Wall St hums a different tune
Arnold Schwarzenegger, governor of California and Hollywood film star, loves Humvees, the wide-bodied military vehicles made famous in the Gulf war.
ADVERTISEMENT
But he does not love them as much as Jimmy Elliot, head of JP Morgan Chase's North American mergers and acquisitions business. Earlier this month, Mr Elliot's bankers helped two private equity specialists on the sale of AM General, the Humvees' manufacturer, and, with General Motors, the builder of the smaller Hummer H2 the commercial version favoured by hip-hop impresarios such as Wyclef Jean, whose own car sports a shark tank.
Renco Group, JP Morgan Chase's client, and MacAndrews and Forbes formed a joint venture that values AM General at $935m (￡510.3m). That is a pittance compared with the takeover by Sanofi-Synthélabo, the French pharmaceutical giant, of Aventis, which cost $70.7bn. But these days Wall Street's fancies are as often taken by smaller transactions known in the jargon as “middle-market” deals as by multi-billion dollar assignments.
Investment bankers lust for the bragging rights of a big deal. But their wallets are not so large that they cannot find room for a smaller transaction.
Merrill Lynch, JP Morgan Chase, Citigroup, Credit Suisse First Boston and others are all investing heavily in efforts to target mid-sized businesses hiring extra staff or reorganising their operations.
The reason is simple: in a world where several banks share the credit for large deals, who would not love a $5m fee for being the sole adviser on a $400m transaction, especially when there are scores of such opportunities?
Wall Street has long known that, in any normal year, about half of the fees generated by investment bankers come from the shallow end. But during the abnormal bull market years of the late 1990s, when megamergers and initial public offerings were two-a-penny, the largest investment banks shed their ties with smaller US companies.
Times have changed, however. These days, the majority of fees are coming from smaller transactions. In 2003, 61 per cent, or $5.6bn, of all advisory fees for mergers and acquisitions around the world came from deals worth $1bn or less, according to Dealogic, a UK-established company which tracks such figures.
That was a record, and it caught the attention of many key bankers. As Mr Elliot says: “Transactions between $200m and $1bn are the most profitable from a margin point of view.
“This is because you potentially have the opportunity to be sole adviser and you will be dealing in situations where incentive fees will allow you to make more money than otherwise.”Although Dealogic's analysis excludes transactions with undisclosed sums, bankers across Wall Street see the number as significant when compared with figures from the previous five years, when the proportion of small deals compared with overall merger and acquisition volumes ranged from 45 per cent to 54 per cent.
As well as the opportunity for exclusivity on a small deal, there are several other reasons for the surge in interest from Wall Street's bankers. One is that the three-year bear market in equities meant deal sizes often drifted down into the middle market category.
Also, investment bankers had to expand their client base because large companies, threatened by Sarbanes-Oxley and other issues, were refraining from making purchases and raising money.
Another factor has been the recent frenzy of buying and selling of assets by US private equity houses. According to M&A market analysis compiled by Robert W. Baird, a Milwaukee-based investment bank the volume of middle market deals involving these specialist financiers has more than doubled from $30bn in the first half of 2003 to $63.5bnin the first half of this year.
Whether the trend of big investment banks courting small companies continues is anybody's guess. Wall Street tends to be fickle about wooing small companies, which often have better relationships with smaller banks such as Wachovia or Wells Fargo or boutique investment banks founded by castaways from the New York giants.
Many small businesses bristle at the idea of a leading investment bank showing up on the doorstep, cap in hand. But several, impressed by the attention of powerful banks, are giving them a chance. And even though the US economy has tepid signs of recovery and larger mergers have splashed across the front pages of newspapers this year, Wall Street has not given any outward indication that it is about to abandon its new strategy of pursuing middle market business. Over the past year, Merrill Lynch has made an effort to build on the strong relationships it has with small companies through its brokerage and commercial lending businesses. It wants to leverage its well-known brand with smaller businesses around the world.
