Lazard’s latest earnings report shows that mergers and acquisitions rankings have few clothes. The Wall Street firm ended this year’s first half with a 10 percent share of completed deals, leaving it in ninth place, according to Thomson Reuters data. Yet by revenue the company was in the top five.
Business mix explains some of the discrepancies. Lazard’s numbers, for example, include its restructuring unit, whose deals aren’t usually included in industry league tables. Stripping out that $56 million contribution to the top line, though, would still leave the firm as the fifth-largest M.&A. revenue producer.
But the difference between Lazard’s M.&A. market share and its wallet share, in the jargon, also results from rival banks grabbing credit even when they haven’t done much work - and so haven’t been paid much. The most obvious example is when a company buying a competitor needs to finance the deal and brings in a bank with a big balance sheet to help.
The lender probably doesn’t take the advisory lead on the actual takeover and often may not contribute anything beyond capital. But it will usually end up sharing the limelight - any firm dubbed an adviser gets an equal share of league-table credit even if it gets less of the fee.
That’s not the only way to glom onto a deal, of course. A buyer or seller may throw a bone to a bank to keep a relationship open - be that for other services rendered in the past, or for services perhaps wanted in the future. Or an adviser may snap up credit after giving a fairness opinion, which usually requires only limited work.
Lazard is by no means the only bank whose revenue and league table rankings don’t match. Evercore doesn’t make the top 10 in the latter, but hits the eighth spot on revenue with $290 million of advisory fees. Bank of America and Citigroup each had a 22 percent share of the M.&A. deal market in the first half of 2013, yet the former raked in $240 million more from its efforts.
And despite having just a 3 percentage point lead in completed transactions, Goldman Sachs vacuumed up around $400 million more in fees than nearest rivals Morgan Stanley and JPMorgan Chase. The league tables can shed useful light, but they don’t always highlight who’s best dressed.
Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
