“Banks were facing constraints such as the increased cost of capital and reduced risk appetite,” Awad, head of Boardroom Metrics Arabia and founder of merger and acquisition firm Awad Advisory, said by phone. “Banks wanted to do fewer but bigger deals at a higher fee, while I wanted to do more and more.”
Awad is among a rising number of Middle Eastern bankers starting their own firms or joining boutique investment houses to exploit what they see as a profitable niche in the market: advising on the smaller M&A deals overlooked by larger rivals. The share of fees for independent advisory firms in the region rose to 36 percent last year, up from 22 percent in 2011, according to New York-based research firm Freeman & Co. That coincided with a 16 percent drop in fees for the global banks.
Banks from Credit Suisse Group AG (CSGN) to UBS AG (UBSN) cut jobs in Dubai as deals dried up after the crisis. The 10 biggest investment banks, including JPMorgan Chase & Co., Deutsche Bank AG and Citigroup Inc. have lost about 11,000 front-office staff globally in the past two years, analytics firm Coalition said in May. Morgan Stanley, the top-ranked adviser for M&A in the Middle East and Africa, also cut Dubai jobs.
Shrinking deal sizes “have forced larger investment banks to rethink their strategy with respect to M&A,” said Phil Gandier, head of transactions for Ernst & Young LLP in the Middle East. “Bulge bracket banks increasingly use M&A to win more lucrative balance sheet and capital markets business.”
The average value of M&A deals in the region fell 36 percent to $192 million in the first half, from $300 million a year earlier, according to the consulting firm.
Ali Asghar, former head of Lazard Ltd. (LAZ:US)’s Dubai office, recently left to set up his own boutique emerging markets-focused firm, according to a person familiar with the matter, asking not to be identified as the move wasn’t announced. That’s after helping drive the Hamilton, Bermuda-based bank to the top of the list of independent advisers in the region this year, ranking 10th among all banks after working on five deals worth $5.5 billion, according to data compiled by Bloomberg.
“Companies want to work with people they know and who are there for the long term,” Christopher Wheeler, a London-based analyst with Mediobanca SpA said in a telephone interview from the city. “Some of the bankers at the boutiques have been there longer than some of the bankers who fled.”
Lazard has climbed the tables recently. Last year, it ranked 13th, up from 15th in 2011, the data show.
The bank is advising French media firm Vivendi SA (VIV) on the sale of its majority stake in Morocco’s Maroc Telecom SA for 4.2 billion euros ($5.6 billion) to Abu Dhabi’s Emirates Telecommunications Co. It also advised Qatar Holding LLC, the investment arm of the Gulf state’s sovereign wealth fund, in negotiations with Glencore International Plc. (GLEN)
“The Middle East remains an important participant in the global M&A marketplace,” Mian Zaheen, chairman of Lazard Middle East said in an e-mailed response to questions.
Moelis & Co., founded by former UBS AG investment bank president Kenneth Moelis in 2007, ranks 20th among companies advising on regional M&A this year, up from 43rd a year earlier, according to data compiled by Bloomberg. The company is advising the Emirates Investment Authority on its 60%-owned affiliate Etisalat’s attempted acquisition of Maroc Telecom.
Merger and acquisition deals valued at $43.2 billion have been announced in the Middle East and Africa this year, the highest since the same period in 2007 and 24 percent higher than a year earlier, according to data compiled by Bloomberg.
“Many seasoned bankers from larger investment banks join boutiques,” Jameel Akhrass, a partner at Perella Weinberg Partners LP and former investment banking head at Nomura Holdings Inc. (8604) in the Middle East and North Africa, wrote in e-mailed comments. They “bring with them not only years of experience, but also client relationships that they have fostered over their careers.”
Perella advised Emirates NBD PJSC (EMIRATES), Dubai’s largest bank, on its acquisition of BNP Paribas SA’s Egyptian unit for $500 million in December. It also advised Qatar on its acquisition of Italy’s Valentino Fashion Group SpA.
Awad, 40, says his own firm has mainly worked on cross-border sell-side deals, declining to provide more details. Previously, he worked at Goldman Sachs Inc. for 13 years in London, Paris and Dubai, including as head of debt financing for the MENA region. He joined Merrill Lynch in Dubai in 2007, where he was a managing director after it was taken over by Bank of America, and stayed until resigning last year.
“We’ve had a steady growth in mandates,” he said. “The reason is that they’re smaller deals. They’re in the sweet spot of what companies in this region want to do.”
Boardroom Metrics is a franchise-based business with about 25 consultants. The Dubai office has also enlisted Nasser Saidi, a Lebanese politician and economist who was formerly chief economist at the Dubai International Financial Centre, according to Toronto-based Boardroom Metrics’s website.
A Bank of America (BAC:US) spokeswoman in Dubai, who asked not to be named citing corporate policy, declined to comment.
M&A activity is picking up as the Persian Gulf recovers from the financial crisis and family-owned businesses seek to grow. Companies are favoring smaller deals as confidence remains low because of regional political turmoil, said Ernst & Young’s Gandier. Sovereign wealth funds are also more focused on managing existing assets rather than new deals, he said.
“Large ticket deals have reduced and this has certainly opened more opportunities for smaller boutique firms,” said Ian Gomes, head of advisory for consultancy KPMG LLP in the Middle East. Still, “we have also seen big investment banks play for smaller M&A deals so they continue to remain present,” he said.
To be sure, independent firms are also still trailing their larger competitors in the league tables. Morgan Stanley (MS:US) is the region’s top M&A adviser so far this year, working on about $18.2 billion of deals, more than triple Lazard’s share. The New York-based bank advised Abu Dhabi’s Mubadala Development Co. when Dubai and Abu Dhabi agreed to merge their aluminium smelting companies to create a $15 billion joint venture.
Barclays Plc (BARC), the third-largest arranger of deals in the region, was an international adviser on a plan by Egyptian construction and fertilizer company Orascom Construction Industries to transfer shares from Cairo and London to Amsterdam, in the region’s largest deal this year valued at about $10.5 billion, according to data compiled by Bloomberg.
Barclays also advised Bahrain’s Investcorp Bank BSC when it sold its majority stake in British online payment company Skrill Group in August to CVC Capital Partners Ltd. in a 600 million-euro ($802 million) transaction.
“There’s always room for independent advisory firms but our main competitors remain our peer group of universal international banks,” Makram Azar, vice chairman of investment banking for Barclays, said in an interview. “Companies these days after the financial crisis prefer one-stop shop firms to support them with their financial needs for everything.”
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