Instant investment banks

We wrote earlier this week that Bank of America’s pending purchase of Merrill Lynch gives the Charlotte, North Carolina-based giant its first real opportunity to pick up M&A advisory work in the tech market. Well, that assessment goes double for Barclays, which plucked Lehman Brothers’ banking unit out of the rubble, and it goes triple for whichever bank – if any – snags perennial tech powerhouse Morgan Stanley. (Reports on Thursday indicated that Morgan Stanley was holding talks with Wachovia, as well as considering a sale to a European institution.)

Of course, the tech M&A business is just a side-note in the unprecedented consolidation of investment banks that’s played out this week. But it’s one that shouldn’t be overlooked. Deal flow in the tech sector has approached a half-trillion dollars in each of the past two years. Even during an off-year like 2008, we’ve already seen some $250bn worth of transactions, more than the full-year total in 2004. That’s a lot of banking fees.

To be sure, there will be a substantial amount of disruption in the tech banking business as the new owners integrate the formerly independent investment banks. (For instance, LogMeIn, which filed to go public in January, still has Lehman listed as its lead underwriter. Lehman’s new owner, Barclays, is hardly known for its equity underwriter business, much less underwriting tech offerings.) But at the very least, the acquiring banks picked up the opportunity to be relevant in a market where deals worth hundreds of billions of dollars are going to get done each year. And, thanks to these historic times, they got the chance on the cheap.

Wall Street upheaval hits league tables

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