The N.Y. Times has a personality piece today on Joseph R. Perella, former Chairman of M&A at Morgan Stanley, and his new investment bank Perella Weinberg Partners. Perella is trying to repeat the success of Greenhill & Associates (Greenhill’s market capitalization today is $1.85 billion) by starting his own independent investment bank. He has has raised $1.1 billion and hired more than 22 bankers as partners, but has only $34 billion in announced deals so far.
The piece quotes Warren Buffet to highlight a crying need for independent investment banking advice. I’m not so sure of this need; these are all sophisticated players and there is full disclosure so everyone knows the conflicts as they arise. Vice Chancellor Leo E. Strine, Jr. of Delaware’s Court of Chancery apparently agrees with me though on different grounds. He likes the big banks and believes that they know their client best and therefore can provide better quality advice than a smaller, freshly-hired independent bank. Elizabeth Nowicki has a really nice post at Truth on The Market about why Strine’s reasoning is likely wrong.
However, there is no doubt that there are conflicts everywhere today in investment banking M&A. This is particularly true due to the rising prevalence of stapled-financing; banks represent the seller in a sale, then "switch sides" at a later stage to provide bidder-financing. To mitigate this conflict, these banks require the seller to obtain an independent fairness opinion from another bank. Boutique banks have profited immensely from this income stream. But, this is more optics than anything else, and although Greenhill and Lazard have succeeded on this model there does not appear to be a tremendous stampede towards these banks. This is mainly because these independent banks can’t provide what transaction participants truly value these days — yes, those inherently conflicted services, such as financing.