GUEST COMMENT: Why the senior M&A banker will never be supplanted by the in-house advisor

What is happening to the prospects for becoming a senior M&A banker as the pie shrinks? While less than 10% of deals in the past decade were completed without an external advisor, the number and sophistication of in-house M&A teams seems on the rise.

Successful senior M&A bankers need the trust of the client's CEO, industry specialism, a track record of successful deals, a powerful and personal network among the decision-makers at potential buyers and sellers and, in the case of cross-border M&A, regional experience. In other words, credibility that sells itself. It also helps to be a respected member of a name-brand bank that does other work with the client and can add financing muscle when needed.

But if you work in M&A, what will happen to your prospects for advancement as more clients build out their corporate development teams? Is the market for senior M&A rainmakers undergoing a secular slowdown in growth? And what does that mean for aspiring investment bankers?

To get the perspective of the external advisor, I did an informal survey among a number of people who ply their trade as M&A bankers. Most were current or former MD's, or were partners in law firms. Some I have known for a number of years and some I got in touch with through the others.

The short answer seems to be: there is nothing to worry about. Deal flow will wax and wane but if you have the goods and keep your integrity, your future should be bright. The feedback - though varying widely - was instructive.

Responses ranged from enthusiasm through indifference to outright wariness (in my view, probably reflecting the character of the respondent).

Some spoke highly of the better in-house teams they have encountered and saw them as a necessary supplement to what an external advisor brings to the table. Others saw them more as a necessary evil. Still others thought that at least some business did not get done externally - smaller divestitures, purchases of a specific project and the like - but not enough to negate the need for an external advisor on more complex deals. Unsurprisingly, no CEO wants to miss a good opportunity or screw up a large deal by pinching pennies on external advice. And takeover tactics sometimes mean advisors are hired to pre-empt them from working for rivals.

Also instructive was the feedback on working for an in-house team. Some felt that a position as an internal advisor could be very rewarding - as long as it meant being the confidant of the CEO of an acquisitive firm. Most warned that moving from banking to industry is usually a one-way street. On the other hand, others gave examples of hiring associate- and VP-level staff from corporate development departments, mainly for their industry knowledge.

Here are some of the more colourful remarks. First, the more enthusiastic:

"Almost all large companies have corporate development departments and they're part of the process. They should be one of your main contact points."

"They can be kind of helpful really. They know the people internally and what they're thinking. Not everyone gets on board every deal at a client and they can help you navigate the politics if you get to know them".

"There's different kinds of people. You get some staffed with ex-Ib'ers with an axe to grind and it can be tricky but some have really good people and they know their own business really well."

"Most of the best ideas I've worked on have come from clients."

And now the more "circumspect":

"You have these groups and they need a rationale to exist. So sometimes they need to do deals away from you."

"Most [in-house teams] work on what I would call R&D... the kind of work we do mainly to pitch for business. The casualty rate is enormous. Most of the deals lead nowhere. It's sort of "busy work" until something really important comes along and then the CEO reaches out externally."

"I was working on this one project when I was a VP at [bank]. We got retained because they were in talks with a trade buyer. They didn't have an M&A team as such but they formed this enormous project team of about 30 people or so all working full-time on it. [The MD] made me the liaison with them, which I thought was a big deal. What we had was this meeting room at the client full of spreadsheet jockeys all tapping away at laptops, making these loopy projections about margin and sales growth.

My job was to do our own projections and calibrate them with their fantasy [expletive deleted]. I spent a couple of months with these guys basically trying to keep up with all of them before I realized I was just a placeholder until the sale got serious. And then it fell though and I wanted to slit my wrists. The only upside was that my gym was about five minutes from their office so at least I got to work out regularly."

Ad meliora. Quod caveat consuasor!

The author is a senior M&A banker who speaks Latin.