Buffalo hunters burgeon as the big banks go

By Nick Stride

Friday 3rd May 2002

Where now for corporate finance?

Now that the jumbo deals - $500 million-plus - are getting few and far between, most corporate finance teams are concentrating on the middle-market $10-100 million range.

Credit Suisse First Boston earlier this year joined its New York-based brethren JP Morgan and Merrill Lynch in pulling out of the country.

Of the global behemoths, the only ones left are the two Europeans, ABN Amro and Deutsche Bank, and Salomon Smith Barney, which operates in the capital markets rather than investment banking.

Some say the battle for business has shifted to the middle market. "Once the elephants have gone," KPMG corporate finance partner Tony McNaught ruminated, "the elephant hunters either go where there are more elephants or they turn their guns on the buffalo."

Not everyone agrees.

"Reports of the elephants' death are greatly exaggerated," Deutsche Bank NZ chief executive Scott Perkins said.

Deutsche thinks 2002 will be the year of cross-border activity as companies constrained by new competition laws look outward for growth.

Mr Perkins said the exodus of US-based investment banks reflected their weak position in the New Zealand market rather than any constriction of deal-flow. "You need strength and breadth across equity, debt and advice," he said.

"The question for investment banks is, does your local platform deliver competitive advantage compared to basing it in a major local hub?"

Nor does everyone agree the elephant hunters are gone.

Scott St John, the head of the as-yet-unnamed operation he and other managers bought from CSFB, said the bank had not so much pulled out as "chosen to service clients in a different way." Under the terms of a strategic alliance signed this week, the local operation will be looking for "business as usual."

JB Were has a strong transtasman presence both in sharebroking and investment banking. Macquarie rivals Were in Australia and is endeavouring to match it here.

Still, the buffalo are increasingly spoilt for choice of corporate finance advice and execution.

All of the "Final Four" accountancy firms have well-staffed corporate finance divisions and there is a raft of "boutique" local players, such as Northington Partners and Cameron & Co.

And two of the trading banks, Westpac and ANZ, have been beefing up their corporate finance arms.

The New Zealand head of Westpac Institutional Bank, Mike Allen, said he was increasingly encountering very successful small to medium enterprises. And those businesses were looking for increasingly sophisticated products and advice.

As the average deal size has shrunk, much of corporate financiers' workload has shifted into the private equity arena.

First quarter 2002 figures show a huge drop in mergers and acquisitions volumes and value but the New Zealand market, financiers point out, has always been "lumpy." Most report they have plenty of work on. JB Were, for instance, said it was working on five possible IPOs (initial public offerings), four debt issues and three takeovers.

Many of the transactions companies were contemplating last year were put on hold following the September 11 attacks and fears the world economy would go into recession.

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