If you missed the Sunday Times Business section yesterday there was a Dealbook article titled They're All No. 1, but Are They Worth It? Essentially an after-the-fact slice and dice of the league table manipulations investment banks conduct to show their expertise in a market niche, the NY Times and Capital IQ put tried to assess the value of investment bank advice by looking at acquirer stock performance.
But amid all the jockeying and boasting over which bank is on top, one question seems to get lost: Is all this merger advice worth the price? ...It turns out that if you look at the stock market performance of companies that made acquisitions in recent years, having Goldman Sachs or Morgan Stanley in your corner may not always have been the best choice, according to an exhaustive new analysis by Capital IQ, a unit of Standard & Poor’s, for Sunday Business.
Oddly enough, Deutsche Bank, a commercial banking powerhouse that has only recently gained some traction as an investment bank, has advised on deals in which buyers appear to have wildly outperformed others in their sector. The analysis, which looked at deals announced from January 2002 to December 2005, shows that Deutsche Bank’s clients outperformed other companies in their sector by 28 percent, while clients of Goldman Sachs, for example, outperformed their peer group by only 6 percent. These numbers are based on a calculation of the median performance of companies that made acquisitions with the banks’ advice.
While the study itself might have had some more interesting take-aways, what the article highlighted seemed just like a league table game - depending on the size of the deals and the time period analyzed, different banks would come fair differently. Felix Rohatyn summed it up nicely to close the piece: “The notion that people would fight like tigers to get from No. 20 to No. 7 on the league tables makes no sense,” Mr. Rohatyn said. “Very bad advice can get you to the top of the tables.”