More is less for investment banking fees, as big deals dry up

afr.com:

Investment banks are settling for leaner fees from smaller transactions thanks to a dearth of billion-dollar, headline-grabbing mergers and acquisitions.

Advising companies on M&A or earning the right to lead an initial public offering is fiercely competitive in Australia – an over-banked market where global shops from UBS to Goldman Sachs jostle for deals with homegrown names like Macquarie and Barrenjoey.

Goldman Sachs’ global investment banking revenue declined 20 per cent in the second quarter of 2023. AP

But dealmaking is down from the heady days of 2021. In two years, investment banks have pivoted from hiring sprees to job cuts, thanks in part to a slump in M&A and capital raisings.

Year-to-date fees from Australia and New Zealand M&A was $US337 million ($499 million), down from $US916 million at the same time last year, Dealogic data showed on Tuesday. In equity capital markets, fees reached $US186 million for the same period, compared to $US225 million in 2022.

While overall activity in equity capital markets was 13 per cent higher than last year, fees still hurt because the deals were smaller and paid less than a high-profile IPO would have. And experienced bankers lament the bonuses are not what they once were.

Fees are one of the industry’s best-kept secrets. They are often contentious, and sometimes sensitive because bankers prefer not to publicise the information in case it leads to undercutting.

Before the financial crisis, investment banks typically shared approximately 2-4 per cent in fees on an M&A effort, but in today’s new normal fees rarely scale above 1.5 per cent in corporate M&A, a number of bankers said.

Percentages are also sometimes thrown out the window when it comes to a big-ticket deal like