Tag: league tables

Talk was cheap in 2009

Brenon Daly

Contact: Brenon Daly, Thomas Rasmussen

We are currently tallying up deal credits for our annual league tables. Although we’re still a few weeks away from revealing our overall rankings of the investment banks, we have pulled out a couple of interesting trends. One observation that underscores just how brutal M&A was last year is that the premium valuation that sellers typically garnered by using an adviser got all but erased in many sectors. Overall, the numbers make it indisputably clear that 2009 was a buyer’s market.

The specific valuations vary across sectors, but the software industry stands as fairly representative of this trend. In 2007, selling companies that used an adviser garnered, on average, 3.3 times trailing 12-month (TTM) sales while selling companies that didn’t use an adviser received 2.1x TTM sales. The gulf narrowed in 2008 (2.4x TTM sales for advised deals vs. 1.9x TTM sales in transactions without advisers), and essentially disappeared last year (1.4x TTM sales for advised deals vs. 1.3x TTM sales in transactions without advisers). Again, we don’t think the trend reflects the quality or value of sell-side investment banking advice as much as it indicates how few buyers were actually in the market last year. After all, it doesn’t matter how silver-tongued investment bankers may be if they’re speaking to empty chairs around the negotiating table.

Goldman regains its Midas touch

Brenon Daly

Contact: Brenon Daly

Goldman Sachs is having a September to remember, after an uncharacteristically quiet run throughout 2009. We noted in our mid-year league table report that Goldman, which topped our annual rankings 2005-07, had slipped to a distant seventh place in the first half of this year. Since the beginning of September, however, the bank has regained its Midas touch.

Goldman has worked on four tech deals announced so far this month, with a total equity value of $7.9bn. (The September spending accounts for some 60% of the value of all deals that Goldman has advised on so far this year.) The transactions: sole advisor to eBay on its $2bn Skype divestiture; advisor to Intuit on its $170m purchase of Mint; sole advisor to Adobe on its $1.8bn acquisition of Omniture; and sole advisor to Perot Systems in its (relatively richly priced) $3.9bn sale to Dell, which stands as the largest tech transaction in five months.

By way of a final thought on Goldman’s return, we’d note the unusual situation that popped up in the buy-side deals that Goldman worked last week. We can’t recall the last time we saw any bulge-bracket bank get a print one day (Intuit’s purchase of Mint) and then turn around the very next day and get a print that’s 10 times larger (Adobe’s purchase of Omniture).

Advisors in EMC-Data Domain: a chorus and a solo

Brenon Daly

Contact: Brenon Daly

It’s often said that there are three types of falsehoods: lies, damn lies and statistics. To that list, we might be tempted to add a fourth category: league tables. That’s in the front of our minds because we just put together our mid-2009 update to the rankings of the busiest tech banks. (For those curious, Credit Suisse Securities took the top honor, with more deals and more dollars advised than any other bank. Banc of America Securities and JP Morgan Securities rounded out the podium.)

To be clear, we’re not saying that banks make up deal credits. Instead, we’re just noting that the credits, like statistics, may be more malleable than most people think. As we tally the transactions to come up with our rankings, there are invariably deals that smack of a little gamesmanship. In this case, it’s the chorus of advisers for EMC in the storage giant’s purchase of Data Domain. No fewer than eight banks – ranging from bulge brackets to a high-end boutique to even a midmarket firm – are all claiming credit for EMC. (We confirmed, indirectly, with EMC that each of the banks did indeed play a role in the acquisition.)

Meanwhile, on the other side, boutique advisory firm Qatalyst Group took sole credit for working the sell-side for Data Domain. Some observers initially dinged Frank Quattrone’s shop for running such a narrow process. (We understand, for instance, that EMC didn’t see the initial book on Data Domain when NetApp was preparing its bid.) Whether that’s the case or not is largely academic at this point, since the transaction closed a week ago. And it’s largely irrelevant, given where the deal was ultimately done. Data Domain enjoyed the richest price-to-revenue multiple in the sale of a US public company since March 2008.

UPDATE: After initially publishing this piece, Bank of America Merrill Lynch reached out to us to say that they, too, should have a deal credit for advising EMC. For those of you keeping score at home, that brings the total number of advisors for EMC, which was working to land Data Domain for all of two months, to nine separate banks.

Bulging boutiques

Brenon Daly

Contact: Brenon Daly

In our league tables report, we noted that some 143 firms advised on at least one technology transaction in 2008. That was down slightly from the 153 firms we tallied in 2007, even as the number of tech transactions dipped about 17% year over year. Obviously, some of that decline can be chalked up to the investment banks that dramatically and abruptly disappeared in the last year. But more so, the thinning ranks of investment banks can be attributed to the fact that deal flow is drying up.

