Signs of Life for Financial Sponsors Groups

Are leveraged buyouts and the bankers who facilitate them springing back to life? UBS says so - and recently put money where its mouth is by hiring two senior bankers for its financial sponsors group.

The credit crisis nearly vaporized this segment of investment banking when PE firms lost their ability to borrow 80 percent of a deal's value. Since the crisis began, the M&A business that's been done has been dominated by strategic acquirers.

That may be starting to change. "Our financial sponsors deal pipeline continues to grow as financing markets have normalized and sponsors are becoming more active in both acquisitions and exits," Steven Smith, UBS global head of leveraged finance and Americas head of financial sponsors, says in a press release announcing the hiring of Allen Bouch and Scott Norby as managing directors in the bank's financial sponsors group. Bouch is based in San Francisco and Norby in New York.

Friendlier Market Conditions

Underlying market conditions are indeed becoming more conducive to both PE deals and strategic M&A, says Richard G. Lipstein, managing director of Boyden Global Executive Search. "With the stock markets having picked up, there are a greater number of IPOs and secondary offerings," Lipstein tells eFinancialCareers News.

"Private business owners are feeling increases in their company valuations. Public companies are also feeling a similar uptick in value. All this is increasing the number and value of public offerings as well as interest in strategic combinations." As a result, Lipstein says, "Our banking clients tell us that their M&A pipelines have increased for both their strategic and financial-buyer clients."

As markets return to normal, the financial sponsor community will do more deals to sell companies that remained in their portfolio longer than planned, adds Kevin Kaden, a partner with BDO's private equity practice group. The deal pipeline is backed up on the buy and sell side but financing remains an obstacle for now. "Until the credit market catches up, the deal flow won't pick up," Kaden explains. That's widely expected to happen within the next 12 months, if not sooner.

Where to Seek Opportunities

Any new banking jobs created by increased PE activity will be industry-specific. "In the private equity market, most firms have scaled back over the past year or so and traditionally run very lean," notes Kaden. "When opportunities present themselves and there's a need for workforce they ramp up."

For UBS, though, stepping up now may be less a response to increased volume than a move to fill vacant slots, including those stemming from the bank's own mass layoffs since 2007.

The bottom line, according to Lipstein: Among both buy-side and sell-side deal-makers, "The stars and 'near-stars' who've been laid off will find work." The rest - those who lack marquee names on the resume, aren't leaders in their sector or have been in transition longer than six to nine months - should turn their sights toward smaller firms or non-financial employers, he says.