Team players and star performers

by Jonathan Brown

When it comes to mergers and acquisitions, getting the right adviser can be of paramount importance for any company at a crucial moment in its history. Consequently, tables released by data providers, such as Thomson Financial and Computasoft Research, can play a major role in making a selection. It might be expected that the field would not be too contentious – after all, the figures must surely speak for themselves. But a little controversy has now been injected into the mix, thanks to a comparative newcomer in the M&A league table business.

That new player is mergermarket.com and the controversy surrounds the company’s decision to expand on the usual list of league table services by publishing tables ranking the named individuals at each advisory firm who are actually doing the deals.

The latest league tables from Thomson Financial show Goldman Sachs leading the way, with Morgan Stanley Dean Witter following, both by value and number of deals for the first 10 months of this year. Computasoft Research’s also show Goldman Sachs and Morgan Stanley Dean Witter topping the lists.

By contrast, mergermarket.com’s latest individual rankings, by value of deal, have Simon Robey and Bruce Fiedorek, both of Morgan Stanley Dean Witter, filling the top two spots, with Lou Friedman of Donaldson Lufkin&Jenrette in third place. The rankings by number of deals make more interesting reading and introduce new names, with Carlo Calabria of Credit Suisse First Boston on top and Marcus Agius of Lazard in second place. This raises interesting questions. Which ranking is of greater use? Is number of deals a better measure of experience and effectiveness than deal value? The debate continues.

The introduction of rankings of individuals makes many investment banks unhappy. Star deal-makers are supposed to have gone out of fashion in the late 1980s, along with highly leveraged buy-outs and mergers arbitrageurs. Team work is the new ethos. Senior managers at leading investment banks don’t relish their M&A stars being poached or demanding bigger salaries, and M&A bankers themselves are wary of seeking public glory.

Even getting the big players in the industry to discuss the individual rankings is not easy. As one insider puts it: “The banks don’t want to talk about individual rankings. They will not provide names and details of individuals’ work.” He goes on to say that it was felt by these banks that individual rankings would inevitably lead to a “star culture” and cause internal problems with issues such as salaries and team morale. He acknowledges, however, that the individuals involved feel flattered to see their names associated with these tables.

Caspar Hobbs, CEO at mergermarket.com and one of the men behind the tables, is more than happy to listen to the banks’ concerns. As we discuss the issue over coffee (Caspar orders a double espresso – clearly a man burning the candle at both ends in the effort to make his new company a success) he elucidates. “At the moment,” he says, “it’s just six of the banks that don’t provide us with this kind of information and we can understand this. We’re not out to upset the banks. We understand their comments and still have a healthy relationship with them. It’s correct for us to respect their decision.”

All very cordial, but mergermarket.com is not so concerned that it is going to stop producing these new rankings. Hobbs explains that the philosophy behind mergermarket.com is fundamentally different to that of competitors, such as Thomson Financial and Computasoft Research. In short, mergermarket.com’s target clients are not the banks themselves, but corporates active in the M&A field. “I don’t consider the likes of Thomson as competitors,” says Hobbs. “We’re trying to do something entirely different. We look at business development and where opportunity lies in the market tomorrow, not yesterday.”

Hobbs explains that the company carried out extensive research into what its potential clients wanted from a data provider before the service went live, and a deeper insight into the personalities involved in the advisory business was high on the list of their priorities. “There’s a demand from corporates to know about the individuals involved,” he claims. “It’s difficult to tell the difference between the big investment banks. What we provide is a further degree of transparency … Our tables go a step deeper than the others.” It may be that a particular bank has little track record in a certain sector, but if an individual who does have a lot of experience in that sector has just joined the firm, this may make the bank more attractive.

Team ethos

Many claim that such tables can only be detrimental to the industry as a whole, undermining the team ethos that is paramount in the work of the banks and promulgating a ‘star culture’ that spuriously places the individual above the company. There is a wider issue here: whether or not a firm wins business on the strength of its name alone or because of the people making up the firm’s teams. On the other side of this coin, do individuals secure the deals merely on the back of their firm’s reputation? Hobbs would argue that it’s the people actually doing the business that count.