While Merrill Lynch has been an adviser on seven of the year's 10 largest announced transactions including Sanofi-Aventis, Greg Fleming, Merrill's co-head of global investment banking, says he needs smaller clients to diversify his revenue sources and sustain his department when the larger deals disappear. Besides, he says, the small companies often grow into Fortune 100 or 500 companies. “In every major developed economy including the US, Germany and Japan there is a significant number of middle market companies,” says Mr Fleming. “We think it's an attractive segment in and of itself and also a feeder for large companies later.”
But even while they are still small growing companies, they need a fair amount of financing, whether high-yield debt, structured products, or even an IPO, says Mr Fleming. They also need help with mergers and acquisitions.
The reason that investment banks are likely to remain committed to the middle market sector is that they have a better shot at being a client's sole adviser - which carries the greatest remuneration.
With large deals, there are so many others involved in the process. Take Sanofi-Aventis. Seven banks acted as advisers on the transaction and there were lawyers as well. In addition, while bankers are more tempted to cut fees on large deals to earn league table credit a ranking system that is a key marketing tool for Wall Street there are fewer reasons to do so on small deals.
But bankers are loath to say that the middle market is a less competitive environment. Marc Granetz, global head of Credit Suisse First Boston's M&A business which has been the top global fee earner for deals smaller than $1bn since January 2003, according to Dealogic says: “Along with the large investment banks, regional banks and boutiques are competing in the same space. Also, clients are no less demanding than in large transactions: they care a lot about these deals. Often management has a lot invested in the company.”
Moreover, the private equity houses do not necessarily fit the traditional model of relatively un-savvy consumers of banking services that have been such a fertile ground for investment bankers hungry for more fees. “Private equity groups are very sophisticated consumers of investment banking services and they don't tend to pay especially lucrative advisory fees if we are providing financing,” says Mr Granetz.
Not all the Wall Street banks are enthusiastic about the middle market sector. Morgan Stanley, for instance, has resisted the temptation to establish a broad middle market capability, preferring instead to pursue small companies in selective high-growth sectors such as biotechnology.
But the enthusiasts are in spite of the sceptics and the sophisticated clientele busily building their business. Citigroup, which is vigorously expanding its efforts to work with smaller companies, admits that the strategy works best when helping the seller rather than the buyer. Frank Yeary, co-head of global mergers and acquisitions at Citigroup, says: “The middle market offers a great opportunity, especially for sell-sides, where we often find clients receptive to incentive fee arrangements.”
Meanwhile, financial services companies with links to smaller businesses, such as lending arrangements or brokerage accounts, are looking to find creative new ways to tap those contracts for more business.
Merrill's Mr Fleming is tapping into relationships developed by the company's army of brokers and Merrill Lynch Capital Partners, a lending arm: “They have relationships with CEOs and chief financial officers that they have developed in their community, are often helpful in introducing people and are one of the reasons we can differentiate ourselves.”
With this leg-up, Mr Fleming is targeting companies that raise money by selling high-yield debt. His goal is to push Merrill up the league tables. Likewise, JP Morgan Chase, which also has strong ties with smaller companies because it lends them money, is focusing on the middle market business and with some success. On the same day that the AM General transaction was announced it also advised Paint Sundry Brands, a manufacturer of paint brushes and rollers that is in the portfolio of Lindsay Goldberg & Bessemer, a private equity firm.
Sherwin-Williams, a paint-maker, agreed to pay $300m for Paint Sundry. The bank won the business in part because of a long-standing lending relationship.
For JP Morgan and others, using their other businesses will be one way of differentiating themselves. In a market that is quickly getting crowded, this will be critical if they want to sign another Humvee-style humdinger of a deal.
