February 14, 2013 6:52 pm

Different faces in dealmaking deluge

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Investment bankers are enjoying a flurry of work on high-profile acquisitions but, if the deals are reminiscent of the last big wave of M&A, some of the advisers are very different.

Wells Fargo, less renowned for dealmaking than for being the biggest mortgage lender in the US, provided both advice and financing to 3G Capital and Berkshire Hathaway for their bid for Heinz.

With a $1.3tn balance sheet and the biggest market value of any US bank, the San Francisco-based lender is making strides in building its investment bank. It worked alongside JPMorgan Chase, far more established in the area, on the Heinz deal.

“In order to grow the revenue of the company and the returns of shareholders, they need to get into different lines of business,” said a former investment banker at Wells. “The one big area of finance they really were not involved in was capital markets.”

One person close to the deal said the presence of Wells was a sign of its emerging strength and a great shop window for the bank’s capabilities.

However, two other people close to the deal suggested there was another factor at play – the presence of Warren Buffett as Wells’s biggest shareholder. One said the bank would not have been on the deal without that.

Other advisers on the deal would not be familiar in the last peak of M&A in 2007. While Lazard, which was the lead adviser to 3G and Berkshire, boasts a history going back more than 150 years, Centerview Partners and Moelis & Co, which date to 2006 and 2007 respectively, advised Heinz and its board of directors.

All three firms, though, are part of a phenomenon of independent advisers attracting a bigger share of deal fees.

“Independent advisers are the beneficiary of this boost in dealmaking,” said one banker. “We are seeing greater value being placed by corporate clients on independence, consistency and confidentiality.”

The biggest banks and investment bank specialists such as Goldman Sachs and Morgan Stanley will continue to attract fees from M&A and the aggregate amount so far this year should provide a fillip in Wall Street’s first-quarter earnings.

“The capabilities to advise and finance large transactions should be beneficial to the universal investment banks. They will do very well if the deal momentum continues,” says Henrik Aslaksen, global head of M&A at Deutsche Bank. “Big M&A is clearly back on the agenda.”

According to estimates from Thomson Reuters, the Heinz deal should reap nearly $100m for financial advisers. Heinz is estimated to be spending $48m-$60m on its advisers, which are Centerview Partners, Bank of America Merrill Lynch and Moelis & Co. Berkshire Hathaway and 3G Capital are estimated to be spending $25m-$37m to pay Lazard, JPMorgan and Wells Fargo.

Bankers say the spurt in dealmaking is being driven by a rise in confidence about a strengthening macroeconomic backdrop as well as red-hot financing markets providing record breaking sums of cheap debt to finance bids.

Private equity funds are under pressure to deploy funds in bids as existing funds come to the end of their investment periods and buyout firms look to raise new funds.

However, dealmakers caution that many of the factors facilitating M&A have been in place for a while and boards are still being cautious in their approach.

Leverage levels are rising in deals, and by some measures asset prices are already becoming inflated. According to Partners Group, a Swiss investor in buyout funds purchase prices in Europe have reached 9.7 times earnings before interest, taxation, depreciation and amortisation, a level it described as “inflated”.

Bankers say that the flurry of deals will only boost volumes further, as companies get confident enough to pull the trigger on dealmaking plans held up by recent macroeconomic crises.

“The more deals are announced, the greater the sense of corporate ‘can do’. M&A activity is driven by primeval emotion – fear hinders, confidence emboldens,” said Philip Yates, a partner at Perella Weinberg.

Additional reporting by Tracy Alloway in New York

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