Thomson considered producing rankings of individuals but dropped the idea when the opposition of the banks was made clear. As Gillian Middleton, European M&A research manager at Thomson, says: “The banks put to us reasons not to produce these rankings which we felt were valid. There are issues like staff security and poaching which can be genuine problems. We reached a compromise whereby we would collect this kind of data from some houses but wouldn’t publish it in league tables.”

Quite apart from these issues, Middleton is not convinced that publicizing the individuals involved in the deals has much to offer anyway. “I think that the individual rankings are not actually that relevant. The people doing the deals are getting coverage anyway and head-hunters are already aware of who’s doing what – they don’t need these tables to show them.” It’s a fair point. But if this is so, concerns that tables ranking individual bankers might encourage poaching are also a red herring. “The banks themselves are, of course, fully aware of what their people are doing so they don’t need them either,” she continues. “Talking about these issues is perhaps building us up to have more influence than we in fact do.”

None of this addresses Hobbs’s point that the tables aren’t aimed at the banks anyway.

Michael Maclure, director at Computasoft Research, also has reservations about the individual rankings: “Some banks feel that a cult of personality is unacceptable, therefore they won’t provide the necessary data. But others will provide it. I don’t think it’s possible to produce these tables unless all the banks are playing ball.” He feels that this compromises the validity of any such rankings. “As far as we’re concerned,” he continues, “this issue has stirred up a hornet’s nest. It’s impossible to police.”

Maclure is also sceptical of Hobbs’s argument that such tables are of great interest to corporate clients. “I don’t think that potential clients are interested anyway. It may be interesting to the banks but not to the man in the street.” He questions mergermarket.com’s motives for producing the tables. “Perhaps they are trying to shake up the market but I don’t think it will work – it doesn’t enhance the merger and acquisitions world all that much. Sure, it may make it seem a bit more sexy, but it’s not of that much interest.”

For Maclure, ensuring the accuracy of data can be an issue right across the board, although he qualifies this by commending the fundamental honesty of the banks when providing the information. “Policing is the most important issue we have to address.” He has some reservations, explaining that the system is, at least theoretically, open to abuse. “We take the data at face value but have, and need to have, an established procedure available to deal with any contested issues, when we would revert to such things as letters of engagement.”

This, in itself, may be seen to call the validity of the conventional rankings into question. If the system isn’t foolproof, then are firms manipulating figures to improve their position? Bankers try it in bond league tables.

But Maclure feels that the system works pretty well. “The banks are keen for us to have all the deals they’re involved in credited, so they make sure we’re fully apprized of all those deals.” Middleton agrees: “The banks are fairly good at getting it right. There is also some cross-checking of accreditation between the banks to ensure that the credit only goes where it’s due.”

Hobbs, for his part, argues that the fact that a few banks don’t provide full data is not the problem others claim. “We employ an enormous number of researchers to get this data and we also confirm it with the corporates. Just because a few banks don’t provide us certain information, it doesn’t mean we can’t get it.” The company also employs a large team of journalists to track new and potential M&A deals arising from corporate restructuring.

Some of the leading investment banks seem intent on discrediting the newcomer’s work. A source in the industry states that the refusal of certain leading banks to provide data to mergermarket.com makes its rankings unreliable. “You have to remember that the unofficial nature of their figures means that there are inevitable holes in the data they use,” he says. He claims that it’s not unknown for mergermarket.com to miss out some big deals, leading to serious distortions in their rankings.

Hobbs does not deny that there are problems. “We provide as accurate a picture as possible,” he says. “That’s all any financial data provider can do. We have to be careful as it can be a minefield, but we talk to not only the advisers but also the corporates – the real litmus test of who’s doing what.”

Playing the percentages

Getting the tables right can certainly be a painstaking task, and the analysts apply a rigid set of criteria to ensure that all is correct. Computasoft Research gives “full credit to all banks acting as financial adviser, dealer manager or the provision of a fairness opinion,” and stipulates that “agreed involvement must have been undertaken before the filing date/official announcement”.

