Improving the M&A league table

Securities Data was in town to ask Asian M&A specialists how it could improve its M&A league tables.

As everyone knows, there is nothing more precious to a banker than a league table. So they make great efforts to see they are composed properly. That’s why Asia’s top M&A bankers were glad to meet with Securities Data’s M&A database manager James Susmann when he made a consultative trip to Asia yesterday. The New York-based Susmann was making his first trip to Asia to consult with local professionals on how the Asian M&A league tables could be improved.

No one doubts the trip was well-timed. Last year’s M&A league table caused some controversy, and thanks to the distorting impact of the PCCW-HKT deal, left many questioning its usefulness.

Securities Data is constantly trying to improve the way its league tables are constructed. Last year (in April) it introduced a new rule that banks must announce their roles as advisers within two weeks of the deal being announced. This was to stop people getting in on the deal later by leveraging a relationship. However, in Asia there are some specific concerns that are likely to have been aired with Susmann.

One key change bankers are looking for centres on the issue of the target company’s debt. At the moment, this is ignored by the league tables. However – particularly with transactions in Korea – this can be misleading.

A buyer might buy a Korean company for $1 billion, but also assume $5 billion of that company’s debt. To the acquiring company, that makes it a $6 billion deal. The league table, however, only records it as a $1 billion deal.

Asian M&A professionals reckon the league tables should reflect the value of the debt being assumed – with the book value of the debt thus incorporated into the deal’s value, and thus the league table. Most people seem to think this is sensible.

However, a more contentious area for the Asian M&A community is the accreditation given to banks offering fairness opinions. Such banks get equal league table accreditation to those banks advising the buyer and the seller, even though the fairness opinion only takes a fraction of the time of the other roles. This practice originates from the US, where a fairness opinion often takes a great deal of time and is done on behalf of a diverse group of shareholders such as pension funds.

One suggestion is that Asia should follow the Australian model, where a separate and specific league table for fairness opinions has evolved – in part because the fees from doing them are so low that investment banks are happy for accountancy firms to do them instead.

Of course, the subject of fees gets to the heart of the whole debate about M&A league tables. The most sensible approach – as many bankers privately concede – is to have a league table based on the bank’s fee income. This would sort out which banks are really adding value from those that aren’t – as clients pay the most to the banks that give them the best ideas, advice and execution. Securities Data has, in fact, suggested such a league table, but neither the banks nor the companies buying the assets in question are willing to make public the details of fees.

However, it will be interesting to see whether Securities Data listens to the Asian bankers’ concerns about the existing league tables and acts upon them.