Professional services
What do you do when you've clocked up 10, 15 or more years' experience at an investment bank and decide it's time for a change? Right now in Europe, it's increasingly popular for investment bankers to take off to a professional services firm.
These companies, intent on expanding corporate finance and transactions services teams, have been snapping up banking talent and are seeking more. “I've got a search mandate out to hire three more partners at the moment and, yes, we're looking for bankers,” says David Barker, global head of financial services M&A at Ernst & Young.
In the past month, the pace of hiring has increased. Deloitte hired HSBC's head of corporate finance consumer services, Jonathan Grassi, who had spent 15 years in investment banking, to become a director in the consumer business part of its corporate finance practice, and Dan Martin from Morgan Stanley to work in the technology, media and telecoms team.
Also last month, KPMG hired Stephen Dunn from the leveraged finance department of Sumitomo Mitsui Banking as manager in its debt advisory team to provide advice on structuring new debt issues, refinancing existing obligations, structured finance, securitizations and leasing products.
KPMG also added four bankers to its project finance team. Its new director is Mark Puckett, a 19-year veteran of banking, previously head of energy and power finance at Bank of America. The other hires were Gillian Butchart from HVB, Declan McManus from David Wylde Project Finance, and Iain Tester from Bayerische Landesbank.
In his previous job, Tester had worked on arranging senior debt facilities for UK infrastructure and public-private partnership deals such as the London Underground, Docklands Light Railway and Skynet. He says one of the things that appealed to him most about joining KPMG was that although its reputation in project finance had largely been built on its public sector work, it was hoping to expand in the private sector, an area where he had a lot of expertise. “That sort of challenge appealed, as well as the fact that there is a wider variety of work here,” he says.
From public to private
When it comes to advisory work, particularly in M&A, the professional services firms are seeing a decent amount of deal flow where the investment banks are floundering. Deloitte says part of the rationale for the new M&A hires is that it has a full pipeline of activity and confidence that the M&A market is set to improve further. For a start, mid-market deal flow, with which these firms have been more traditionally associated, has held up a lot better than the jumbo cross-border offerings, which have tended to be the preserve of the investment banks.
The amount of activity around each transaction has increased dramatically. “When it comes to a trade disposal, formerly you might have seen five or six parties interested in an auction,” says Barker at Ernst & Young. “Now with all the trade, private equity and domestic bidders, you could see double that number and they all need advice.”
He argues that because professional services firms can assemble whole teams in house, actuarial, funding and advisory for example, they can price more effectively and keenly. In contrast, investment banks haven't seen the returns that they have been expecting. “Why are banks going to accept a 0.25% advisory fee on reasonably complex transactions? These departments have suffered significant culls in the last two to three years and the advisory institutions are seeing an opportunity,” says Shaun Springer, CEO of executive search firm Napier Scott.
“There's a lot of very blue chip bank CVs floating around and in general we are recruiting. There are some excellent people around and as a corporate finance house, we always want to improve our people,” says Paul Zimmerman, staff partner for corporate finance at Deloitte in London.
Deloitte is looking at bankers with expertise in vibrant M&A sectors where the firm can further expand its business or at those candidates that have a good track record in bringing in new deals. “If they've got great sector experience then that's one way we can develop it quicker,” adds Zimmerman.
It's not as if these firms have small corporate finance advisory operations in the first place. For example, KPMG Corporate Finance, the umbrella group that covers all the advisory and deal management activity at the company, has 1,600 people in 51 countries covering everything from M&A advisory and finance, debt advisory, structured, leveraged and project finance, private equity, IPOs and secondary equity offerings. In 2003, it handled 1,700 key mandates with a total value of $285 billion worldwide.
PricewaterhouseCoopers has more than 2,400 staff in its transactions services businesses alone, bringing together M&A bid support and defence, due diligence and structuring. Thompson Financial say it's the UK's leading M&A adviser for deals ranging between $50 million and $500 million.
“Bankers are genuinely surprised to see what we do here,” says Barker, who himself has a background in investment banking, most recently in the financial institutions M&A group at Deutsche Bank. “Before they talk to us, they assume we might have five or six people working in their area, when the truth is that we've got 105 in our UK financial services/corporate finance group, which is more than major investment banks. Collectively last year, we worked on more than 80 transactions in financial services.”
Less pay, more certainty
There are clear down sides. Even the most senior hires aren't going to have the earnings potential they might expect at an investment bank but on the other hand there is more job security and therefore less chance that salaries and bonuses will fluctuate from astral to zilch in a business cycle.