It’s not unknown for a bank to claim credit on a deal after the event. An example is the Time Warner/AOL deal where a dispute arose after an adviser appeared to try getting into the deal after the event. This rather desperate adviser telephoned one of the parties involved after the deal was announced, claiming that a previous informal conversation regarding the deal constituted advice, and that the firm should be credited accordingly. The adviser did not receive any credit.

Applying the correct amount of credit to advisers can also a problem. According to Maclure, “As far as we’re concerned, if you’re in the deal, you’re in the deal. There’s no way to police the percentages.” But it’s surely not right that an adviser should get equal credit on a deal for providing a much lower level of service.

Thomson, on the other hand, does make attempts to divide the credit in a deal. Middleton says: “We have a clear set of rules to ‘pro rata’ deals. For example, if a firm advises on 30% of a deal, it is credited with 30% of the deal’s value.” But how does a firm quantify the amount of credit an adviser is due accurately? “We also study mandate letters to check exactly what role a house is playing in a deal. If all are credited equally then there’s no extra weighting – all get equal accreditation.”

The whole process of producing advisory league tables is fraught with such problems.

Mergermarket.com’s concern with the corporates defines what it does and differentiates its activities from those of others. As Middleton freely admits, the work of Thomson is aimed at the banks themselves. “The ranking tables are very much used as a marketing tool by the investment houses,” she says. “They are also used for competitive intelligence – banks looking to see how they’re doing in relation to the others.”

But is this really of any importance when every set of tables reads as merely a list of the usual suspects? Surely anyone could reel off the top players in the M&A business without thinking? For example, figures from Thomson for the first nine months of 2000 place Goldman Sachs top in value of deals announced, with Morgan Stanley Dean Witter second. No surprises there: and no prizes for guessing that the likes of UBS Warburg, Credit Suisse First Boston and Schroder Salomon Smith Barney are up there too. Aren’t the tables as much about massaging egos as providing valuable business information? Middleton reluctantly agrees, but still argues for their usefulness. “The tables help the banks to see where they are and they can use the statistics in press releases and the like.”

This is where the strategy of mergermarket.com seeks to score over the others. Hobbs says: “Other tables are primarily for the use of investment banks for marketing. Ours are used by the corporate to assist in decision making during any beauty parade and to analyze sector and geographic expertise. The whole point behind ours is that nobody gives a damn about the top advisers across the board. If you are, for example, a chemical company, you want to know about the top advisers within that sector.”

Hobbs elaborates on the service that mergermarket.com is looking to provide. “The names of the individuals is really only about 10% of what we do,” he says. “Our service provides the only complete business intelligence tool to M&A practitioners, both corporate and banking.” Mergermarket.com gives details of M&A activities by sector and enables the client to track all the transactions taking place in Europe within each sector, giving deal information such as bidder, target, value and advisers involved in the deal.

The website offers the facility to view streaming video footage of M&A announcements and other news, as well as a chatroom where corporates may discuss possible acquisitions and disposals and compare notes on the standard of advice offered by the investment banks.

For Hobbs, this kind of service is necessary as the issues to be considered when choosing an adviser go much deeper than just the names of the banks. He explains that, by offering the facility to study the individuals at each adviser and their track records, clients are more likely to hit upon the adviser with the greatest expertise in the sector in which they are looking to expand.

“If you look at the teams at each bank,” he explains, “it might seem that one has more teams in your field than the others. But the actual people in the team at another bank may have much more experience in that field.” He claims that corporates are able to shorten the process of choosing an appropriate adviser by sifting through the potential advisers at mergermarket.com to find two or three that offer the most experience and expertise, then invite these in for negotiations.

Whatever the pros and cons, mergermarket.com has certainly made an impact on the M&A analysis field. But the last word has to go to an unnamed adviser at one of the industry’s leading players: “The problem with these tables is that the bosses show them to us and say: ‘Well done guys’. Then they turn round and ask us to work even harder.”