So far this year, the number of deals announced has fallen about one-quarter to just 574. (And don’t even ask about M&A spending, which has plummeted to just $7bn from $49bn during the same period last year.) That, combined with the fact that fees are increasingly coming under pressure, has meant much leaner times for the advisory business in general. So far, the impact of that has primarily been felt by the bulge-bracket banks, which have made sharp cuts in their ranks since September.

This has sparked a flow of talent from big shops to small. Earlier this week, for instance, a pair of former Bear Stearns bankers founded their own tech advisory firm, Stone Key Partners. We expect many more of the dislocated bulge-bracket bankers to follow suit and hang out shingles of their own. In the meantime, many bankers have joined boutiques of various sizes. Since Wall Street imploded in mid-September, boutique firms including Revolution Partners, America’s Growth Capital, Perella Weinberg Partners, Evercore Partners and Redwood Capital have all picked up former bulge-bracket bankers.

And there are additional moves we’ve heard about but have yet to be announced. We understand that Goldman Sachs’ software banker, Ian Macleod, is set to join Qatalyst Partners, the San Francisco-based firm launched by Frank Quattrone a year ago. We also heard recently that Richard Vieira, who worked a number of open source transactions at Jefferies & Co before leaving some two years ago, has resurfaced. Vieira is joining Shea & Company, a three-man shop founded in 2005 by JP Morgan Securities’ former head of software banking, Michael Shea.

Wall Street upheaval hits league tables

Brenon Daly

The unprecedented upheaval Monday on Wall Street – with Lehman Brothers going under and Merrill Lynch forced into a distressed sale – will have echoes, large and small, for years to come. Tens of thousands of jobs have been thrown into question and tens of billions of dollars of value will have to be written off. On a minor scale, the historic changes will also cause a dramatic shakeup of our tech banking league tables. (See our executive summary of our 2007 league tables report.)

With its acquisition of Merrill, Bank of America has the chance – for the first time, really – to be a legitimate contender in tech banking. (Of course, much will depend on the sensitive task of retaining Merrill’s bankers and then building on practice.) On its own, BofA never cracked the Top 10, standing in 12th place in 2007 and 16th place in 2006. But if we added BofA’s deal totals in 2007 to Merrill’s business, the combined bank would have been ranked in fourth place, just ahead of Citigroup.

More dramatically, however, the disappearance of Lehman erases a perennially strong tech bank from the league tables altogether: Lehman ranked fifth overall in 2007, and fourth the year before. Moreover, it had continued that strong run into this year, having a hand in 24 deals with an aggregate disclosed value of $77bn. For instance, Lehman had the sole mandate in the $162m sale of Iona Technologies to Progress Software and Eagle Test Systems’ $250m sale to Teradyne, as well as co-adviser roles on ChoicePoint’s $4bn sale to Reed Elsevier and Hewlett-Packard’s $13.9bn purchase of EDS. Those are among the tombstones for now-deceased Lehman.

R.I.P: Lehman’s advisory credits

Year Deal volume Aggregate announced deal value
2006 34 $143bn
2007 30 $66bn
YTD 2008 24 $77bn

Source: The 451 M&A KnowledgeBase

Transatlantic cold front in M&A

Brenon Daly

In terms of North American tech companies shopping in Europe, the past year has been a case of overlooking deals rather than being over there looking for deals. Eastbound M&A (or North American acquirers of EU-based companies) totaled just $12.5bn from July 2007 through June 2008. That’s down two-thirds from the $45.2bn worth of deals inked from mid-2006 to mid-2007. The primary reason: a 15% decline in the Nasdaq and the US dollar (relative to the euro) over the past year that has sapped buying power.

Of course, the slumping greenback offered European acquirers a bit of a ‘rebate’ on their purchases. And they took advantage of that, pushing westbound M&A (or EU-based acquirers of North American companies) to a new record. From July 2007 through June 2008, European acquirers spent $30.2bn picking up North American-based companies, a 38% increase from $21.9bn in the same period in the previous year.

But even that record amount of eastbound spending wasn’t nearly enough to offset the utter disappearance of their North American counterparts. Overall spending on transatlantic tech M&A fell by more than one-third, dropping to $42.7bn from $67.1bn in the same period of the previous year. We look at the numbers and the trends in a full report that’s available here.

Transatlantic deals

Period EU to North America North America to EU Total
July 2005-June 2006 $14.5bn $19.4bn $33.9bn
July 2006-June 2007 $21.9bn $45.2bn $67.1bn
July 2007-June 2008 $30.2bn $12.5bn $42.7bn

Source: The 451 M&A KnowledgeBase