华尔街哼出不同的调
加州州长、好莱坞影星阿诺德?施瓦辛格(Arnold Schwarzenegger)喜欢悍马(Humvees)，这是一款在海湾战争中扬名的宽体军用吉普。
但他对“悍马”的喜爱，比不上摩根大通(JP Morgan Chase)北美并购业务负责人吉米?艾略特(Jimmy Elliot)。本月早些时候，艾略特先生的银行家在悍马制造商AM General的销售中帮助两位私人股权投资专家。AM General还与通用汽车(General Motors)合作生产商用版的小型悍马(Hummer H2)，该款车型受到hip-hop歌手威克列夫?吉恩(Wyclef Jean)的青睐，他的车装了一个鲨鱼缸。
摩根大通的客户Renco Group与MacAndrews Forbes组建了一家合资企业，对AM General作出9.35亿美元的估价。比起法国制药巨头赛诺菲圣德拉堡(Sanofi-Synthelabo)对安万特(Aventis)707亿美元的收购价相比，这个数字微不足道。但如今，一些行话称作“中间市场”的交易，与规模达数十亿美元的交易同样受华尔街欢迎。
投资银行家夸耀自己有本事进行大交易。但他们的钱包还不至于大到无法容纳较小交易的地步。
美林(Merrill Lynch)、摩根大通、花旗集团(Citigroup)、瑞士信贷第一波士顿(Credit Suisse First Boston)等投资银行都在大力投资，以瞄准一些正在增雇人员或重组自身业务的中型公司。
原因很简单：在这个几家银行分享大交易的世界上，谁不喜欢担当一宗4亿美元交易的独家顾问，赚个500万美元的顾问费呢？尤其是当有大量这类机会时。
华尔街早已了解，在任何正常年份，投资银行家赚得的收费中，约有一半来自市场的低端。但在上世纪90年代末异常的牛市年份中，当巨型合并交易和首次公开发行多得不值钱时，一些最大的投资银行与规模较小的美国企业断绝了联系。
然而时代变了。如今大多数佣金都来自规模较小的交易。据跟踪此类数据的英国公司Dealogic统计，2003年，全球所有并购咨询费中有61%(即56亿美元)来自价值10亿美元或以下的交易。
这是一个创纪录的数字，也引起了许多主要银行家的关注。正如艾略特所说：“从利润率角度来看，2亿美元至10亿美元之间的交易最有利可图。”
“这是因为你可能有机会成为独家顾问，这样，你得到的激励性报酬，会比其它途径让你赚到更多的钱。”虽然Dealogic的分析排除了未披露金额的交易，但华尔街的银行家们认为，此前五年小规模交易在全部并购交易中的比例约为45%至54%，相比之下，现在的数字已经相当大了。
除了有机会独家运作之外，另外还有几个原因让华尔街银行家对小规模交易兴趣大增。其中之一便是，股市的三年熊市意味着，交易规模往往向中间市场类别转移。
此外，投资银行家不得不扩大它们的客户群，因为大企业受到萨班斯-奥克斯利(Sarbanes-Oxley)法案和其它问题的威胁，不便进行收购和筹资活动。
另一个因素是，美国私人股权投资公司近期疯狂买卖资产。根据罗伯特?W?拜尔德(Robert W. Baird)汇编的并购市场分析报告，涉及这些专业金融家的中间市场交易量已增长一倍多，从2003年上半年的300亿美元，增加到今年上半年的635亿美元。罗伯特?W?拜尔德是一家投资银行，总部位于密尔沃基。
谁也说不准大型投资银行追求小公司的趋势是否会持续。在对小公司献殷勤方面，华尔街往往反复无常。小公司通常与小银行关系更好，比如瓦霍维亚(Wachovia)或富国银行(Wells Fargo)，以及由被纽约巨头抛弃的银行家设立的小型投资银行等。
许多小公司一想到这样的情景就会生气：一家主要投资银行手拿帽子，装腔作势地出现在公司门前。但有几家公司被强势银行的关注所打动，会给它们一次机会。另外，尽管美国经济只显示出温和复苏的迹象，而且今年较大规模的并购频频占据报纸头条，但华尔街并没有表明打算放弃发展中间市场业务的新战略。在过去一年中，美林通过其经纪和商业信贷业务，努力增强与小企业的紧密联系。它想利用其著名的品牌，对全球范围的小企业施加影响。
