Analysis: Technology deal doldrums give bankers the job-hopping itch

Perella Weinberg Partners

22/06/2023 11:00

By Milana Vinn
       NEW YORK, June 22 (Reuters) - When a senior Goldman
Sachs  GS.N  technology banker delivered a grim prediction to
his colleagues earlier this year, it marked the beginning of
downturn that would result in some bankers leaving.
    Mergers and acquisitions among technology companies could be
down as much as 80% in 2023, Sam Britton, one of the leaders of
Goldman's global technology, media and telecommunications group,
wrote in an internal memo in February, as an economic slowdown
and a hostile anti-trust environment weighed on dealmaking
appetite. 
        Britton tried to boost morale, arguing that market
conditions could change quickly, according to sources who
described the contents of the memo. But the plunge in the deal
pipeline prompted soul-searching and job-hopping among
investment bankers accustomed to a feast. 
    In the months that followed, a number of top technology
bankers have left firms such as Goldman, Bank of America  BAC.N 
and Barclays  BARC.L , often for smaller peers such as Moelis &
Co  MC.N , Qatalyst Partners, Evercore  EVR.N , and Jefferies
Financial Group  JEF.N , according to interviews with more than
a dozen bankers and previous Reuters reporting. 
    The latter lured the bankers by promising a bigger payout
for their deals, often guaranteeing minimum compensation of
millions of dollars for two years, those interviewed said. They
added that it was unusual for so many senior bankers to jump
ship in the space of a few weeks. 
    A Barclays spokesperson said the bank was confident in its
plan to break into the top five investment banks.
Representatives of the other banks either declined to comment or
did not respond to requests for comment.
    Technology was the top sector for mergers and acquisitions
for eight consecutive quarters until the second quarter of 2022,
when a bout of inflation forced central banks to raise interest
rates, weighing on tech stock valuations. 
    Global deal volumes in the technology sector have dropped by
more than half so far this year, according to data from LSEG
Deals Intelligence.
    Investment bankers and headhunters say the talent flight
could change the competitive position of many banks when
technology firms decide to embark on big deals again. 
    "When the pay is less, bankers feel less committed to the
bank they are at. The cost of opportunity to switch is less,"
said Anthony Keizner, managing partner at executive search firm
Odyssey Search Partners.
    Goldman has lost several high-ranking technology bankers
this year, including Nick Pomponi, former co-head of global
software investment banking who left for Evercore, Rob Chisholm,
a partner who moved to Qatalyst, and Troy Broderick, who was
named chief operating officer of Goldman's M&A business in May
only to leave for Perella Weinberg Partners  PWP.O .
    Barclays, which has struggled to retain bankers following a
shake-up in the management of its investment banking division,
has lost at least nine top technology bankers in recent weeks.
They include Laurence Braham, its former global chair of
investment banking, and Richard Hardegree, its head of
technology M&A, who both moved to UBS, and Steve Markovich, its
former global co-head of software investment banking, who left
for Centerview. 
    Ron Eliasek, one of the software industry's top investment
bankers, left his post as global chairman of technology, media,
and telecommunications at Bank of America earlier this month to
join Jefferies. 
    In a big bet on technology dealmaking, Moelis & Co  MC.N 
hired 46 technology bankers from SVB Securities, the investment
banking arm of failed Silicon Valley Bank, including Jason
Auerbach who led the team, a Moelis executive told an industry
conference last week.
    
    PAY GUARANTEES
    In making the switch, many bankers forfeit the resources of
big banks that can help win clients, such as top brokerage
coverage and a balance sheet to fund deals, in exchange for a
bigger cut of the fees from the deals they put together. 
    Traditionally, smaller firms have been reluctant to offer
investment bankers guaranteed compensation, in order to have
more of their pay tied to performance. Yet some are now offering
guaranteed pay of between $2 million and $12 million over the
first two years to poach top talent, the bankers interviewed by
Reuters said.
    Alan Johnson, managing director of compensation consultancy
Johnson Associates, said that first-year guarantees were common
practice in the hiring of investment bankers, but second-year
guarantee used to be rare. 
    He added that bankers who leave big banks for smaller firms
are signing up for a bigger slice of a smaller pie, so clinching
these two-year guarantees eases the pressure on them to help
grow the pie as soon as they join.
    "You get paid a higher percentage of revenue than in a big
bank, but you have to generate the revenue with perhaps less
help," Johnson said.

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Tech companies snub dealmaking    https://tmsnrt.rs/42Hsl1s
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 (Reporting by Milana Vinn in New York; Additional reporting by
Anirban Sen in New York; Editing by Greg Roumeliotis and Jamie
Freed)
 ((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net))