Last week Goldman and Morgan Stanley dropped sneaky hints about maybe changing their accounting so they could lend their way into more M&A deals. But this week we're back to Barclays lending its way into more M&A deals, and Skip McGee got a little excited about it for DealBook:
“We’ve long had a big-boy M.& A. business,” Hugh E. McGee III, Barclays’ head of investment banking and a Lehman veteran, said in an interview. “And now we’ve got a big-boy checkbook.”
That's a pleasingly straightforward take on the Barclays rises from Lehman's ashes story, in which Lehman bankers find it quite congenial to be able to win deals by lending gobs of money to companies to pay for their mergers. Not that that's how Barclays wins mandates or anything:
But Mr. McGee said the bank’s aim was not to rely on lending to get into deals. Barclays is less likely to make a giant loan commitment if it is not one of the lead advisers on a transaction, he said, and is being discerning about to whom it lends.
“We want to lead with our relationships and then use our balance sheet,” he said. “We don’t want to lead with our balance sheet.”
So is that working? Just for fun/to play with the Secret Dealbreaker Bloomberg/to make some charts, I made some charts. Here's a really crude chart showing a bank's asset values versus its sell-side M&A activity. Why those things? Well, assets correlate pretty well to lending activity: huge universal banks like JPMorgan and Barclays tend to do much more lending than mid-size investment-banky banks like Goldman and Morgan Stanley, which in turn do much more lending than teeny boutiques like Evercore. And sell-side M&A assignments should be much less driven by lending than buy-side work: in general, the seller's banker doesn't need to lend money to get the deal done*, so the seller is unlikely to hire JPMorgan over Lazard just because JPMorgan has a bigger balance sheet. And that's about what you find:**
There's a trendline there, but it's pretty weak, with a 0.02 R2: size of balance sheet has basically nothing at all to do with success of sell-side M&A franchise. Barclays, the red blob, is right on the pseudo-trendline: their $108bn of sell-side M&A volume in 2011 is 8th in the league table and right in line with what you'd expect for a bank with a USD 2.4T balance sheet.
Now, here's bank balance sheet size against buy-side activity, which you would expect to be influenced by lending, since having committed financing when you announce a deal is a nice thing for an acquirer:
I guess this supports the intuition that lending gets you more buy-side deals than sell-side deals, though with an R2 just below 0.10 it's not overwhelming evidence that buying M&A league table with lending works particularly well. In any case, Barclays does seem to be outperforming that trend a bit, with $180bn in buy-side activity good for 3rd in the league table. So, good work Barclettes. Maybe you'll earn back those late night snacks.
Barclays Capital Rises, ‘Big-Boy Checkbook’ in Hand [DealBook, also Reuters, BW]
* Though sometimes the seller's banker is lending to the buyer, and is Barclays, and screws it up.
** Charts show (1) global announced M&A volume in 2011YTD, as reported in Bloomberg MA , and (2) total assets as of 3Q2011 when available (Perella Weinberg and Moelis are private companies so I just used zero for their total assets, which is probably about right relatively speaking), for the top 25 banks in global announced M&A overall. Sell-side is filtered for "Target Financial Adviser" and "Seller Financial Adviser"; buy-side for "Acquirer Financial Adviser."