- Bank of America
Dealmaking is back.
A string of big corporate takeovers have been announced in the last week, including the big Potash-Agrium deal in the agriculture sector, and the $43 billion combination of Enbridge and Spectra Energy.
The sudden rebound couldn’t come soon enough for Wall Street. Until now, it has been a slow year for traditional investment banking activity, like work on equity and bond deals and advising on mergers.
“We’ve had five very, very strong years, followed in 2016 by a pretty slow start, and a steady recovery where the second quarter is better than the first, and the third quarter, from a revenue and activity perspective, is stronger than the second quarter,” said Christian Meissner, head of global corporate and investment banking at Bank of America Merrill Lynch.
Meissner was speaking at a presentation at Barclays Financial Services Conference on Monday.
Bank of America has been trying to make strides in M&A, in an effort to add to its already strong position in financing.
“That is a big opportunity in its own right, but it is also an important opportunity inasmuch as the M&A business drives a lot of what else we do across the franchise, Meissner said. “Put another way, the best barometer of your boardroom access and CEO relationships are the M&A mandates you get, and here’s an area where we think we can continue to move up.”
- Bank of America
He took a minute to explain why the rebound in M&A activity could catalyze a broader improvement across Wall Street.
For investment banks, the surge in deals can have a multiplier effect, with the revenues they generate extending far beyond straight advisory fees.
Meissner cited the chart to the right, which refers to a “real life example of a transaction” that closed earlier this year.
As you can see, the fee derived from the actual deal advice was dwarfed by the fees that came from working on loans and bonds to fund the acquisition, and revenues from hedging and the like.
“The M&A fee was the smallest part of our revenues from a transaction,” Meissner said. “Financing, derisking, working with our colleagues on global markets in terms of hedging and liability management, all those things together added up to six times the M&A fee.”
You often hear Wall Street bankers describe something akin to this multiplier effect, but it’s very rare to have a bank give a real world example.