Wednesday, September 9, 2009

Investment Bankers are (seriously) a bargain these days (KFT)

AlphaNinja - Just rough numbers here so far, but worth a comparison.

Bloomberg is reporting that Lazard and Goldman may share $91million in fees for their work in the proposed Kraft-Cadbury deal. Massive number, right? I suppose it is, although it amounts to a little over half a percent of the proposed deal price near $16billion.

“I have never seen such pressure on fees in the M&A business in my entire career,” Ralph Silva, 49, research director at financial research firm Tower Group Plc said in a Bloomberg Radio interview.

Silva is right - Ibanking fees have plummeted, as new competition drives prices down, and occasionally clients do some quick math to discover truly horrific "by-the-hour" pricing. Either way, half a percent is a hell of a better deal than the 4-6% a real estate agent charges, for instance.

As a comparison, I leafed through my old, tattered (tattered =fancy journalism word?) copy of Barbarians at the Gate, the saga of the RJR Nabisco buyout by KKR. Fees back then were astronomical, as company management was truly romanced by slick bankers (and private equity firms paid bankers lavishly as well). A quote from KKR attorney Dick Beattie at the Nabisco closing dinner about 20 years ago, joking about the absurd fees that would dilute his own investors' returns:

"It's wonderful to see all these friends of KKR here tonight," Dick Beattie opened the evening. "To think it only took a billion in fees to get us all together."

$1billion in fees (not entirely accurate or comparable, as fees for Kraft's financing haven't been estimated) was 4% of the deal price, about 9times richer that the i-banking fees for this current Kraft deal.

Isn't it a small world? The above mentioned Nabisco was acquired in 2000 by Philip Morris, which combined Nabisco and Kraft Foods, and then later IPO'd Kraft. I wonder how many bankers have participated in this fee circus over the years....

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