Working in M&A is sooo yesterday, says William D. Cohan, author and former MD at JPMorgan and VP at Lazard.
With US$5 trillion worth of transactions likely this year, the global M&A market is booming and on track to have its best year ever by a wide margin. But does that news bode well for those aspiring to a career as a Wall Street M&A advisor? The answer, alas, is "not really".
While Wall Street managers – overpaid and over-promoted bankers themselves – have never been particularly savvy at matching hiring needs to the flow of deals, they are at least clever enough not to bulk up their M&A departments this late into a market expansion that's close to four years old. Much of the M&A hiring occurring now seems to be at the managing director level, replacing those experienced industry experts that jump to rivals or – more and more – who leave investment banking altogether for the holy land of private equity or hedge funds. And while it is certainly true that investment banks are still madly wooing recent college and MBA grads to come to Wall Street to work impossibly long hours making the sausage down in the basement, the likelihood that many of these youngsters will have a meaningful and fulfilling career as M&A advisors on Wall Street is very remote.
Indeed, the life of an M&A banker has never been worse. Impossibly busy flying around the world to attend ponderous yet 'essential' meetings, their advice is taken less and less often as CEOs rely more and more on their growing – and far cheaper – in-house M&A departments. Also, since a third of this year's M&A volume is comprised of deals involving private equity firms such as Blackstone or KKR – whose principals are one-time M&A bankers – the action in investment banking these days seems to be in arranging the financing for these increasingly massive buyouts or in figuring out which clients to take to the Wimbledon finals. This, for sure, is a far cry from the glory days of the 1980s when M&A advisors such as Felix Rohatyn, Steve Rattner, Bruce Wasserstein and Bob Greenhill were akin to rock stars for their ability to devise creative strategies to help their clients clinch industry-transforming deals. When was the last time headlines were made because of some innovative M&A tactic?
Furthermore, the second-quarter financial results across Wall Street reveal with increasingly clarity just how irrelevant M&A departments have become to the big firms' bottom lines. At Goldman Sachs, M&A revenue represented just 6.8% of the firm's revenue in the second quarter; at Lehman, M&A revenue was even less important, equal to just 4.9% of overall revenue for the quarter. Wall Street is increasingly focused on proprietary trading, derivatives, CLOs and private equity.
And when the inevitable downturn in the M&A business comes – probably sooner rather than later – that's when the real skills of investment-banking managers shine. In order to preserve their own multi-million dollar jobs, you can bank on your compensation being slashed dramatically unless of course you are fired outright. Tell me, does this ever get mentioned during those glorious on-campus recruiting cocktail parties? Cheers, mate.
• The writer, a former M&A banker at Lazard, Merrill Lynch and JPMorganChase, is the author of The Last Tycoons: The Secret History of Lazard Frères & Co(Doubleday, 2007)