JPMorgan and Goldman Sachs go head-to-head for talent as Wall Street competes for private equity dollars
- JPMorgan promoted a banker to regional head of the financial sponsors M&A group, in a move that ended his talks for a role at Goldman Sachs.
- JPMorgan is competing fiercely with Goldman to win business advising the portfolio companies of private equity firms with their M&A strategies.
- Banks are expecting a wave of deals from private equity firms which hold $1 trillion in cash globally that they have to put to work — or must return to investors.
Mahir Zaimoglu was almost a Goldman Sachs employee. Almost, until his JPMorgan bosses offered something sweeter.
JPMorgan elevated Zaimoglu, an investment banker, to a newly created role heading financial sponsors M&A for Europe, the Middle East and Africa, according to a memo earlier this year.
Known for being a talented banker to private equity clients, Zaimoglu scored the promise of a raise and backed out of his talks with Goldman, according to people with knowledge of the negotiations.
While the give-and-take for talent happens often on Wall Street, this particular episode highlights the highly competitive nature of how big banks are gearing up to serve a private equity industry that’s sitting on $1 trillion in cash that must be deployed or returned to investors in the coming years.
The largest banks, already at or near the top of the league tables and looking for new sources of investment banking fees, are searching for ways to wring even more money from their clients.
Wall Street typically covers private equity with bankers in what’s called the financial sponsors group, who focus on the largest private equity firms, such as Blackstone Group or Apollo Global Management, and deal with everything from merger advice to bond underwriting.
But now, some of the largest banks are pouring resources into teams devoted exclusively to M&A deals for those clients, and increasingly family offices or sovereign wealth funds. These bankers tend to work closely with smaller investors, or directly with the CEOs and finance chiefs of the companies they own, according to David Friedland, head of Goldman’s business.
Their work includes representing companies looking to sell, spin off divisions, buy competitors, or acquire bolt-on businesses. The transactions are often no larger than a few billion dollars, a tier below the mega-deals that capture headlines. While regional investment banks like Harris Williams & Co and Bank of Montreal have traditionally done this kind of work, the largest banks have avoided it because the fees haven’t been plentiful enough to justify more bankers. But as private equity firms have amassed more money, that’s boosted deal volumes as they put their billions to work.
The bet that Goldman, JPMorgan, Credit Suisse and others are making is that these M&A bankers will be less distracted by bigger deals and more able to give personalized service.
“We’re trying to target gaps between coverage,” Friedland said in an interview at the firm’s Manhattan headquarters. “Our focus is to grow the pie, in terms of both revenue and market share, not just reallocate the slices.”
Last year, Goldman helped sell Phoenix Services, a company that reclaims metal from the smelting process, to companies owned by Apollo. The bank also advised on the sale of Asmodee, the maker of the Settlers of Catan board games, to PAI Partners.
Not everyone is convinced. One private equity investor, who asked to remain anonymous, said he doesn’t like to pay for M&A expertise. In his estimation, his employees who began their careers at the investment banks know it just as well. Instead, he counts on banks to provide financing, bring a greater diversity of deal flow, and deliver expertise from bankers with a deep knowledge of specific industries, he said.
Reluctance from private equity isn’t going to keep Wall Street from trying. Goldman’s effort began with the May 2015 naming of Stephanie Cohen to run what’s now known as the financial and strategic investor M&A practice. After Cohen was elevated to chief strategy officer in November, Friedland replaced her. The group now has 26 bankers who target deal sizes between $500 million and $3 billion.
Deals of that size, where volume can make up for smaller transactions, can mean real money. About 25% of Wall Street’s total deal fees have come from private equity clients this year, up from 18% in 2011, according to Dealogic data. Goldman ranks number one in 2018, followed by JPMorgan, according to the data.
“There’s still a perception that Goldman doesn’t do deals under $1.5 billion,” said Friedland, whose group reports up through the M&A practice run by David “Dusty” Philip, Michael Carr and Gilberto Pozzi. “That’s no longer true.”
It will now face more competition for smaller game. JPMorgan, which has about 50 managing directors across the globe devoted to M&A, took the first steps to a similar business model with Zaimoglu’s May promotion. He’s been asked to prioritize mandates, make decisions on how to staff projects, and drive performance of the group, according to the memo. Hernan Cristerna, co-head of global M&A for JPMorgan, cited “a real rapid increase in M&A activity led by sponsors” as an impetus for the move.
“They have a wall of funds available, and it needs to be deployed,” Cristerna said. “We had been expecting this, so we dedicated someone to focus on M&A full-time.”
That said, JPMorgan views the business differently than Goldman. It’s more concerned with covering existing clients better rather than working with new clients, and it’s got a more fundamental mission, Cristerna said.
“I would like to have the best M&A business on the Street,” he said.
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