M&A bonuses: Not so shiny after all

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2006 has been a stellar year for M&A deals. But when it comes to bonus time, some M&A bankers are likely to return to earth with a bump.

As we reported way back in May, although the value of European M&A deals has risen massively this year (50% according to Dealogic), the fees banks earned on those deals just don't seem to have kept pace.

Across the 10 largest sectors, Dealogic's analysis shows monthly average fees are actually down slightly for the year to date in 2006 compared to the full year 2005.

Cross-selling may be to blame. Neil McKay, associate director at search firm Sheffield Haworth, says some deals have been done for little or no fee because the bank wants a client's capital markets business.

Lazard yesterday blamed falling fees in its advisory division for a 32% reduction in net profits in the three months to September, compared to the same period of 2005. Deutsche Bank, however, reported a 41 per cent rise in advisory revenues in the three months to October thanks to its role in advising on mega-deals such as Mittal Steel's acquisition of Arcelor.

Another search consultant tells us the distinction between pay for execution bankers and originators who hold the relationships is set to increase. It's the originators, or "relationship bankers" who will really paid handsomely this year, she says: "Fees need to be shared between the geographic guy, the relationship guy and the sector guy, who all bring the strategy and experience from past deals."

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