Wall Street’s biggest banks think small

Wall Street’s biggest banks traditionally shied away from getting their hands dirty advising on small mergers and acquisitions. Too much work for the modest fees, so they focused on the blockbuster deals.

But with the pandemic-induced slowdown in deal making this year, bankers who have been talking about embracing smaller clients for ages are finally doing it. They’re swooping in on smaller transactions — those of $ 500 million or less — winning assignments to an extent not seen in five years. And in so doing, they are elbowing out some lesser rivals that typically make their bread and butter advising smaller clients.

“When the larger deals are slow, people pick up the smaller deals,” said David Friedland, global head of mergers and acquisitions in the cross- markets team at Goldman Sachs.

In the first nine months of the year, Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., Jpmorgan Chase & Co. and Morgan Stanley advised on about $ 61 billion of announced transactions in the global small and mid- sized segment, according to data compiled by Bloomberg. That gave them 9.2 per cent of that market, their largest slice since 2015, and enough for the banks to dominate the advisory rankings.

It’s a big change from last year when mega- mergers ruled and big banks’ share of the small end of the market fell to just seven per cent.

Now, while deal making has fallen almost 25 per cent through Sept. 30, the volume of transactions valued at up to $ 500 million has seen a less severe drop, down by only 14 per cent.

A small M& A deal typically generates roughly the same fee margins compared with bigger, more complex purchases, but the segment can hardly make up for the decline in bigger transactions. In 2019, for instance, there were four deals that individually were bigger than the entire $61 billion volume of this year’s deals of $ 500 million or less.

For Goldman Sachs, its emergence as the top adviser on smaller deals this year is also a sign that an effort to build teams dedicated to winning smaller corporate clients is paying off. Goldman Sachs bankers began fanning out across the U. S. two years ago to pitch companies once deemed too small to warrant regular attention.

Friedland said that initially some smaller clients were skeptical. They’d ask “How committed are you to the middle market? We have seen this before,” Friedland recalled. “And that’s true, we first started talking about this effort more than 15 years ago. But now we have 190 people dedicated to this part of the market and they’re not getting pulled out to do $ 10 billion deals when they come along, they are full- time on the $300 million deals.”