Header Ads

Breaking News

M.&.A. Bankers May Be Better Off Chasing Smaller Deals

Category: Business,Finance

Get the DealBook newsletter to make sense of major business and policy headlines — and the power-brokers who shape them.

Advising on huge corporate mergers may be exhilarating, but the banking consiglieri may find that a focus on smaller deals offers more dependable success.

While the number of deals above $10 billion is increasing, the benefits of advising on them aren’t rising to match. So the challenge of closing larger transactions argues in favor of working on smaller mergers and acquisitions.

In the first nine months of 2018, acquisitions of companies priced at over $10 billion have increased by more than 150 percent in dollar terms, according to data from Refinitiv. Helped by Comcast’s bid for Sky, Marathon Petroleum’s $23 billion outlay for Andeavor, and Keurig Green Mountain’s deal to buy Dr Pepper Snapple, 39 deals worth almost a combined $1 trillion have been announced so far this year.

Smaller deals have increased too, though not by as much. More than 13,000 deals with a value between $1 billion and $10 billion have been announced, amounting to a more than 100 percent increase in the dollar value over the same period in 2017.

Big deals give firms bragging rights, so large banks tend to chase them. They can also bring chunky financing fees: see Comcast’s $27 billion loan placement on Tuesday, led by Bank of America.

But they also share the spoils, and the kudos, among a larger group. They are harder to close, too. So far this year the dollar value of withdrawn deals has increased 33 percent compared to the same period last year.

Part of the problem is that regulators take time studying the small print when two companies of great size and stature come together. Broadcom’s attempted $117 billion purchase of Qualcomm, which was ultimately blocked by the U.S. government, is a good example.

Clients may glance at league tables, and big clients may also be swayed by large balance sheets. But there’s a lot to be said for the ability to think up a smart deal and get it over the line — and for that, size isn’t what counts.

Lauren Silva Laughlin is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Get the DealBook newsletter to make sense of major business and policy headlines — and the power-brokers who shape them.

Source link

No comments