Global talent shortages threaten M&A boom
"Once again the City has found itself unprepared in the good times," says Jonathan Baines, chairman of search firm Whitehead Mann. "After cutting back drastically on juniors and hiring in the last downturn, there are not nearly enough people coming through at the mid-level VP positions. We are seeing a real demographic squeeze."
With the value of M&A deals hitting an all-time high, mid-ranking investment bankers are not the only ones who are hard to come by: analysts and associates are famously hard to locate. So too are senior bankers who can deal with the rigours of an overactive market, in which hostile and complex deals are common.
"There's renewed emphasis on finding senior people who have the execution skills needed in boom markets," says one London-based search consultant. "The complete M&A banker has experienced all types of M&A transactions and can advise on the most complex and multifaceted deals. There are very few of them about."
In the downturn of 2001-2003, she says emphasis shifted from experienced execution talent in favour of senior originators who could bring deals in. Seasoned execution bankers fell by the wayside.
Tim Sheffield, managing director of search firm Sheffield Haworth, says the European market is also short of bankers with the language skills necessary to work emerging markets like Russia, the Ukraine and Dubai: "Bankers who combine strong technical skills with language skills are highly sought after this year."
The dearth of M&A expertise is also making itself felt in South East Asia. "Most banks are acutely short of associate talent," says CK Wan, a consultant at search firm Alexander Mann in Hong Kong. She adds: "They're placing a lot more emphasis on growing talent in-house and are recruiting for the first time from local schools like Tsinghua University in Beijing."
With the Chinese market still focused on IPOs rather than M&A, the potential for doing deals in the region is smaller than in Europe and the U.S. But recruiters say M&A hiring in South East Asia is being driven by build outs at banks like Rothschild and Lazard.
Hedge funds and private equity funds are adding to the squeeze on M&A talent says Leon Flint, a consultant at Hong Kong-based search firm Global Sage. Asian hedge fund assets have doubled on 2005 according to some estimates, and private equity funds are increasingly targeting the region. Earlier this year, Morgan Stanley's chief executive in China resigned to join Bain Capital, for example.
In the U.S., search consultants say shortages are manifesting in the use of search firms to unearth junior M&A talent, a task previously achieved by advertising vacancies to the market: "We're seeing a lot more low ranking assignments," says Joe McCann of New York search firm J.H. McCann & Company.
Most search consultants say it's too early to call 2006 bonuses. But Wall Street compensation specialist Johnson Associates has taken a stab, predicting pay will be up 25% on 2005, a good year in itself.
Baines says there are still lurking fears that the second half of 2006 may not live up to its promise. "M&A pipelines are strong, but that doesn't mean deals will be closed. There's some concern that if share prices pull back deals may not complete."
Although some banks have earned hefty fees advising on the likes Arcelor's acquisition by Mittal, there are also indications that fees across the market are not as healthy as they seem.
Data provider Dealogic says European M&A fees fell 9% in the first half of 2006 compared to the first half of 2005, and that fees fell 30% in Hong Kong. The U.S. was the only market to experience an increase, with fees rising 17.5% to $2.8bn over the same period.
Who's earning: Top fee earning banks first half of 2006
Europe: Rothschild ($229m), Goldman Sachs ($226m) and UBS ($190m)
U.S.: Morgan Stanley ($387m), Goldman Sachs ($363m), and JPMorgan ($305m).
Hong Kong: Goldman Sachs ($7.6m), UBS ($6m), Somerly ($5.5m)
Information provided by Dealogic