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Guest comment: M&A careers are passé

Working in M&A is sooo yesterday, says William D. Cohan, author and former MD at JPMorgan and VP at Lazard.

With US$5 trillion worth of transactions likely this year, the global M&A market is booming and on track to have its best year ever by a wide margin. But does that news bode well for those aspiring to a career as a Wall Street M&A advisor? The answer, alas, is “not really”.

While Wall Street managers – overpaid and over-promoted bankers themselves – have never been particularly savvy at matching hiring needs to the flow of deals, they are at least clever enough not to bulk up their M&A departments this late into a market expansion that’s close to four years old. Much of the M&A hiring occurring now seems to be at the managing director level, replacing those experienced industry experts that jump to rivals or – more and more – who leave investment banking altogether for the holy land of private equity or hedge funds. And while it is certainly true that investment banks are still madly wooing recent college and MBA grads to come to Wall Street to work impossibly long hours making the sausage down in the basement, the likelihood that many of these youngsters will have a meaningful and fulfilling career as M&A advisors on Wall Street is very remote.

Indeed, the life of an M&A banker has never been worse. Impossibly busy flying around the world to attend ponderous yet ‘essential’ meetings, their advice is taken less and less often as CEOs rely more and more on their growing – and far cheaper – in-house M&A departments. Also, since a third of this year’s M&A volume is comprised of deals involving private equity firms such as Blackstone or KKR – whose principals are one-time M&A bankers – the action in investment banking these days seems to be in arranging the financing for these increasingly massive buyouts or in figuring out which clients to take to the Wimbledon finals. This, for sure, is a far cry from the glory days of the 1980s when M&A advisors such as Felix Rohatyn, Steve Rattner, Bruce Wasserstein and Bob Greenhill were akin to rock stars for their ability to devise creative strategies to help their clients clinch industry-transforming deals. When was the last time headlines were made because of some innovative M&A tactic?

Furthermore, the second-quarter financial results across Wall Street reveal with increasingly clarity just how irrelevant M&A departments have become to the big firms’ bottom lines. At Goldman Sachs, M&A revenue represented just 6.8% of the firm’s revenue in the second quarter; at Lehman, M&A revenue was even less important, equal to just 4.9% of overall revenue for the quarter. Wall Street is increasingly focused on proprietary trading, derivatives, CLOs and private equity.

And when the inevitable downturn in the M&A business comes – probably sooner rather than later – that’s when the real skills of investment-banking managers shine. In order to preserve their own multi-million dollar jobs, you can bank on your compensation being slashed dramatically unless of course you are fired outright. Tell me, does this ever get mentioned during those glorious on-campus recruiting cocktail parties? Cheers, mate.

· The writer, a former M&A banker at Lazard, Merrill Lynch and JPMorganChase, is the author of The Last Tycoons: The Secret History of Lazard Frères & Co(Doubleday, 2007)

Comments (10)

  1. At last – somone actually comes out and states what everyone outside of m&a thinks!

  2. M&A is too lucrative for the megabanks to ignore. All they do is push a few sums around an Excel sheet and sort out overexcited bidders with a bit of cash. In exchange, they pocket a wad of notes. The Street and the City will fight like crazy to hold on to their share of the M&A gravytrain.

    MBA & CFA Grad Reply
  3. pure genius – cohan you’re the man

  4. This guy is only envious! M&A is still the division where is more difficult to get in, where you can work with excellent people without exception, where meritocracy is what matters, and career growth path is perfectly defined…
    If you don’t know how meny people went to private equity and the fund then went bankrupt or closed, you cannot really assess how much high is the private equity risk…

    And I know of very skilled guys that badly terminated their career in a PE fund that went bankrupt or closed…
    But on 1 thing I agree with the author, if you don’t like to work hard don’t go to investment banking ;-)

  5. X – who is exactly envious? A trader or structurer’s total comp by far outweighs an equivalently ranked m&a banker!

  6. i am so glad i got out of m&a. it was my first experience after university and the hours were terrible. i stayed for several months. i guess m&a is ok for those who don’t mind working 14 hours a day, 6-7x a week and having no social/family life. now i’m in corporate finance and still have a very good salary but i only work 5 days a week and 8-9hrs a day. i actually have a life.

  7. X is clearly not in working banking – he’s a wannabe or maybe works in 3rd tier player. Maybe another time

  8. It is not as lucrative as prop trading, PE but where else do you get revenues for essentially putting zero capital? All you need is some presentable people with spreadsheets. Also the deal flow and news often leads to lucrative financing/hedging/ECM mandates. Agree however that it is no longer where it used to be and the age of the superstar banker is probably over. Most companies and PE firms have ex bankers in acquisitions and they know the same tricks themselves.

    A, Investment Banking Reply
  9. William D. Cohan reminds of Frank Partnoy after or the guys who wrote monkey bussiness… it’s laways easy to critisize sth after you actually did it…. and before going to pe or hedge fund you have to pay your dues by learning to work hard under extreme pressure… and this you can learn probably only in the m&a departments of bulge bracket banks…for sure there are a lot of people who leaved after working in m&a for one or two years, who became very succsefull afterwards, but only few say they could achieved this without prior M6A experience So long…Cheers to you, mate !!!

  10. I cannot agree more in one point:
    In-house M&A Departments. Far cheaper and probablye much more focused on the company and its industry. Its more than a trend, its the logical evolution from my point of view. The question for which I am not able to find a right answer is wheter the people working in these departments (lets called them “Business Development” ) will have a finance background such Pwc, deloitte Audit, TS , M&A and if a MBA or Ms in Finance will be the standard.
    What do you think??

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