The future looked bleak for Paul Parker, Lehman Brothers' co-head of mergers and acquisitions, as he helped negotiate the sale of the bank's North American operations to Barclays (BCS) over the course of two hectic days in September 2008. Explaining Lehman's collapse to his family "was my low point, personally," he recalls. Two and a half years later, that deal has helped put Barclays Capital, the investment banking division of Barclays, in a position to challenge Goldman Sachs (GS) for the mergers and acquisitions crown in the U.S. And Parker, 47, now global head of M&A at Barclays Capital, has a different view of Lehman's forced sale: "I truly believe it will be the most successful financial-services combination ever."
Barclays finished second only to Goldman in advising on U.S. takeovers announced in 2010, according to data compiled by Bloomberg. The ranking is based on deals in which Barclays advised a U.S. takeover target or a U.S. company buying another U.S. company. (Neither Barclays nor Lehman finished that high in the rankings before the deal.) This year, Barclays has already worked on $33.6 billion in such deals, advising Qualcomm (QCOM) on its $3.2 billion purchase of Atheros Communications (ATHR) and Progress Energy (PGN) on its sale to Duke Energy (DUK) for $13.7 billion. Says Simon Maughan, co-head of European equities at MF Global in London: "They are the one firm that's prepared to say, 'We're taking Goldman on in hand-to-hand combat.'" On Feb. 15, Barclays Capital reported that revenue from advisory and debt and equity underwriting increased 3 percent in 2010, to £2.2 billion ($3.5 billion).
The key to the bank's rise in the rankings is the combination of Lehman's connections to U.S. corporations and the ability of Barclays, Britain's third-largest bank by market value, to finance deals. Lending power has been especially useful in getting a role in leveraged buyouts, which are heavily dependent on debt. Barclays advised investment firm 3G Capital on the $3.3 billion takeover of Burger King announced in September. "We are doing things now that neither firm could have aspired to alone," says Jerry del Missier, co-CEO of Barclays Capital.
Not all deals have gone smoothly. On Feb. 14 a Delaware judge postponed a Del Monte Foods (DLM) shareholder vote on the company's sale to a group led by KKR (KKR) after investors sued. The plaintiffs' lawyer says that Barclays, which is advising on and helping finance the deal, "undermined any competitive bidding process." Barclays disputes the accusation, saying it approached 53 potential buyers for Del Monte.
Barclays retained some key Lehman bankers, including Gary Posternack, head of M&A for the Americas, who specializes on energy deals. And it has spent money to lure M&A stars, including Richard Landgarten from Moelis to be co-head of its global health-care group. Skip McGee, Barclays's head of investment banking, says his firm's focus this year is to increase its deal activity in financials and industrials, where the firm ranked sixth and fifth, respectively, in the U.S. last year, Bloomberg data show.
Success attracts attention from rivals, and Barclays Capital may have to fend off personnel raids from banks such as Citigroup (C) that are trying to strengthen their M&A units. Despite the strong results, Barclays says it reduced 2010 bonuses for Barclays Capital employees by an average of about 12 percent. That came after Chancellor of the Exchequer George Osborne announced that Britain's biggest banks had agreed to pay lower bonuses and increase lending. Parker says he will fight to keep his people. "We won't be complacent on that," he says. "We will be competitive."
The bottom line: Aided by Barclays's ability to finance deals, Barclays Capital is winning advisory roles in more U.S. mergers and acquisitions.