DIY Dealmakers

More companies are choosing internal counsel over investment bankers to get M&A deals done.


Investment bankers have had their troubles in 2002, and more are on the way. According to Dealogic, a provider of financial data, more companies are taking their own counsel when doing M&A deals, rather than hiring investment bankers to push their deals through.

Last year, nearly 27% of companies on the receiving end of M&A bids didn’t use outside advice, a five-year high. That represents a substantial jump from 1999, when the proportion was just under 17%. Meanwhile, 30.5% of companies making bids didn’t take advice in 2002, compared to just under 19% in 1999.

The reasons for the wave of self-reliance are easy to spot: plummeting stock prices, reactions against excessive advisory and consulting fees, and general corporate belt-tightening have all led to a backlash against investment bankers.

Some business leaders also believe bankers should shoulder some of the blame for their corporate clients’ current woes. “People are questioning the role of advisers in helping to create the bubble,” says Göran Jansson, CFO of Assa Abloy, a E2.4 billion Stockholm-based lock company. He points out, for example, that the high levels of goodwill paid on some acquisitions at the height of the telecom boom have since been subject to very large write-downs. “I’m surprised more people haven’t questioned the quality of advice companies were receiving,” he says.

Jansson adds that companies are starting to see the benefits of doing their own due diligence. His company has made over 40 acquisitions since the mid-1990s, and has used investment banks on only three occasions. “We prefer to build relationships with potential acquisitions over a period of months,” he says “That’s an approach that isn’t suited to banks that are driven by closing one deal and moving on to the next.”

Not so fast

Investment bankers, for their part, say the data from the likes of Dealogic doesn’t tell the whole story. “The statistics, if cut by value, can be misleading,” says Simon Boadle, a partner at Pricewaterhouse Coopers. “There were some very large transactions in the late 1990s and early 2000s—just a few big deals can skew the data quite dramatically.” Bankers say that companies are less likely to use advisers for smaller deals, which have become the backbone of the M&A market since the stockmarket bubble burst.

Bankers note that the type—not just the size—of deals that companies are undertaking is another factor that skews the data. A high proportion of the “no-adviser” M&A deals in Europe in 2002 involved companies increasing stakes in associated or subsidiary companies. For instance, when German postal and logistics giant Deutsche Post paid Lufthansa Cargo E394m for its shares in DHL International, a subsidiary of the postal firm, last October, no advisers were deemed necessary.

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