With fees at record levels and banks apparently bullish on hiring, M&A bankers could sidestep the worst fallout from the credit crunch.
Data compiled earlier this month by Bloomberg shows global M&A fees for 2007 are set to exceed US$11bn for the first time ever, while research by Financial News suggests demand for corporate financiers remains robust. A poll of 348 banks, corporates, legal firms and private equity funds conducted by the paper during the summer found 84% were seeking to hire.
If it all sounds too good to be true, that may be because it is. Our own brief gauging of the hiring temperature in corporate finance suggests that even if it hasn't cooled yet, it will do soon. "We haven't seen it quietening at all," says the head of the investment banking practice at one headhunting firm. "But that's partly because we're fulfilling our backlog - I'd be surprised if any expansion hiring were done for the moment."
"Most banks have now shut down their M&A hiring for the year," says Neil McKay, consultant at search firm Sheffield Haworth. "Going forward, there will still be strategic hiring to fill gaps and some banks will use any downturn to upgrade existing staff."
The FIG hot spot
Even if M&A hiring hits the deep freeze, FIG may prove the recruitment hot spot. This week, US private equity group Carlyle announced it had hired six senior advisors and managing directors to work on financial institutions deals. Financial News predicts financial institutions group (FIG) businesses will earn record annual fees from advising on mergers and acquisitions, equity underwriting and debt underwriting work in Europe, the Middle East and Africa this year. And as debts related to the US sub-prime market take their toll, ailing financial institutions could seek comfort in consolidation.
The financial sponsors cold spot
On the other hand, financial sponsors groups who sell advisory services to private equity funds are likely to find their services obsolete. Although Morgan Stanley added a chairman of its financial sponsors group in Europe in August, headhunters say other banks are overstaffed. "Given half the buyout houses are saying they won't be doing any deals, banks have too many people in coverage," one tells us.
Figures from Thomson Financial, quoted in The Times show acquisitions by private equity companies were at their lowest level for 2 years in August, with buyout volumes down 64% on August 2006.
Advisory fees may look good globally, but search consultants say the expectation is that M&A bonuses won't be quite so pretty.
"The way I'm seeing it now is that M&A bonuses will be down 20% at the end of the year," says McKay at Sheffield Haworth. "20% to 30% of M&A was driven by private equity firms, so if they pull out of the market in the second half, that's a 15% loss of fees," he adds.
"M&A bankers were extremely optimistic about pay before the summer," says another headhunter. "Now people don't know - if we're hunkering down for a recession, pay is likely to be substantially down on last year."