Dealmaking has slowed—except among dealmakers


IN THE MARKET for corporate counsel, building is more common than buying. Shelling out for a bullpen of bankers or lawyers is often more costly than poaching a rival’s star performers. So if mergers are, like second marriages, a triumph of hope over experience, then the advisers who put them together really should know better when it comes to their own family. Though their clients are announcing tie-ups at the slowest pace in a decade, in recent weeks the corporate consiglieri have struck a flurry of deals among themselves. Three big transactions illustrate how they may be fooling themselves.

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On May 21st Allen & Overy, one of London’s elite “magic circle” of law firms, announced a tie-up with Shearman & Sterling, a prestigious Wall Street “white shoe” practice. The merger will create a transatlantic giant with annual revenues exceeding $3bn. Especially for the British partner, though, it may end in heartache. Shearman has struggled to keep up with competitors and has haemorrhaged partners in recent years; in March it abandoned a tie-up with Hogan Lovells, another big firm. As well as staving off the threats of dealmakers departing amid a period of thin corporate activity, the joint firm’s bosses must prove that the marriage is one of convenience rather than desperation.

The second deal looks no less fraught. On May 22nd Mizuho, a Japanese banking giant, said it was acquiring Greenhill for $550m. The sale concludes a stagnant decade at the boutique American investment bank, founded in 1996 by Robert Greenhill, a former Morgan Stanley banker. With its share price down by more than 90% from its peak in 2009, the house of Greenhill is in a shoddy shape. That does not necessarily make trying to repair it a good idea.

This is not the first Japanese foray onto Wall Street. During the global financial crisis of 2007-09, Mitsubishi UFJ purchased its 22% stake in Morgan Stanley and Nomura acquired Lehman Brothers’ European investment-banking operations. In April this year Sumitomo Mitsui, another big Japanese bank, announced that it would increase its stake in Jefferies, a medium-sized investment bank it first put money into two years ago, from 5% to 15%. The results have been mixed: Mitsubishi’s bet paid off handsomely; Nomura’s did not. For Sumitomo, the jury is out.

Mizuho’s first task will be to avert an exodus. Unlike machines in a factory, white-collar workers are not nailed to the floor. Bankers are not usually given to pangs of loyalty when they receive offers of more money elsewhere. Boutiques, which typically lure star dealmakers with the promise of a bigger slice of their fees, are particularly sensitive to well-connected dealmakers leaving, especially if they take their clients with them—Greenhill’s ten highest-paying customers made up 38% of revenues in 2022. There is little reason to think Mizuho, a firm with little presence on Wall Street, can resuscitate Greenhill’s powers.

The third transaction heaps another challenge on top of employee retention. After pruning its investment bank in recent years, on April 28th Deutsche Bank announced a deal to buy Numis, a British investment-banking firm, for £410m ($515m). The German lender has bought the ear of British bosses before—in 1989 it acquired Morgan Grenfell, one of London’s most illustrious merchant banks. Numis is less grand, but acts as corporate broker to around one in five large listed British firms, a service which involves offering regular market-facing advice to bosses in the hope of landing better-paid dealmaking contracts down the line.

Deutsche Bank’s move looks like a contrarian bet on British listings—possibly too contrarian. The received wisdom today is that London’s stockmarket is in decline. British bosses regularly moan that they could achieve higher valuations elsewhere. Arm, Britain’s most important chipmaker, is expected to list its shares in America. Maybe Deutsche Bank is counting on a wave of buy-outs by foreign firms to turn it into the auctioneer of Britain’s corporate silver. But that business would at best be transient, and Numis looks dear. The German buyer is paying the equivalent of £1.7m for each of Numis’s front-office staff, more than twice the annual revenue each employee has generated since 2020. If only it could demand a prenup.

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