IFR Editor-at-large Keith Mullin
I’d been mulling issue this over for quite some time but was jolted into action when the latest of a string of these tie-ups hit my desk a week or so ago. This time it was Evercore and VTB Capital unveiling their strategic co-operation agreement to originate business between Russia and North America.
Like everyone else, I’d seen receiving similar announcements with a fair degree of frequency. But then I thought about the fact that the same names kept cropping up, with a clear tendency towards emerging markets. Of course, we keep hearing about so-called South-South deal flow but it hasn’t emerged yet in a dominant way for the investment banking industry.
But it’s undoubtedly going to account for an increasing proportion of the industry wallet as corporates and investors seek to buy into growth. Beyond the EM-to-EM flows, tie-ups are also looking to create opportunities around defined global trade, natural resource/commodity and business corridors.
I jotted down just a few of the recent arrangements on the investment banking side and ran the results of my analysis against year-to-date investment banking fee income across M&A, ECM and DCM. The results were startling. Before I get to the numbers, stay with me here as I run through a bit of a list.
I reckon if each of the constituent firms in this web of tie-ups works the relationships to their full extent, they are likely to pick up market share in ideas-driven businesses that require trusted independent advisers.
So Evercore now has a deal going with VTB. VTB also has a deal with BTG Pactual. Pactual has a deal with CITIC Securities, which just acquired CLSA from Credit Agricole for US$1.25bn. Evercore also has a deal going with CITIC; Pactual has a deal with SMBC, and recently acquired Bolsa y Renta in Colombia and Celfin Capital in Chile as part of its regional build-out. Evercore has Argentina covered with its arrangement with Quantum Finanzas. Adding a second Brazil dimension, Evercore also has a 50% stake in G5 Advisors, the high-end Brazilian investment banking boutique founded by former Goldman LatAm chief Corrado Varoli. G5 and Evercore have arrangements with Mizuho.
I’ll keep going: Evercore inked deals with Woori in South Korea and Kotak Mahindra in India. Kotak, in turn has an arrangement with Japanese boutique GCA Savvian and has also hooked up with CIMB. CIMB, of course acquired most of the Asia-Pacific (ex-India) cash equities and investment banking business of RBS. In its quest to build a pan-Asian platform, CIMB cosied up to John Keelis Stock Brokers in Sri Lanka; and acquired a majority stake in Bank of Commerce in the Philippines.
Collective strength
I’m sure I’ve missed a bunch of announcements here, but here’s my point: if you add up the wallet share of Evercore, CITIC, Pactual, CIMB, VTB, GCA Savvian, CLSA and Kotak Mahindra across ECM, DCM and M&A, you create an institution that ranks 14th in global investment banking, with fees of US$894.5m.
By product, the combo ranks 22nd in global DCM, 12th in global ECM and, saving the best for last, 10th in global M&A, the sweet spot that a lot of the collaborations are seeking to reach.
But think also about the footprint that the combination has. It’s got China and South-East Asia, the Indian sub-Continent and Japan; Russia, Brazil and Latin America (with perhaps the exception of Mexico) well covered. Evercore is a global firm with a deep footprint in the US, and, through its acquisition last year of Lexicon, added nearly 100 bankers, mainly based in the UK..In essence, this combination of small or relatively small firms constitutes a fully globalised web with some of the smartest and best connected bankers in the world in its midst with access to and deep relationships with some of the world’s major companies and entrepreneurs.
The arrangements offer a nimble approach and a huge degree of business and financial leverage-ability. Contrast that with the huge cost constraints, the convoluted regulatory constraints and the barriers to entry that many of the bulge-bracket commercial and investment banks are facing. The globals have clear advantages in that the EM/boutique partnerships aren’t going anywhere near global flow businesses that require technical and operational efficiencies or demand huge scale. And their financing firepower is necessarily limited in that some are pure advisory shops.
But I reckon if each of the constituent firms in this web of tie-ups works the relationships to their full extent, they are likely to pick up market share in ideas-driven businesses that require trusted independent advisers. And of course that pay high fees. Could this be investment banking globalisation redefined?
