Lean years leave banks short of savvy dealmakers

Volatile markets meant many companies held back from going public or attempting big merger deals. Picture: AP
Volatile markets meant many companies held back from going public or attempting big merger deals. Picture: AP
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YEARS of quiet deal markets have left a generation of junior investment bankers with little opportunity to cut their teeth and, with many senior staff let go, banks are finding themselves short on experience as business stirs again.

With stock markets volatile during the financial crisis and European sovereign debt woes, many companies have held back from raising funding, going public, or attempting big merger deals.

While the European mergers and acquisitions (M&A) market is still sluggish, with 2013 its slowest year in a decade, the volume of share sales has picked up, according to Thomson Reuters data, with companies raising more this year than any year since 2009.

Bankers working in the sector say this has already exposed some of their junior counterparts as a little wet behind the ears.

One senior London-based investment banker said: “For the next couple of years, the people point will be key.

“There really is a lack of experienced talent almost everywhere. It will be a real issue. Only a few banks have kept senior teams.”

Bankers say the size of many equity capital markets (ECM) teams, which run deals ranging from stock market flotations to sales of secondary shares by already listed companies, has shrunk by around 30 per cent during the years of lean deal flow, and the pick-up in volumes has not yet spurred new hiring.

“It takes a long time to build a team that works,” added the banker.

The 2014 outlook for investment banking services survey published by Thomson Reuters and Freeman Consulting this month found corporate decision makers ranked detailed industry knowledge as by far the most important factor when selecting a bank.

Of those surveyed, 80 per cent in the Europe, Middle East and Africa region ranked this as a critical factor, versus just 15 per cent citing a competitive fee structure as key.

Bankers say fewer advisors are now being invited to pitch to work on upcoming deals, with the higher ranked advisory banks widening the gap within the European top ten league table.

The ECM rankings for 2013 showed an almost $7 billion (£4.3bn) gap between the financing raised for clients by sixth-placed UBS and seventh-placed Citi. At the same point in 2012, the top ten banks were more closely matched, with gaps of only $2bn to $3bn.

He added that a willingness to commit capital to deals was also contributing to the widening of this gulf. He said: “If you do not want to play the risk deals it has an impact on the ranking.”

In M&A, some are adapting to the lack of activity by moving down the size scale.

One banker said: “We have a strategy of doing smaller deals. It’s important to be in the flow and follow clients even on smaller deals, and the deal flow is also important for our junior bankers to get experience.”

But fewer banks are now offering full investment banking products across all regions and are instead narrowing their focus, a decision some bankers say is not sustainable as clients will choose those able to offer them the full range.

One senior banker said: “If you are not a top-tier adviser it is going to be increasingly difficult to make a go of it in Europe. You will continue to see large banks pulling out of things, restructuring their business model.”

A lack of experienced investment bankers in Europe could be a concern to companies that are considering floating on the stock market.

Reports over the weekend reignited speculation that the company behind Formula 1 motor racing could float next year after one of its owner, private equity house CVC, lost out in the race to buy sports marketing firm IMG.

New York and Singapore have been touted as possible locations for its initial public offering.