An increasing number of disgruntled investment bankers in Asia are quitting banking to take advantage of a spike in corporate-sector M&A jobs at companies in the region. But in mainland China in particular, some bankers are finding that the corporate world isn’t all it’s cracked up to be.
Acquisition-hungry Asian companies are on the hunt for bankers to guide them through mergers in 2014, says Rafael Brana, a consultant at search firm Bo Le in Hong Kong. “I’m working on more and more of these in-house M&A or strategy roles, particularly for mainland companies in Hong Kong,” he adds.
Asian corporate M&A jobs tend to be at large companies, like Chinese search engine Baidu, who frequently take over smaller rivals and find that employing their own bankers is cheaper than paying investment banks for external advice, especially if the two businesses already enjoy a close relationship. Consumer goods giant Li & Fung is currently looking for bankers, according to a Hong Kong headhunter who asked not to be named. And last month, in one of Asia's largest recent M&A deals, Singaporean sovereign wealth fund Temasek used its own M&A professionals to acquire a stake in the health and beauty retailer A.S. Watson.
Banks, meanwhile, are struggling to cash in on Asia’s acquisitions market. Their M&A fee revenue in Asia last year, at $3bn, was dwarfed by the US ($10.7bn) and Europe ($5.9bn), according to Freeman data.
Fortunately for corporate employers in Asia, bankers are becoming more willing to move in-house. “Pre-credit crisis, unless it was for personal or work-life reasons, it was challenging to convince a banker to move,” says William Bown, director, global banking and private equity, at search firm Sheffield Haworth in Hong Kong. “Usually the pay differential was insurmountable, particularly with investment banking then on a seemingly never-ending upward trend.”
A shortage of senior investment-banking vacancies and a desire to enjoy “life away from the regulator’s gaze and public acrimony” is now helping to change bankers’ mindsets, says Bown.
Not surprisingly, however, money is the main motivator. “The recent uptick in bankers moving to corporates in Asia has undoubtedly been driven by a compression in the difference between what banks and corporates pay,” says Bown.
While banks can still offer bonuses that trump those of corporates, the gap is narrowing within acquisition-heavy sectors like natural resources where “competition for M&A talent is aggressive", he adds.
Moreover, the smaller total size of corporate bonuses is partly offset by their potentially larger cash component. “Sometimes the total comp in cash terms at an internal group is better than at a bank because you don’t have anything meaningful deferred. At banks these days half your bonus gets deferred and you lose it if you quit before it vests,” says Matthew Hoyle, director of headhunters Matthew Hoyle Financial Markets in Hong Kong.
The most successful bank-to-corporate switches tend to involve bankers who join a former client, says Bown from Sheffield Haworth. “They know the internal culture at the firm and the potential politics to avoid, and they already have buy-in from key senior individuals.”
Not all moves into Asian corporate M&A go smoothly, however. “Many bankers have an ‘organ-donor rejection’ to joining a company because the environment is often slower and more bureaucratic, and many miss the dynamic cut and thrust of a bank,” explains Bown. “I've seen bankers end up in more junior jobs than they should have, for organisations, often based in mainland China, that lack a true business plan or, worse, have greatly exaggerated their financial position.”
He adds: "If bankers arrive without enough seniority, they can get caught in a job without any real influence on the actions of the board. They might work on pet projects for certain board members that subsequently get thrown out in a fit of board politics."
Asian in-house roles rarely provide the “easy life” that some bankers expect, says Bown. “I have heard multiple instances of former bankers now in corporates complaining to me that they are working at least as hard as at investment banks.”
And while investment banks are notorious for making layoffs, corporates aren’t guarantors of job security either. “If your company is no longer looking at doing acquisitions, your job becomes a waste of time for them – I have seen many cases of this,” points out Eunice Ng, director of talent acquisition at headhunters Avanza Consulting in Hong Kong.
Some bankers in Asia are ignoring both the immediate benefits and pitfalls of a corporate job and using it instead as a stepping stone into private equity. “When leverage comes back into the market, the PE funds will be hiring,” says headhunter Hoyle. “The funds will look very carefully at people working in multinational corporates for the simple reason that they will want to sell some of their companies to exactly those firms.”