What does an M&A banker do?
In case there were any misapprehension that senior mergers and acquisitions (M&A) bankers who facilitate the sale and purchase of client companies have an easy life, yesterday's investor day presentation from JPMorgan has hopefully set the record straight.
In his presentation on the workings of the corporate and investment bank (CIB), its CEO Daniel Pinto explained that very few clients frequently pay $50m+ in fees to the bank for an investment banking deal. In fact, around 60% of clients only pay these kinds of fees once every 10 years, said Pinto. Another c20% pay them every 5 to ten years. Only c30% of clients are in the sweetspot of paying $50m+ in fees on a regular basis.
This is why it's also necessary to chase smaller transactions that pay smaller fees, said Pinto. But even these are not always forthcoming. "Many clients will only have a large key event every decade or more," said Pinto. "But even smaller transactions only occur on average every three years.
"You need to do well on both sides of the transaction and we have a share in both wallets," he added.
Pinto's comments won't be much of a revelation to M&A bankers, who are well aware how these things work. Goldman Sachs' former COO Harvey Schwartz famously said it can take seven years for client relationships to generate fees. However, they help underscore why senior M&A bankers spend so much time out of the office schmoozing clients with seemingly little to show for it, and why the all-important metric for success in M&A is the "pipeline" of deals they're nurturing that should hopefully be done, one day. "There are two lies in this world: (1) I love you for your personality and (2) my revenue is not at budget but my pipeline is great,” says a senior banker with long years of pipeline management.
After a difficult year for dealmakers in 2019, Pinto's comments also highlight the potential for the coronavirus to cause further headaches in 2020. If deals are only done very intermittently, why commit in a climate riven with uncertainty? It doesn't help that most banks are curtailing non-essential travel and that clients in affected areas don't want to meet face to face anyway. "People just want to talk on the phone now," says one banker in Italy.
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