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Investment Bankers Under Disruption

It seems that more and more acquisitions are happening these days with investment bankers on the side. In short, deals done without an investment banker in the virtual data room are on the rise and two large corporate takeovers in the US last month are evidence of this disruption.

The Wall Street Journal this week points out that neither Comcast, the largest cable TV distributor in the US, nor Chicago drugmaker AbbVie used an investment bank in their recent deals.

Comcast acquired DreamWorks Animation and its characters Shrek and Kung Fu Panda for $3.8 billion and handled the talks in-house.

AbbVie acquired privately-held Stemcentrx and its experimental treatment for small cell lung cancer, for $5.8 billion, again, without announcing the hiring of an advisory firm.

This doesn’t bode well for the big investment banks, already seeing lower revenue on the back of market volatility and slowdown in client activity levels. Credit Suisse just posted a quarterly loss as it struggles to put in place a strategic overhaul announced late last year that includes reducing the size of its volatile investment banking business.

The fact is, that like so many industries and professions, investment banks are having their business models disrupted. Long the recipients of very large fees to advise on deals, they’re having to make changes to stay relevant on the buy-side and offer value. Agile boutique advisory firms are also nipping at their heels.

Corporates, on the other hand, are building internal human resources capable of developing deal strategy without the bankers’ help. The reasoning: they want to be able to be nimble and react quickly when needed and save paying exorbitant fees wherever they can. In-house advisors are also seen as having the company and its employees’ interests at heart, compared to an outside advisor from a big bank.

The WSJ cites sources as saying that Comcast went without an external banker because it needed to move quickly. The deal team, including Chief Financial Officer Mike Cavanagh (a former banker) hammered out an agreement over about two weeks and toward the end of the talks, made a few calls to a boutique advisor for an outside opinion.

AbbVie hired a former JP Morgan banker to be chief strategy officer in December of last year. Within his first two weeks, Henry Gosebruch had approached Stemcentrx indicating an interest in acquiring the company, the Journal wrote, citing a source. By the time an auction for Stemcentrx had begun, AbbVie was advanced in the work it had done on the potential acquisition and had no need to hire an advisory bank.

It called on Bank of America expertise for an opinion just as the deal was being finalized, sources said, no doubt at a much-reduced fee cost.

Both companies didn’t acknowledge the use of the advisory firm or the bank in press releases announcing the deals, interestingly.

Which of course isn’t to say investment bankers are heading to obsolescence anytime soon. Companies on the sell-side of a transaction would find it difficult to go it alone and companies often need additional funding in the deals from banks.

But as many investment bankers from the larger firms are beginning to turn up inside large corporates, deal strategy and advisory may be becoming more of a self-service proposition.


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