New wave of advisers plan to go it alone

Chief executives are calling on investment bankers with no fixed employer to plug the gap in advisory expertise, writes David Rothnie

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When most investment bankers resign for pastures anew, the first call they receive is from a headhunter. But for a small number of the most elite dealmakers, the person on the other end of the phone is more likely to be the chief executive of a large-cap company, or a senior government official.

In February Michael Zaoui, the former head of Morgan Stanley’s European investment banking division, joined this elite when it emerged that French cement company Lafarge’s chief executive, Bruno Lafont, had drafted him in to negotiate a deal. In 2005 Simon Robertson, a former partner at Goldman Sachs, left to found boutique Simon Robertson Associates and has continued to advise companies as an individual adviser.

But Zaoui and Robertson are exceptions, rather than the rule. They belong to a small number of senior bankers who have such strong ties with companies that they continue to have the ear of chief executives long after they’ve left a large bank. Scores of senior M&A bankers have left big investment banks since the crisis started, depriving chief executives of their most trusted advisers at their long-term relationship banks.

Zaoui was Lafont’s go-to adviser during his long career at Morgan Stanley, so when it came to Lafarge selling its stake in Cimpor to a Brazilian conglomerate in February, he wanted Zaoui’s experience and judgment around the boardroom table, said a source familiar with the deal.

One banker who has worked for a bulge- bracket firm and advised chief executives on a personal basis said: “CEOs are on the edge when they are doing deals, and they want the person whose judgement they can trust. Trust and judgment come with experience. If a CEO looks at his bank and the guy he used to rely on is no longer there, it’s human nature to get him on the team.”

Being a lone ranger in M&A is tough. Over the past five years there has been only a handful of public cases where top European rainmakers have worked as individual advisers. In 2007, Claudio Costamagna, the former chairman of Goldman Sachs’ European investment banking division, grabbed the headlines when he advised Italian investment firm Capitalia on its $29bn acquisition by UniCredit. Costamagna has yet to resurface.

And in 2005, Anthony Fry, senior managing director at boutique Evercore, was in the middle of advising UK media company Capital Radio on its Ä1bn merger with GWR when he left Credit Suisse First Boston for Lehman Brothers. Capital wanted Fry to continue on the deal and he gained league table credit in an individual capacity.

But the financial crisis may have changed how companies use individual advisers and small boutiques. In times of uncertainty, M&A advisers with decades of experience are in demand. Michael Klein, a former head of investment banking at Citigroup, emerged as an adviser to UK Prime Minister Gordon Brown on the bailout scheme by the UK Treasury in 2008.

While several boutiques that launched in London over the past two years have enjoyed some early success, there is a longer history of senior advisers leaving to establish boutiques that compete for large-cap mandates in the US. Greenhill, Evercore, Blackstone, Moelis & Company and Centerview Partners are all examples of businesses started by a single, or a small group of rainmakers, that have gone on to global acclaim. Most landed a multi-billion dollar mandate early on to distinguish them from smaller boutiques, and some used the financial crisis to launch their European or Asian operations.

The movement of senior bankers to rivals, boutiques, or out of the industry is also shaking up corporate relationships. The three biggest European M&A deals announced this month featured an unfamiliar line-up of advisers. Credit Suisse bagged a new role as top adviser to Prudential, which bypassed its brokers UBS and Goldman Sachs in its Ä26bn ($35.5bn) acquisition of US insurer AIG’s Asian operations, AIA.

US drugs company Merck hired boutique advisers Guggenheim Securities and Perella Weinberg, rather than JP Morgan, for its Ä5bn purchase of Millipore, while UK drinks group Diageo overlooked Goldman Sachs and opted for local firm Citic Securities on its acquisition of Chinese liquor producer Sichuan Swellfun.

In the face of such a challenge by boutiques, bulge-bracket banks have focused on how they manage their rainmakers, while developing the next generation of advisers. Goldman Sachs operates a “one-in, one-out,” approach to its partnership pool, balancing the promotion of each rising star with the “retirement” of an established executive.

Other banks create special groups of senior bankers. In 2005 Zaoui and several of his senior colleagues were included in the firm’s newly launched strategic engagements group. The official aim of this group was to enable its top rainmakers to focus on bringing in deals rather than day-to-day management.

Citigroup introduced a similar grouping last year. One source familiar with the bank’s approach said: “It’s an outlet for giving the old guard an exit, allowing them to grow gracefully, as it were.” Citigroup said it was using the departures it suffered during the crisis as an opportunity to bring on the next generation.