Investment banks around the world are feeling the effects of a sluggish Eurozone and a delayed American recovery. This is especially true in the mergers and acquisitions segment of the industry. Reuters UK is reporting that company officials are predicting deal growth of only 12 percent in 2013, which is down sharply from the 22 percent increase forecast by the same group only a year ago. The investment banking reality has truly shifted over the past few years as businesses take fewer risks, and as a result, pursue fewer large scale acquisitions.
The Nature of Investment Banking Deals Continues to Shift
With uncertainty in Europe and the lingering after effects of the debt crisis cited as key reasons, the nature of deals being managed by investment banks is significantly shifting. In the past, much of the work was in brokering mergers or buying up suppliers and competitors. Today, as companies reduce risk, transactions are focused on deleveraging, returning excess capital to shareholders and divestitures. Unfortunately for investment bankers, most of these activities pay significantly lower fees than the high profile acquisitions of the past. As a result, firms are rebalancing their teams, focusing on select profitable areas and reducing staff and overhead in segments that are not producing. Nomura is one such investment bank that has recently looked at shuffling the deck to find greater efficiencies and focus amongst their teams.
Asset Sales an Area for Growth
One area that is gaining attention from most firms is asset sales and divestitures. According to the Reuters article, when surveyed, the majority of firms in Europe, the Middle East and Africa are currently consider the shedding of non-core assets as their key merger and acquisition goal for the coming year. The majority of the buyers for these assets are predicted to be in the United States and Asia.
Corporate Bond Market Remains Strong
With historically low government and corporate bond yields today, especially in the long end of the curve, many corporations are looking to shuffling their existing debt portfolio and extend maturities or refinance older higher cost debt. This has become a key activity for many investment bankers; however the fees again don’t stack up well against the big merger and acquisition paydays. That said, the volume of corporate debt issued may be a life saver for some struggling firms, with some estimating that this year the industry may see the 2009 record of $1.5 trillion of bond issuance shattered.
What Does this Mean for Investment Banking Job Seekers?
The investment banking job market continues to be one of limited opportunities and fierce competition. Many firms are currently cutting staff, especially in areas where demand is struggling, such as mergers and acquisitions Limited opportunities are appearing in some of the growing areas such as fixed income origination and trading, but the number of candidates vying for limited openings makes getting a foot in the door difficult. Those with years of experience in niche markets or a strong track record of results must be opportunistic in seizing positions when they become available.