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It’s time to play catch-up in financial sponsor business

Financial sponsors now account for an important chunk of advisory fees, but not all banks are cashing in.

Credit Suisse’s fourth-quarter results published last month showed a marked improvement in the bank’s full-year investment banking revenue. Underlying these results, though, is a much more interesting trend.

According to Dealogic, revenue from global financial sponsors advisory made up 24% of Credit Suisse’s M&A income, the highest of any Wall Street firm, and net revenue from financial sponsors of $198 million was up 42% on the amount the bank generated from this group in 2004.

It’s not entirely surprising that Credit Suisse should be mopping up so many financial sponsor mandates, given its expertise in leveraged finance and high yield.

However, since activity by financial sponsors now accounts for some 17% of global M&A volumes, and that figure is predicted to rise dramatically this year, what’s more surprising is that other advisory banks are not taking full advantage of what has been such an important part of the market for at least 12 months now.

According to Dealogic, Lehman Brothers and Merrill Lynch pulled in the lowest proportion of advisory revenues from financial sponsors in 2005, at 11% and 12% respectively.

Getting on the private equity gravy train is even more compelling considering how fast new financings generated by financial sponsor deals are growing.

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