Sunday, October 3, 2010

Global Investment House - A Global Leader in M&A?

Everything is relative:  In a small bowl, a small fish can feel very, very big.

On 27 September, Global published a press release in which Mr. Badr Abdullah Al Sumait was quoted as saying:
"نعتز بهذا الانجاز المتمثل في تبوء جلوبل مراكز متقدمة ضمن كبرى بنوك الاستثمار العالمية في مجال الاستشارات المالية لعمليات الدمج والاستحواذ. ويؤكد هذا الإنجاز الدور الذي تلعبه جلوبل على مستوى المنطقة في تقديم خدمات الاستشارات المالية كما ويدعم سياسة الشركة المستقبلية في التركيز على الأنشطة التشغيلية ومن بينها الاستثمارات المصرفية."
Quite a statement "ranked among the largest investment banks in M&A".

What was the basis for what might appear to be a rather extraordinary claim?

Reports from Thomson Reuters and Merger Market.

In TR's report on the first six months of 2010, Global was:
  1. 4th among financial advisors in M&A deals completed in the MENA region 
  2. 17th among international investment banks for deals completed in the EMEA region.
  3. 15th for deals completed in Emerging Markets
In MM's report, Global was:
  1. 6th among FAs for announced M&A deals in MENA during the first half of 2010
  2. The Bharti Airtel/Zain transaction on which Global acted as FA was the largest in the MENA region and 8th worldwide.
There's no dispute about Global's position in the league tables, which was due to a single transaction, Bharti/Zain.   Each transaction does count.  Global was Bharti's advisor and so has earned a place in the league tables.  But this single transaction is its only claim to league-table prowess.

And so like the local mutriba after her first big hit, it may be a bit premature to claim to be the next Fairouz or Umm Kulthum,   One may well turn out to be, but the claim will only be proven by repeat performances.   

Now I'd repeat what Global says in its press release:  it is the only GCC or MENA firm to make the list.  So maybe Global might more properly see itself as a regional leader in M&A (though I'd still contend that it had to have repeat performances to qualify at that level).  Not Kawkab Al-Sharq but perhaps Kawkab Al-Khalij.

To be fair,  let's trundle off (electronically, of course) to Thomson Reuters highly intelligent Deals Intelligence Site to take a first hand look at the 2Q10 Global M&A Report.  And by doing so, get a bit of context.

A few factoids from that visit.

M&A Volume for the First Six Months of 2010

Announced - US$1.065 Trillion / Completed US$811 billion
  1. Americas:    US$523 billion / US$405 billion
  2. Africa/ME:  US$  42 billion / US$  32 billion
  3. Europe:        US$269 billion / US$200 billion
  4. Asia Pacific: US$199 billion / US$114 billion
  5. Japan:            US$  32 billion  / US$ 60 billion
Anyway you slice it Global's US$10.7 billion in 2010 transactions are drop in the vast ocean of all deals. 1%.   It did have a good sized share among Africa/Middle East deals - 25% Announced Deals and 33% Completed Deals - but Mr. Al Sumait is claiming that Global is among the  leading global investment firms in M&A.  Not that it's a leading firm for Africa/Middle East M&A.   

As the table shows, Africa/ME is rather small beer in the M&A world representing 4% of announced deals and completed deals. 

Let's look at this from another angle - the top 25 advisors for worldwide M&A.

Top 25 Global M&A Advisors
  1. Global's name does not appear either in Announced Deals or Completed Deals.
  2. The top ten firms (led by the perennial leader Goldman) had between US$213 billion to US$112 billion in announced transactions and US$169 billion (Goldman again) and US$60 billion in completed transactions. UBS was in 10th place Announced Deals with US$112 billion.  And Rothschild in 10th place in Completed Deals with US$60 billion.
  3. The advisory firms in 25th rank Jeffries (Announced) and Blackstone (Completed) had respectively US$21 billion and US$14 billion in transactions.
Generally the first ten firms are considered the leading firms. Unless one is prepared to define "leading" investment banks in a very generous way Global again fails to make the "cut". 

 Top 25 Financial Advisors for EMEA M&A
  1. Deutsche Bank holds pride of place in Announced Deals with US$94 billion with Citi at US$45 billion in 19th place.  
  2. For Completed Deals it's Morgan Stanley with US$85 billion.  JPMorgan  is in 10th place with US$50 billion.
  3. Global makes its appearance in 23rd place with US$11 billion in transactions for Announced Deals (up from 220th the year before) and 17th place for Completed Deals. Well out of the magic circle of the top ten.
In this category, Global can make the claim that it has made substantial progress - but on a regional not global level.  As I said above, the real proof will be if Global's name is in the list next year.  But until it cracks the top ten it won't be a leader but a second tier player.

Can anyone out there remind me what Global earned on the Bharti transaction?  Earnings are very important in this business.  For the first six months of 2010, the Company reported advisory related fees of KD1.9 million up substantially from the KD0.3 million it earned in 2009.  That's a 638% increase.  One would hope the fee on a US$10.7 billion would be a "bit" more.  Maybe we'll see the full force of the fee in the 3Q10 financials?

And finally at the end of the Global press release, you'll find links to Thomson Reuters and Merger Market reports which can give you an insight into the general M&A market.


Vanguard said...

In my home country, we had league table of undergrad schools and sometimes a school would announce its standing as being in the top 7 or top 12 in business or engineering. One would wonder who came up with such lists of 7 schools or 12 schools and the answer was the school itself because it would be the 7th school or 12th school and it sound much better than saying we are in top 10 or top 20. May be Global should follow a similar strategy

Abu 'Arqala said...


League tables are pretty well gamed. Sometimes on a mega deal you'll see more FAs than required - usually banks providing financing to the acquirer. And usually the fees are small.

It's similar to the invention of roles for various banks to play in syndicated facilities. We once made a bank "Lead Technical and Model Bank". I don't recall they did much of anything for the title.

And league tables can be created from deal data bases. I was on a pitch once where we created our own category of industry transactions in a sub region and remarkably we're #1. At the time my firm was not in the top five in global M&A.

The real test with Global on this deal is the fee. If they're getting peanuts, then I'm not sure what their rank means. Clients, especially some from particular Eastern areas of the world, are highly cost conscious. And often compare domestic wage scales to the foreign experts' proposed fee.

I once saw a major financial publication's ranking of business schools which included marks for (a) attractiveness of campus, (b) social life etc. Factors I wouldn't consider being highly relevant to the choice of a trade school.

Laocowboy2 said...

"Global Investment House - A Global Leader in M&A?" - Replace M&A by Spin perhaps? And all too often, those who spin too fast and for too long spin out of control.

Abu 'Arqala said...


At least 40% of investment banking is spin.

As the old refrain goes "What's an investment banker?"

"Someone who sells something he doesn't have to someone who doesn't need it."