Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

New York. London. Hong Kong. And now the Cote d'Azur. The South of France is Rothschild & Co's next hunting ground, and the target isn't M&A bankers sunning themselves on gardening leave in St Tropez.

The banking and financial advisory firm on June 6 unveiled a 240 million euros ($272 million) deal to buy tiny Marseille-based private bank Martin Maurel. It's the first time Rothschild has made an acquisition in France outside Paris. The transaction has the strategic priorities of global banking in microcosm.

Seeking Stability
Shares in Rothschild have just outpaced their benchmark over five years - but investors have had to wait
Source: Bloomberg

Rothschild has built a global business partly in the hope of winning big deal mandates, much like its role advising German life science group Bayer on the attempted $62 billion takeover of U.S. seeds giant Monsanto. By contrast, Martin Maurel is as local as can be. It adds 10 billion euros of assets under management to Rothschild's 50 billion euros, and gives Rothschild a foothold in the regions of Rhones-Alpes and Provence-Alpes-Cote d'Azur.

The latter is hardly the commercial capital of France, but it's an area known for having pockets of wealth. So Rothschild gets a client base of rich entrepreneurs and family-business owners, who have the potential to become clients of the investment bank as they either sell up or seek to expand their businesses.

Giant universal banks such UBS and Credit Suisse try to achieve this same investment-banking crossover with their private banking clients.

At the same time, the deal provides some sticky revenues to dampen the volatility of Rothschild's M&A and merchant banking businesses. Every banking CEO with capital markets exposure knows investors don't value these volatile earnings.

Rothschild and Martin Maurel have known each other for years and the buyer seems to have got good terms, with the price a meager 15 percent premium to 2015 year-end book value. And that premium probably falls to about 7 percent based on Martin Maurel's likely book value when the deal completes later this year. 

Steady Eddie
Martin Maurel's net income has bobbed around in a narrow range in recent years
Source: Bloomberg

It looks less of a bargain when you consider the target's bottom line has shown little growth since 2011 and return on equity in 2014 was a pedestrian 8.6 percent. For Martin Maurel, the deal secures its future within a global parent.

Rothschild is offering to pay away up to 12 percent of its market capitalization in the deal, but is also proposing a cash alternative. The cash will clearly be attractive to many Martin Maurel shareholders (especially if Rothschild shares drop back to 23.30 euros, their level when the terms were agreed).

Fore the same money, Rothschild could have bought a growing M&A boutique or hired a lot of individual bankers. Some in the industry think now is a good time to be doing just that. Rothschild clearly has other ideas.

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

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net