BOUTIQUE: FINANCIAL ADVISORY SERVICES DURING RESTRUCTURING
EXPERT ADVICES LIGHTEN COMPLICATIONS INVOLVED IN M&A, CONSOLIDATION, RESTRUCTURING
TARIQ AHMED SAEEDI
Jan 3 - 9, 2011
Last year was filled with bouts of mergers and acquisitions and frequent change in major shareholdings in the banking sector. M&A is often essential to bow down to minimum capital requirements outlined by the State bank of Pakistan or to grow stronger in the becoming-stiff competition in the banking and financial sector. To some, however, strange is the fast rate of transfer of ownerships taking place in few banks and yet fastest retreat by some who entered in the field with attention-grabbing approach. Weak research and spadework about the business effectiveness is not out of question. Or, even if detailed study is behind the mergers and acquisitions, there are left obviously few loopholes that trigger off and on restructuring.
Barclays and Royal Bank of Scotland were the two memorable names finding banking circle in Pakistan in making of consciously defensive strategies to save cofounding market share. Bubble bursts without extending to its optimum. The reason, albeit, was the global financial crisis that exposed two banking giants to irrevocable hardships, but what about financial advisory services-which are to guide restructured entity how to withstand preliminary pangs of restructuring or M&A and that are as important as funds itself—that are yet to assume their independent role in the gradually diversifying financial landscape of Pakistan. Above two was not the only example where ventures were exhausted in their first moves, but post-privatisation banking history of Pakistan has other instances too in which a single bank underwent surgical restructurings more than once; Prime Bank to ABN Amro, to RBS and then to Faysal Bank, the quick-change is still fresh in minds.
But, now this change has caught an appalling speed; Atlas and Summit bank merged little after Arif Habib Bank was renamed as Summit Bank though its operational existence was nascent. Confusing it is so much that a new bank is acquired by another even before customers register its name. Sometime, old chequebook is used to draw money from bank acquired by new client or consortium.
To say due diligence is not done properly before going for merger or collaboration is like underestimating expertise of the investors. However, failed attempts of restructuring and recurrent change in title of ownerships make one to question spadework done by the financial institute or its advisor. Recent spate of restructuring was obviously not a spinoff of international financial downturn. In its report, State bank of Pakistan has mentioned the imperviousness of local banking system to the global financial crisis, and thus belittling the external impacts over internal economics.
Investment banking is not an unheard concept in the world and financial markets. Investment banking in the Middle East generated only $483 million revenue so far in 2010, showing a consistent decline over the preceding years-$845 million in 2008, and $1.3 billion in 2007. Middle East saw its financial sector under immense stress during and after global financial crisis that dragged Dubai's conglomerates in to terrible debt mess. The subsequent restructuring, M&A, and consolidation gave rise to the investment banking. The slowdown in transactions are said to hamper its growth.
Notably, specialised consultants have also emerged to help out institutes making complicated decisions, though they are not able to raise funds. It is said small boutiques, as they are popularly known, may continue to get the businesses due to the post-financial crisis complicated transactions.
That will financial advisory services be lucrative for specialised financial advisers once the shadow of restructuring over the Middle East economy lightens is a question that has sparked a debate in the banking and finance circle in the emirates.
Independent financial adviser, known as boutique, with no propriety stake in the restructuring and no lending interest in the sagging moguls argue their services are ever required as post-financial turmoil period warrants meticulous inspection by a boutique of transactions taking place.
"The fact that boutiques can give fully independent, un-conflicted advice has driven clients to use them a lot more," The Financial Times quoted Augusto Sasso, head of Middle East investment banking at Moelis as saying.
Indeed, the financial crisis was a blessing in disguise for mega and mini investment bankers like Rothschild, Moelis & Company, Lazard, Perella Weinberg Partners, to name few, whose profits revved up since Dubai Holding engaged them for multi-billion dollar debt restructuring. Million of dollars were also paid as fees to the consultants during the whole episode of debt restructuring of Dubai World.
To many this trend will not remain perpetual-decline in business in view-and boutiques have to wean themselves from works on mergers and acquisitions, restructuring and capital raising to compete with the blue-chip financial institutions.
Whatever the ups and downs in Middle East are suggesting, the model is worth emulating. Independent advisers are popularly hired world over to work on M&A, consolidations and capital market transactions. "More than half of all M&A by value in Europe in 2009 involved an independent adviser - a first," according to data provider Dealogicm, reported DowJones. "It is now unusual for a big-ticket M&A transaction, restructuring, or capital raising to be completed without the involvement of an independent somewhere in the process." It is yet to be seen whether businesses of independents wane, or are gulped by some arm of a big bank, which can make its clients believe there is no conflict of interest when, for instance, it undertakes advisory and asset management services simultaneously. The situation in Pakistan is contrary to what has been established in European region or GCC. Here is the amount involved in restructuring not sufficient to entice international practitioners of financial advisory. But, as financial market is developing and so are complications in transactions, need of boutiques is intensifying.