By Poppy Trowbridge and Serena Saitto
Jan. 6 (Bloomberg) -- Morgan Stanley lost ground counseling companies on takeovers last year as boutique advisory firms Moelis & Co. and Perella Weinberg Partners gained market share in the slowest period for deal-making since 2003.
Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc. were the world’s top three advisers on mergers and acquisitions in 2008, data compiled by Bloomberg show. The three New York-based firms advised on $1.8 trillion of takeovers in all, a 44 percent decline from the previous year’s total of $3.2 trillion. Morgan Stanley dropped three places from second spot, working on bids worth 61 percent less than in 2007.
Muscling their way into the top 20 for the first time were Moelis & Co., the firm started by former UBS AG investment banking president Kenneth Moelis, 50, and Perella Weinberg. Moelis, who started his company 18 months ago in Los Angeles, worked on deals such as InBev NV’s $60 billion purchase of Anheuser-Busch Cos. The firms are gaining after the pace of leveraged buyouts slumped as banks balked at funding the takeovers.
“We are not private equity-dependent for our revenue, and we do not provide financing, so we did well in a year when M&A was down,” Joseph Perella, founder and chairman of the New York- based firm, said in an interview. “2008 reflects the fact that the firm benefits from turmoil in the market.”
Mergers and acquisitions dropped 38 percent last year to $2.5 trillion, weighed down by lack of financing and falling stock markets. LBOs slumped, plummeting 74 percent in the Americas alone. The MSCI World Index fell 42 percent as losses and writedowns at the world’s largest banks topped $1 trillion and the U.S., Europe and Japan entered the first simultaneous recessions since World War II.
‘Distressed Environment’
“We’re in a very distressed environment,” said Marco Boschetti, head of global mergers, acquisitions and restructuring at Towers Perrin, a consulting firm in London. “We are seeing fewer deals being done, and transactions taking place with lower fees as the market shrinks.”
New York-based Morgan Stanley, which received a $10 billion infusion last year from the U.S. government and converted to a bank overseen by the Federal Reserve, relinquished the No. 2 spot it held in 2007 to JPMorgan. Morgan Stanley ranked fifth in 2008, the position bankrupt Lehman Brothers Holdings Inc. held the previous year. A spokesman for Morgan Stanley in London declined to comment on the rankings.
Companies are turning to independent advisers because the firms can devote senior bankers, give advice independent of financing arrangements and offer more hands-on management, according to Philip Keevil, senior partner at London-based Compass Advisers LLP.
‘Seismic Shift’
“A seismic shift has taken place on Wall Street and in the City of London,” Keevil said. “We’ve had a reversal of the Big Bang, and we’re going back to basics separating advice from sources of finance,” he said. Margaret Thatcher’s government deregulated U.K. financial markets and relaxed restrictions on owning stockbrokers in 1986, an event known as “Big Bang.”
Moelis helped advise London’s Taylor Nelson Sofres Plc on its $1.8 billion sale to WPP Plc in October. Perella Weinberg advised WPP, along with Goldman Sachs and Merrill Lynch. Perella also counseled Continental AG, the German auto-parts maker that was the target of a hostile $17.6 billion bid by Schaeffler KG.
Turmoil in the credit markets led companies to abandon 755 transactions worth a combined $637 billion, including BHP Billiton Plc’s $146 billion pursuit of Rio Tinto Group and Microsoft Corp.’s withdrawn $42 billion bid for Yahoo! Inc.
‘Right and Reasonable’
Jumbo takeovers, of $10 billion or more, won’t be totally absent in 2009, according to Gordon Dyal, Goldman Sachs’s global head of mergers and acquisitions.
Large transactions will return when the premium and the price are “right and reasonable” for the buyer, Dyal, 47, said in a telephone interview. “And when sellers re-adjust their price expectations in light of this market.”
Goldman Sachs, which reported its first quarterly loss in December, maintained its preeminence among M&A advisers after working on $666 billion in deals last year.
JPMorgan, the only one of 2007’s top five advisers to rise in the rankings, jumped to second place from fourth, advising on deals valued at about $562 billion, less than half the total of its 2007 deals. Citigroup retained third place, advising on more than 260 deals worth $556 billion in all. The banks declined to comment when contacted by Bloomberg News.
London-based Barclays Capital and Tokyo-based Nomura Holdings Inc. also entered the top 20 dealmakers, climbing to 11th and 12th places respectively, following their purchase of Lehman’s advisory units after the securities firm collapsed in September.
That same month, the U.S. government placed two of the country’s largest mortgage lenders under conservatorship and bailed out insurer American International Group Inc. In October, the U.K. government announced a 37 billion-pound ($54 billion) rescue package for the country’s largest retail banks.
To contact the reporter for this story: Poppy Trowbridge in London at ptrowbridge@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net.
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