.”
“We are in a position to offer more comprehensive M&A advice,” advising clients on selling bonds and stock and hedging against foreign-exchange risks, said Wilhelm Schulz, head of European mergers at Citigroup. “We wouldn’t have a sustainable business model if we were focused -- even for one second -- on shoving it down our clients’ throats.”
In February, a Delaware judge publicly rebuked Barclays Plc (BARC), the third-biggest British bank, over conflicts of interest in the sale of Del Monte Foods Co. (DLM) London-based Barclays, which advised the fruit-juice and pet-food company on its $5.3 billion sale to a group led by KKR & Co., deceived its client by failing to disclose until late in the process plans to provide financing for the purchaser, Chancery Court Judge J. Travis Laster said in a Feb. 14 opinion.
Following the judge’s opinion, Del Monte sought new offers and it hired Perella Weinberg to solicit potential buyers, which didn’t lead to higher offers. KKR closed the purchase in March.
“We look forward to the opportunity to set the record straight in court,” Barclays said in an e-mailed statement. “Barclays’ financing role, in a minority position, was fully disclosed and specifically authorized by the company and its counsel.”
To be sure, independent firms are trailing their larger competitors in the league tables. JPMorgan Chase & Co. (JPM) was the top-ranked adviser on European deals in the first quarter of 2011, working on about $83 billion of deals, compared to $20 billion at Rothschild, Bloomberg data show.
“If you sum all the independents, it’s still a fraction of the total capacity,” said Perella’s Pereira.
‘Big Boys’ Return
“While we can argue the ‘independent advice thing’, it may be a product of weak markets and deals won by boutiques having a bigger impact on the statistics,” said Christopher Wheeler, a banking analyst at Mediobanca SpA in London. “When big deals return, I would expect the big boys to take share.”
The size of the average Europe deal increased in the first quarter of 2011 to $302 million from $242 million in 2010 and $211 million in 2009, Bloomberg data show.
The ability to provide financing will limit the potential for independent firms once larger deals return, bankers said. JPMorgan, which is advising AT&T Inc. on a $39 billion bid for Deutsche Telekom AG’s U.S. wireless unit committed to lending $20 billion to AT&T. New York-based JPMorgan and Citigroup, which are advising the U.K.’s Lloyds Banking Group Plc (LLOY) on the sale of 600 branches, were asked to provide 7.5 billion pounds each in financing to help fund the deal, a person familiar with the matter said on March 28.
‘Struggle to Grow’
“Some boutiques have benefitted from the fallout of the financial crisis,” Morgan Stanley (MS) banking analysts led by Huw van Steenis and consulting firm Oliver Wyman said in a March 23 report. The firms “may struggle to grow from here” as investment banks regroup after the credit crisis.
Boutique firms are broadening the range of services they provide, offering to advise clients on stock and bond sales as well as takeovers.
“The M&A market remains challenging,” said Mark Aedy, former head of European investment banking at Merrill Lynch & Co. and now head of investment banking for Europe at Moelis & Co. “It remains a ferociously competitive environment. You do have to provide the full menu of advisory capabilities” instead of focusing only on mergers in one industry.
The firms assist companies planning an initial public offering in selecting investment banks that will find buyers for shares. Investment banks are paid a commission on the amount of stock they sell. In 2009, half of stock sales by volume in the U.K. involved an independent adviser, according to Aedy.
Debt, Equity Advisory
Debt and equity advisory were “significant contributors” to Rothschild’s revenue in 2010, Leitao said, declining to elaborate. Rothschild also has a unit advising companies on restructuring.
Boutiques “are looking to broaden their offer as they start to hit a ceiling on a monoline offering,” Morgan Stanley banking analysts led by Huw van Steenis wrote in a report to clients on March 23.
That isn’t deterring boutiques like Moelis. The Los Angeles-based investment-banking firm founded by Kenneth Moelis in 2007, climbed 32 spots in the merger ranks to 44th in 2010 from 2009, according to data compiled by Bloomberg.
“Companies, governments and private equity houses increasingly want somebody who hasn’t got skin in the game,” Aedy said. “We want to be paid for the right advice, which could ultimately be ‘don’t do it.’”
To contact the reporters on this story: Ambereen Choudhury in London achoudhury@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net
To contact the editor responsible for this story: Edward Evans at at eevans3@bloomberg.net
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