Sumitomo Mitsui Financial Group is on the prowl. The Japanese lender said yesterday that it will invest $93 million in independent investment bank Moelis & Company, just a day after it agreed to pay $7.3 billion for Royal Bank of Scotland’s aviation group.
The RBS buy was arguably a fire-sale purchase, while investing in the New York-based firm founded by former UBS executive Kenneth Moelis is an adjunct to an existing strategic alliance, which signals that while Sumitomo wants to expand its advisory business, it is not a reckless path. The price and pair-up have to be right.
For Sumitomo Mitsui, such investments make sense — there have been a rising number of outbound M&A transactions recently as Japanese firms take advantage of a strong yen, which has strengthened more than 7% against the dollar in the past year. At the same time, Japanese firms are sensibly trying to position themselves for growth given the forecast at home is, at best, stagnant.
For example, in May, Takeda Pharmaceutical said it would buy Nycomed for €9.6 billion ($13.7 billion) in cash, in Japan’s second-biggest outbound M&A deal and its biggest healthcare M&A deal. And in March, just days after last year’s earthquake and tsunami, Nippon Life Insurance announced it had agreed to pay $680 million to buy a 26% strategic stake in Anil Ambani’s Reliance Life Insurance.
However, in the Moelis transaction, Sumitomo is only taking a 5% stake in the firm, so this isn’t a deal that gives it control. But it is a growth opportunity for Sumitomo and also provides insight into Moelis’s business. Analysts note that the deal value implies Moelis has a bigger valuation than rival boutiques such as Evercore Partners, which has a market capitalisation of $711.9 million, or Greenhill & Co, which has a market cap of $1.15 billion.
Up until now, there has been no valuation of Moelis’s firm, although rumours of him pursuing an IPO are rampant. To this, Moelis said: “Our business continues to perform well and we have a strong balance sheet with no debt, so an IPO isn’t a priority right now.”
He launched the boutique in 2007, after resigning as president of UBS’s investment bank. Now, the firm is outgrowing its boutique label — he has more than 580 employees in 11 offices scattered across the globe, including New York, Beijing, Dubai, London and Sydney. Last January, Moelis bought Asia Pacific Advisers (APA), a financial advisory firm founded by former ABN Amro-cum-RBS banker Richard Orders. That was Moelis’s first big step into Asia, then it formed the strategic alliance with Sumitomo.
“After only 10 months, we have achieved huge benefits as a result of this partnership so this investment builds on the work we have done, stands us in good stead for future M&A activity and is a great way to start 2012,” Moelis told FinanceAsia. “I am proud of our growth and our ability to provide innovative independent advice to our clients.”
He added that the proceeds will be used to continue the growth of the investment banking business, both in existing markets as well as in new markets.
“Since the beginning of our alliance last March, the Moelis & Company, SMBC and SMBC Nikko teams have become very integrated and coordinated around client opportunities. As a result we have secured a number of joint mandates, including recently advising the Osaka Securities Exchange on its ¥278.4 billion combination with the Tokyo Stock Exchange,” said Moelis, noting that he saw “great opportunity across all sectors of the Japanese market”.
The firms, which advised themselves, expect to complete the investment in mid-February.