In a recent change at Merrill Lynch, Greg Mazur was brought in to be head of M&A origination, while Kalpana Desai was made head of M&A execution. The change is part of an effort by Merrill to continue to grow its M&A business and here the two discuss the strategy and their outlook for the business:
Can you talk about the new structure?
Kalpana Desai: The new structure was driven by our clients' needs. So often you get immersed in several high profile deal executions, and you are then not able to have the same origination dialogue that other clients might want. Likewise if you are constantly originating, the clients aren't always getting the execution focus they deserve. So we felt we needed more of a focus at a senior level both on origination and on execution.
Greg Mazur: I just want to add that on the execution side - when you are working on a multiple transactions - you are really not in control of your time; the client is in control, as are the deal events. They dictate where you have to be, and when. That makes it difficult to simultaneously focus on origination. You can't properly plan for pitch activity, when you have continual event-critical moments on a transaction you're executing. In addition, it's critical you execute well.
It is important to recognize that a true relationship is not built by simply winning mandates. Clients hire you to do a job, which in many cases is of extreme importance to them. In the case of M&A, it's coming up with strategic ideas and then implementing those ideas. One major way of developing the client relationship is performing well on their recent transactions.
So, for us, it is important to have senior, knowledgeable bankers executing. These are highly complex transactions, such as the Lenovo-IBM deal, and they need to be staffed with experienced, senior people. The third thing is you can simply look at this as a M&A resource-doubling by Merrill at the senior level. Merrill Lynch is relatively smaller than competitors in terms of senior level personnel in M&A and this is part of our overall expansion in the M&A field.
Desai: The plan, now that Greg has joined is to expand the team. It's not just about adding a managing director. We will also add directors, VPs and associates. This is a real commitment to M&A in the region.
The other thing about execution, to add to what Greg said, is that if you do a truly excellent job on a complex transaction, your relationship with the client is so close that you win the next deal without even pitching. That's really the territory you want to move yourself into. We have some of those relationships already, but the plan is to build it out to a much broader base of clients through senior execution focus.
In terms of execution trends in Asia, do you see execution in Asia resembling the professional standards of the US?
Desai: Without a doubt, it's moving in that direction. The IBM-Lenovo transaction had 40 ancillary agreements to the main sale and purchase agreement. We did things that have never been done in Asia before, although they have in the US.
For example, there are non-voting shares that move into a pool so that if and when IBM wants to dispose of them they become voting shares. That was the first time that had been done in Hong Kong. So, yes, there are a lot of new techniques that come from the US, and Europe, and while they may not have been used in Asia, we're starting to see their arrival.
Will this model of splitting execution and origination responsibilities be used by other firms?
Mazur: There's no reason why not. The split can be industry-specific, or country-specific. In our case we are splitting it between origination and execution.
Which sectors do you see yourself originating most deals from?
Mazur: It crosses countries and industries. Country-wise the focus will be on Greater China and Korea, with selected outward bound activity from Singapore. From an industries perspective, FIG and technology will continue to be active.
Speaking specifically of China, active areas will include natural resources as well as technology - as others replicate IBM-Lenovo type transactions. Consolidation will continue to be a major theme across all industries in all countries as margins are highly correlated to market shares. This could mean consolidation within China in areas including automotives or handset manufacturers as examples.
Additionally, it could be consolidation regionally in areas such as the TFT-LCD space. From Singapore it will be continued outward expansion as companies of all industries look for growth and scale.
Can you talk a bit more about expanding the team?
Desai: We're seeing a lot more business coming out of China and a lot more flow. So we will be looking particularly at Mandarin-speaking bankers.
Mazur: Two-and-a-half years ago you were lucky - at any major investment bank - if you had one China M&A deal. Now you're seeing multiple mandates per firm, and they are not small transactions. They are large transactions for sophisticated clients looking for technology, brands and global distribution.
It's a lot of activity with an exponential growth rate. This is reminiscent of Korea in the mid-90s when there was limited M&A and investment banking activity. Korea is now a very large part of any banks' business, especially for M&A.
Desai: I agree, and in the case of China we have several mandates that are over $1 billion. These are transformational deals that will hit the front page of every newspaper in the way the IBM-Lenovo deal did.