在该年度10大已宣布的交易中，美林担任了7笔交易的顾问，其中包括赛诺菲收购安万特的交易。但是，美林全球投资银行业务联合总裁格雷格?弗莱明(Greg Fleming)表示，他需要较小的客户，以使其收入来源多样化，也为了在大宗交易消失时，能维持自己部门的业务。另外，他表示，小型公司通常会成长为财富100强或500强企业。“在每个主要发达经济体中，包括美国、德国和日本，存在大量的中间市场公司，”弗莱明先生说道，“我们认为，这本身就是个有吸引力的板块，这也是今后获得大公司业务的渠道。”
弗莱明先生表示，即使它们仍是正在成长的小型公司，也需要相当数量的融资活动，无论是发放高收益债券、结构性产品，甚或是进行首次公开发行。它们还需要在并购业务上获得帮助。
各家投行之所以可能会继续重视中间市场板块，是因为这样它们更有可能成为客户的独家顾问，进而带来最大的报酬。
在大宗交易中，有太多其它机构参与这一流程。以赛诺菲-安万特交易为例，有七家银行担任该交易的顾问，并且还有多名律师参与。此外，银行家在大宗交易中更愿意降低收费，以便在积分榜上得分，这是华尔街的主要营销工具之一。但是，在小规模交易中就不太有必要这样做。
然而，银行家们断然否认中间市场是竞争较弱的环境。据Dealogic统计，从2003年1月起，瑞士信贷第一波士顿并购业务部在10亿美元以下交易中赢得的佣金为全球最高。该部门全球总裁马克?格拉内(Marc Granetz)表示：“地区性银行和小型银行，以及大型投行在同一领域进行竞争。另外，小交易的客户跟大宗交易中的客户一样苛刻：它们非常在意交易的情况。通常情况下，管理层在企业投入了大笔资金。”
此外，私人股权投资公司未必适合传统模式，传统模式针对的是相对缺乏经验的银行服务消费者，这一直是投资银行家抢夺更多佣金的沃土。格拉内先生说：“私人股权投资集团是非常老练的投行服务消费者，如果我们提供融资服务，他们往往不会支付特别丰厚的顾问费。”
并非所有华尔街银行都对中间市场领域充满热情。如摩根士丹利(Morgan Stanley)就抵制了建立广泛的中间市场业务能力的诱惑，宁愿寻求生物技术等精选高增长产业中的小型企业。
但热情高的银行却不顾怀疑人士的观点和精明的客户群，而忙于建立自己的业务。花旗集团正大力增强与较小企业合作的努力。花旗集团承认，在帮助卖方而非买方时，这一策略最有效。花旗集团全球并购业务的联合主管弗兰克?伊里(Frank Yeary)表示：“中间市场提供了一个巨大的机遇，尤其是对卖方而言，我们常在这个领域发现愿意接受激励性收费安排的客户。”
同时，一些与较小企业有联系(如贷款安排或经纪账户)的金融服务公司，正期待找到富有创造性的新方法，以求从现有客户获得更多业务。
美林的弗莱明先生正试图利用由公司大量的经纪人和贷款部门Merrill Lynch Capital Partners所发展起来的关系。他说：“他们与首席执行官和首席财务官建立了关系，这些关系是他们在自己的圈子里发展起来的，通常在引荐人的时候会有帮助，这也是我们实现差异化的途径之一。”
借助这一点，弗莱明先生正将目标瞄准通过发行高收益债券筹资的企业。他的目标是提升美林在排名表上的位置。同样，摩根大通也正将重点放在中间市场业务上，并已取得了一些成功。摩根大通也与较小企业关系紧密，因为它为这些小企业提供贷款。就在宣布AM General交易的同一天，摩根大通还担任了Paint Sundry Brands的顾问。Paint Sundry Brands是一家油漆刷和滚筒制造商，该公司的股票在私人股权投资公司Lindsay Goldberg Bessemer的投资组合中。
油漆制造商Sherwin-Williams同意支付3亿美元收购Paint Sundry。摩根大通赢得了这笔业务，部分原因是双方有长期借贷关系。
对JP摩根和其它银行来说，利用自己的其它业务，将是实现差异化的一个方法。在一个迅速变得拥挤的市场上，这一点将非常关键，如果它们想签下另一笔“悍马”式出色交易的话。
