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Macaskill on markets: False valuations threaten deal fees

Delusional clients are complicating the business of collecting fees for advising on mega trades for customers such as Saudi Aramco and Tesla.


It turns out Saudi Aramco won’t be going public after all, or Tesla going private.

Not any time soon, at least.

The twin failures of what would have been the biggest IPO in history and what could have been one of the most controversial buyouts of a public company highlight the risks to Wall Street bankers when they try to cash in on audacious deal plans by headstrong leaders.

There were plenty of reasons for the abandonment of the potential deals, but a refusal to take advice on core issues of valuation was central to each embarrassing climb down.

In the case of Saudi Aramco, the stubborn attachment of Saudi Arabia’s crown prince Mohammed bin Salman to a $2 trillion valuation for the oil producer was a key reason for the shelving of an IPO that was intended to raise $100 billion or more in cash.

Even analysts working at banks that would profit from involvement in an IPO struggled to get to a valuation of more than $1.5 trillion for Saudi Aramco, given projected oil revenues.

That stalled the process of making decisions on issues such as listing venues.

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