With another multi-billion dollar acquisition announced seemingly every day, why does the FCS Growth Scorecard still show the U.S. M&A advisory fee pool as flat year-over-year? The answer: we only record M&A fees if and when a deal is closed. (Our accounting reflects the reality that, for most deals, about 80-90% of advisory fees are paid on success.) Announced mega-merger volume has indeed exploded +50% in the last 6 months, but many of these transactions remain in the backlog.
Given the strength of the current M&A backlog, many advisors could have an exceptionally strong 2H. Among major advisors, Qatalyst currently has the strongest M&A fee backlog relative to the size of its actual M&A business in the trailing year. Qatalyst’s pipeline is headlined by a trio of sell-side assignments for semiconductor firms Microsemi, NXP, and Cavium, for which Qatalyst is poised to collect over $150m. Several other advisors that lost M&A market share in the last year – including Greenhill, Centerview, and RBC – also have exceptionally strong pipelines that should enable a recovery in the coming year.
While the backlog is a strong predictor of future performance, it’s far from certain. AT&T’s acquisition of Time Warner is the largest deal currently pending, but looks increasingly tenuous in the face of the DOJ’s challenge. Moreover, the backlog is filled with inbound cross-border acquisitions, which tend to carry a higher risk of failure. For large-cap focused M&A advisors, the next year is likely to be one of heightened risk-reward possibilities.