(MENAFN- Khaleej Times) After two decades as an investment banker at Goldman Sachs and Bank of America Corp, Ziad Awad figured he could do more deals striking out on his own.
"Banks were facing constraints such as the increased cost of capital and reduced risk appetite," Awad, head of Boardroom Metrics Arabia and founder of merger and acquisition firm Awad Advisory, said by phone. "Banks wanted to do fewer but bigger deals at a higher fee, while I wanted to do more and more."
Awad is among a rising number of Middle Eastern bankers starting their own firms or joining boutique investment houses to exploit what they see as a profitable niche in the market: advising on the smaller M&A deals overlooked by larger rivals. The share of fees for independent advisory firms in the region rose to 36 per cent last year, up from 22 per cent in 2011, according to New York-based research firm Freeman & Co. That coincided with a 16 per cent drop in fees for the global banks.
Banks from Credit Suisse Group to UBS cut jobs in Dubai as deals dried up. The 10 biggest investment banks, including JPMorgan Chase & Co, Deutsche Bank and Citigroup have lost about 11,000 front-office staff globally in the past two years, analytics firm Coalition said in May. Morgan Stanley, the top-ranked adviser for M&A in the Middle East and Africa, also cut jobs.
'Rethink strategy'
Shrinking deal sizes "have forced larger investment banks to rethink their strategy with respect to M&A," said Phil Gandier, head of transactions for Ernst & Young in the Middle East. "Bulge bracket banks increasingly use M&A to win more lucrative balance sheet and capital markets business."
The average value of M&A deals in the region fell 36 per cent to $192 million in the first half, from $300 million a year earlier, according to the consulting firm.
Ali Asghar, former head of Lazard Ltd's Dubai office, recently left to set up his own boutique emerging markets-focused firm, according to a person familiar with the matter, asking not to be identified as the move wasn't announced. That's after helping drive the Hamilton, Bermuda-based bank to the top of the list of independent advisers in the region this year, ranking 10th among all banks after working on five deals worth $5.5 billion, according to data compiled by Bloomberg. "Companies want to work with people they know and who are there for the long term," Christopher Wheeler, a London-based analyst with Mediobanca said in a telephone interview from the city. "Some of the bankers at the boutiques have been there longer than some of the bankers who fled."
Lazard has climbed the tables recently. Last year, it ranked 13th, up from 15th in 2011, the data show.
The bank is advising French media firm Vivendi on the sale of its majority stake in Morocco's Maroc Telecom for ‚¬4.2 billion ($5.6 billion) to Abu Dhabi's Emirates Telecommunications Co. It also advised Qatar Holding, the investment arm of the Gulf state's sovereign wealth fund, in negotiations with Glencore International.
"The Middle East remains an important participant in the global M&A marketplace," Mian Zaheen, chairman of Lazard Middle East said in an e-mailed response to questions. Moelis & Co, founded by former UBS investment bank president Kenneth Moelis in 2007, ranks 20th among companies advising on regional M&A this year, up from 43rd a year earlier, according to data compiled by Bloomberg. The company is advising the Emirates Investment Authority on its 60 per cent-owned affiliate etisalat's attempted acquisition of Maroc Telecom.
Merger and acquisition deals valued at $43.2 billion have been announced in the Middle East and Africa this year, the highest since the same period in 2007 and 24 per cent higher than a year earlier, according to data compiled by Bloomberg.
"Many seasoned bankers from larger investment banks join boutiques," Jameel Akhrass, a partner at Perella Weinberg Partners and former investment banking head at Nomura Holdings in the Middle East and North Africa, wrote in e-mailed comments. They "bring with them not only years of experience, but also client relationships that they have fostered over their careers."
Perella advised Emirates NBD, Dubai's largest bank, on its acquisition of BNP Paribas' Egyptian unit for $500 million in December. It also advised Qatar on its acquisition of Italy's Valentino Fashion Group.
Awad, 40, says his own firm has mainly worked on cross-border sell-side deals, declining to provide more details. Previously, he worked at Goldman Sachs for 13 years in London, Paris and Dubai, including as head of debt financing for the Mena region. He joined Merrill Lynch in Dubai in 2007, where he was a managing director after it was taken over by Bank of America, and stayed until resigning last year.
"We've had a steady growth in mandates," he said. "The reason is that they're smaller deals. They're in the sweet spot of what companies in this region want to do."
A Bank of America spokeswoman in Dubai, who asked not to be named citing corporate policy, declined to comment.
M&A activity is picking up as the family-owned businesses seek to grow. Companies are favouring smaller deals as confidence remains low because of regional political turmoil, said Ernst & Young's Gandier. Sovereign wealth funds are also more focused on managing existing assets rather than new deals, he said.
To be sure, independent firms are also still trailing their larger competitors in the league tables. Morgan Stanley is the region's top M&A adviser so far this year, working on about $18.2 billion of deals, more than triple Lazard's share. The New York-based bank advised Abu Dhabi's Mubadala Development Co when Dubai and Abu Dhabi agreed to merge their aluminium smelting companies to create a $15 billion joint venture.
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