Investment bank fees soar past $100bn on M&A boom

On M, investment bank fees have surpassed $100 billion.

Investment banks are raking in record sums, with fees surging past $100bn in the first nine months of the year thanks to a rush of dealmaking.

Wall Street’s top banks and leading boutique advisers have benefited from the boom in mergers and acquisitions as well as red-hot equity capital markets. Fees for both are at the highest level since records began two decades ago and have hit $60.6bn in the year to date, according to Refinitiv.

Lenders also earned $52bn underwriting loan and debt offerings in the first nine months of the year as companies rushed to lock in low rates.

Five American banks, led by JPMorgan Chase and Goldman Sachs, have taken the greatest share of the $112.6bn in fees earned so far this year. The two Wall Street banks are estimated to have hauled in a combined $18bn in fees.

Blair Effron, co-founder of Centerview, one of the largest boutique investment banks, said that 2021 has been a phenomenally busy year that saw corporate America continue to prefer making deals over organic growth, something he says has been true for close to a decade.

“Companies are more experienced with M&A as a tool,” Effron said. “Given the rapidity of disruption, for a lot of companies it’s easier and faster to think about buying.” 

Column chart of Q1 to Q3 by type ($bn) showing Global IB fees hit an all-time high

Advisers have benefited from a robust recovery in M&A activity since the early days of the pandemic with dealmaking fees up 46 per cent in the year to date.

The total global value of deals is up 98 per cent compared to the same period last year and already exceeds the record set six years ago with $4.3tn worth of transactions agreed so far. US dealmaking, which hit a record $1.95tn in the first three quarters, accounts for almost half of global M&A activity.

The largest in the three months to September was a $29bn cross-border transaction between payments group Square and Australian “buy now, pay later” provider Afterpay.

It joined several big deals that have been struck since the start of the year, including WarnerMedia’s combination with Discovery and Canadian Pacific’s hard fought acquisition of Kansas City Southern for $31bn.

Private equity deals and the boom in blank cheque companies have helped propel global M&A activity to an all-time high, accounting for 32 per cent of activity.

Buyout groups have had their busiest period on record, striking deals worth $818.4bn so far this year as firms race to invest the enormous amounts of cash they have accumulated.

“It’s one of the busiest years I can remember in the recent past. The funds have a lot of cash to spend,” said Marni Lerner, co-head of private equity M&A at Simpson Thacher. “While prices are still high, interest rates are still low and debt financing is still available.”

A $34bn acquisition of US medical supply company Medline by a consortium of private equity groups, comprising Blackstone, Carlyle and Hellman & Friedman marked the return of large club deals, which had fallen out of favour in the aftermath of the financial crisis.

Private equity’s appetite for European assets has been on display during two recent bidding wars. One of those, the battle to take UK grocery Wm Morrisons’ private, is set to conclude in a rare auction process this weekend featuring rival bidders Clayton, Dubilier and Rice and Fortress Investment Group.

Global dealmaking continues to break records

In Germany, Swedish private equity firm EQT has gazumped H&F with a €3.4bn bid for online pet supplies retailer Zooplus.

Just under 40 per cent of M&A volumes in Europe are from private equity activity, an unprecedented market share according to Dirk Albersmeier, global co-head of M&A at JPMorgan Chase.

“We’ve never seen so many take privates in Europe, with over half of the 20 that have taken place coming in the UK. The share prices of many of these companies didn’t recover quickly in the months after the pandemic and that is where private equity saw opportunities,” he said.

While regulatory scrutiny and underperformance have damped investor enthusiasm for special purpose acquisition companies in recent months, they still account for about 13 per cent of total global M&A this year having announced 272 deals worth $545.3bn. 

“The reality is that it is a product that has long-term viability and it is here to stay,” said Nacho Gutierrez, Citigroup’s head of banking, capital markets and advisory for Europe, the Middle East and Africa.

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