Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Michael Klein should enjoy his moment in the sun.

The former Citigroup investment banker's firm, Klein & Co., is listed first among financial advisers to Dow on its merger with DuPont, ahead of Lazard and Morgan Stanley. The trio are set to share fees of between $80 million and $100 million, according to estimates from consulting firm Freeman & Co., which expects DuPont's advisers Evercore and Goldman to split a separate, similarly-sized fee pool. 

The fact that three of the five financial advisers aren't bulge-bracket banks highlights the increased value that companies place on independent advice. For the largest investment banks, which remain involved arguably as a reward for being longtime lenders or for various capital markets activities like bond or equity offerings, it portends diminishing advisory fees. 

Size Doesn't Matter
Small advisory firms have landed roles on some of the year's biggest deals.
Source: Bloomberg

There have been $4.1 trillion of deals this year, including spinoffs, asset sales and the most M&A on record, according to data compiled by Bloomberg. But the biggest banks aren't collecting fees at the same pace.

When Records Don't Translate
Despite M&A eclipsing 2007 levels, advisory fees at big banks like Goldman haven't followed suit.
Source: Bloomberg Intelligence

Goldman, Morgan Stanley and JPMorgan posted advisory revenue of $2.6 billion, $1.5 billion and $1.5 billion, respectively, through the first three quarters of 2015. While the three have added to their tallies in the current quarter amid even more dealmaking, none of the them are likely to top their record hauls in 2007, when Goldman brought in $4.2 billion, Morgan Stanley $2.5 billion and JPMorgan $2.3 billion. 

That's because they're forced to share the bounty with firms such as Lazard, Centerview Partners, Guggenheim and Evercore and even smaller upstarts like Klein.

Klein, who left his post as Citigroup in 2008, could also become the poster boy for any senior bankers looking for a lucrative change.

In late 2007, Businessweek touted him as a CEO candidate after he played an instrumental role in securing a $7.5 billion cash infusion from the Abu Dhabi Investment Authority. Though he didn't get the top job and left Citi the next year, he was reportedly paid $42.6 million as part of a strict non-compete agreement. Interestingly enough, Citi generously waived the non-compete to allow him to advise Barclays on its purchase of Lehman Brothers's North American investment bank and capital markets arms, which earned him another $10 million

Klein's next big paycheck arrived in 2012 after acting as an independent adviser to mining giants Glencore and Xstrata. Pegged at between $15 million and $20 million, Klein was described as "an honest broker" who was picked because he'd never advised either Glencore or Xstrata.

In the case of Dow, Klein led the team at Citi that advised Dow on its $19 billion acquisition of Rohm & Haas in 2008, which was then its biggest deal on record.  It's fitting then, that he's again by Dow's side as it finally clinches DuPont, a deal it's had on its wishlist since at least 2006

Bankers at bulge-bracket firms may well be hoping that the "honest broker" and his ilk don't strike again soon. Odds are, though, that they will.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net