Investment bankers are busier than ever in Japan, thanks to a boom in overseas acquisitions, yet fees paid for their services are dwindling.
- Some bankers say Japanese clients are more willing to pay a premium on more-complicated deals.
The role of financial advisers is changing as Japanese companies become more familiar and savvy with buying abroad, bankers say. In the past, advisory fees were charged on everything from help in choosing which companies to buy to executing the deals. Now, most companies approach bankers with a target business in mind, narrowing the mandate given to advisers and cutting their fees.
For large deals, multiple banks flock to get a piece of the pie, causing fees to be cut for each participant. Take some of the big deals last year. A total of eight banks advised on Nippon Steel Corp.’s $22.5 billion merger with Sumitomo Metal Industries Ltd. Eleven advisers joined a $7.2 billion purchase of Samson Investment Co. by KKR & Co. and a trio of co-investors, including Japanese trading house Itochu Corp., according to Dealogic. Similar deals in the past typically attracted only around three or four advisers.
“We are far busier these days but fees are being squeezed and the success ratio for merger-and-acquisition mandates is lower and lower,” said Yuji Nomoto, chairman of investment banking at Deutsche Bank AG. “There are so many competitors in the Japanese market.”
According to Dealogic, Deutsche ranks No. 19 in advising on mergers and acquisitions in Japan.
Japanese M&A advisory fees, which include deals at home, dropped 6.3% in 2011 from a year earlier, to $1.6 billion, and were down 17% from a 2007 peak, despite a record $69 billion in overseas acquisitions by Japanese firms, figures from Thomson Reuters show. That is in contrast to M&A fee volume growing 6.2% globally and 9.8% in the U.S. last year.
The latest figures show that the average monthly fee this year is lower than in 2011. Still, some bankers say Japanese clients are more willing to pay a premium on more-complicated deals.
Clients pay for “our expertise in industries and targets as well as advice on how to pull off a difficult deal,” said Yuichi Jimbo, head of Citigroup Inc.’s Japanese investment-banking arm. “We focus on deals that make strategic sense for clients where they appreciate our value.”
Citigroup’s M&A advisory fees are on a record pace this year, totaling $29.5 million at the end of May compared with $31.4 million for all of 2011, according to data from Thomson Reuters. Citigroup ranks No. 6 in advising on M&A in Japan, according to Dealogic.
Japan has long been a tough market to crack for foreign investment bankers, with local banks exerting influence with their low-cost fees. But the environment appears to be better than in other parts of Asia, such as Hong Kong.
This year, M&A fee volume in Japan—at $664.5 million—is nearly three times the $245.6 million registered in Hong Kong. The same data show that fees in Hong Kong dropped 24% last year.
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