Investment Banking Boosted by Mergers and IPO Activity to Start 2013

The first month of 2013 marked a strong start in the initial public offering (IPO) business, with year-to-date deals tripling their 2012 volume. According to an HITC Business report, investment banks facilitated a very strong $10.6 billion in transactions in the month of January. The strong start to the year will certainly be welcome news to those in the investment banking industry that have seen IPO revenues struggle to regain their footing following the financial crisis in 2007.

The majority of the IPO activity has come from real-estate investment trusts (REITs), including a $2.6 billion offering from Zoetis in New York and a $1.6 billion deal from LEG Immobilien AG in Frankfurt. Rounding out the major IPO deals in January was a $1.1 billion IPO of the Nippon Prologis REIT from Japan. Together, real estate deals have accounted for 30 percent of the total global IPO activity in January.

Merger and Acqusition Activity Also Strong to Start the Year

Not to be outdone by those on the IPO desk, mergers and acquisitions activity also had a strong start to 2013. In contrast to the real estate deals seen in the IPO market, Tech, Media and Telecom (TMT) was the leading segment when it came to mergers. Leading transactions included a $21.7 billion bid for Virgin Media and the $18.1 billion offer for Dell Inc. Mergers and acquisitions announced in the TMT segment alone have tripled compared to the previous January, marking a very strong start to the year.

Boutique Firms Carry Forward Momentum

In an interesting development, boutique advisory firms are taking a leading role in many of these major deals. While the IPO market is still being led by giants such as Goldman Sachs and Deutsche Bank, small firms are increasingly playing in the merger and acquisition advisory market. LionTree Advisors scored a major coup when they landed the $21.7 billion mandate for the Liberty Media bid for Virgin Media, which represented the biggest deal in the firm’s history. In addition, fellow boutique firms Centerview Partners and Ondra Partners participated in the $3.3 billion Biogen bid for drug rights from Elan Corp. Participation in such high profile deals is certainly evidence of a shift towards smaller firms playing a bigger role in merger and acquisition advisory.

What Does This Mean for Investment Banking Job Seekers?

After several years of negative revenue trends, the news that 2013 is off to a strong start will certainly bring some cautious optimism for those looking for opportunities in investment banking. Major international IPO activity will certainly provide some of the revenues required for many Wall Street firms to avoid major cuts in the near future.

Most interesting is the increasing role that boutique firms are playing in a range of advisory activities. The increase in the number of smaller firms taking on big deals bodes well for the industry as a whole, as more opportunities should be created as these groups expand. Further, it opens the door to experienced and enterprising professionals in the industry to perhaps take a run at launching their own advisory operation.

In either event, cautious optimism will be the outlook as 2013 rolls on, with industry eyes focused on whether the investment banking can sustain this pace over the first quarter and the remainder of the year.

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