Goldman Sachs dominates the league table that matters: deal fees

In the post-financial crisis era, the most powerful US M&A advisors can be divided into two groups. At the top, the traditionally dominant investment banks, Goldman Sachs and Morgan Stanley. Below them, a coterie of much smaller, boutique firms who have exploited the turmoil at the large universal banks to poach talent and who are winning an increasingly large share of deals.

An FT analysis of deal fees paid between 2014 and 2016 confirms that broad picture, but it exposes some stark realities that are not picked up in the traditional M&A league tables, which typically rank advisers based on the size of the deal, rather than the metric that really matters: fees.

View Wall Street M&A fee rankings

The first is that Goldman is even more dominant than usually recognised. Over the three years to 2016, it earned nearly $2bn as an adviser on the sellside of deals involving US public companies valued at greater than $500m, implying a fee share of greater than 20 per cent. Morgan Stanley, Goldman’s longstanding arch-rival, placed a distant second with a little under $1.3bn in fees. JPMorgan, the bulge bracket bank most unscathed by the financial crisis, finished third with less than half Goldman’s fee income.

Graphics and web development by Claire Manibog.

A second, stark reality is that, for all the talk that America’s other universal banks may be about to stage a comeback, Citigroup and BAML remain leagues behind. The international bulge bracket banks Credit Suisse, UBS, and Deutsche Bank do not even rank in the top 10 in the FT analysis and, with lingering difficulties in their home markets, their American renaissance may be some way off.

Typically, sellside deal fees are set as a percentage of the company’s equity or enterprise value. The fee rate typically decreases as transaction sizes grow. For example, the average total fee in the FT study for transactions valued at between $1bn and $5bn was 0.92 per cent; for transactions between $10bn and $25bn, the average rate was 0.29 per cent.

Several banks confirmed to the FT that clients that are selling themselves remain highly conscious of fee levels even though, in sale transactions, acquirers ultimately are responsible for paying the fee.

The FT rankings, based on sellside fees disclosed in regulatory documents and collated by Dealogic, show how the universal banks have typically not been able to achieve fees commensurate with those charged by either of their large rivals Goldman and Morgan Stanley or the boutique firms, like Qatalyst, that have sector specialities.

The ability of the boutiques to out-earn much larger rivals is another stark feature of the fee-based rankings, reflecting how they have been able to convince corporate America that they can excel on the biggest deals.

The bulge-bracket banks are, however, gunning to win more business at lower fee rates. "They are interested in high return-on-equity businesses such as M&A,” says Steven Chubak, a research analyst at Nomura Instinet, “so they have become more competitive on compensation and retention of top bankers. This is reflected in our market share data which shows that the big banks have started to improve their position of late.”