How Citi Reached the Top of the M&A League Tables

How did Citigroup, which has historically been a second-tier bank when it comes to M&A advisory, manage to leapfrog the likes of Morgan Stanley and even Goldman Sachs in the M&A league tables? Obviously, Citi's sheer size had something to do with it, as Citi's M&A head Frank Yeary is happy to admit to BusinessWeek's Steve Rosenbush:

As deal sizes soared, banking clients needed access to many markets around the world, since no single market — even one as large as the U.S. — can absorb all the debt generated by a $30 billion or $40 billion deal. Moreover, multinationals doing cross-border deals required local expertise on issues such as currency, taxation, and regulation. “We saw an opportunity to be positioned as an adviser to the world’s largest and most important companies on their largest and most important deals,” Yeary said.

Interestingly, Yeary himself seems to run a pretty slim team of just 150 M&A bankers – although of course they leverage the expertise of many times that number of professionals working in debt, equity, syndication, research, compliance, etcetera.

Herding that many cats is far from trivial, so Yeary deserves one cheer for managing to do his job well enough to be considered an automatic candidate for any M&A deal.

But I suspect that the real reason Citi finds itself included in so many big deals is that big deals nearly always involve big bank loans. And Citi has long been the world leader in syndicated loans. If you want Citi to take a large chunk of your debt – and it will be harder to get your loan away if you don't – then the least you can do is throw Yeary a nominal advisory fee on the M&A part of the deal. It doesn't cost much, and it makes him very happy.

A lot of the biggest M&A deals these days are coming from the likes of Blackstone, which is in many respects an investment bank itself. Blackstone would never need or want strategic advice from Citigroup. But the fact is that it neither needs nor wants strategic advice from anyone. The world of M&A advisory is shrinking, and is being replaced by the world of debt wrangling. Which is why a shop like Perella Weinberg is having a hard time getting off the ground, and why would be investment banks like Blackstone didn't take long before transmogrifying into hedge funds or private-equity shops.

So maybe it's not so surprising that Citi is now atop the M&A league tables: the league tables simply aren't measuring advisory services any more.

(Via DealBook)