It was a big deal and Mike Wilkins wasn’t taking any chances.
The Insurance Australia Group chief was close to launching a long-mooted $1.85 billion move on Wesfarmers’ insurance underwriting businesses and financing plans were being drawn up with his advisers at UBS, including a $1.4bn equity raising.
Wanting a second pair of eyes, Wilkins’s right-hand man, finance boss Nick Hawkins, picked up the phone and called Mike Everett, Goldman Sachs’s former head investment banker for equity capital markets deals, such as floats and share issues.
Everett had left Goldman in January with only one thing in mind after 25 years in the game — a break. But IAG’s call wasn’t the first, with Everett and fellow former Goldman banker Rob Penney already quietly doing some work for other close clients like Fonterra, helping them buy a slice in Bega Cheese.
The pair were tight with IAG after helping it raise equity in the global financial crisis. In 2003, Everett also helped float Promina, which Wilkins formerly ran.
“It was a nice call to get,” says Everett, 47, who this week opened the office for their new advisory firm, Reunion Capital Partners, in Sydney’s Pitt Street.
“They asked us to come in and basically sit by their side and help them through, make sure they were comfortable putting the transaction up to their board and then executing.
“If clients hadn’t started picking up the phone, we probably wouldn’t be doing it so soon.”
Independent advice from “boutiques” — firms that don’t also sell securities such as stocks — has long been used by companies when doing acquisitions, but Reunion is potentially the first in Australia to focus purely on equity capital markets advice, with others such as Greenhill, Lazard and Rothschild also offering M&As.
“There has been independent advice for a long time but predominantly on M&A. There seems to be momentum now for capital markets advice,” says Hawkins.
Investment bankers have long held differing views on the independent model, with some arguing they cannot offer clients all their needs. Others counter that large investment banks are conflicted.
Independents have, however, not disappeared and a major global report by The Boston Consulting Group last week tipped more deals to be won by “niche advisory players”.
BCG, while also warning that investment banking returns would fall further, said the major issue for smaller advisory firms was attracting and retaining “rainmakers capable of originating large deals”.
Former Morgan Stanley global head of investment banking Paul Taubman made headlines around the world last month after he ranked 11th in the first-quarter global M&A league table — the fiercely competitive ranking of banks based on deals won.
Taubman, who reportedly doesn’t yet even have a secretary, also only re-entered banking after getting called by longstanding clients.
Everett, in his first major interview since leaving Goldman, talks highly of his former employer and the large “bulge bracket” investment banking model, but indicates lower levels of scrutiny appealed at this stage of his career. His wife owns a farm to the south of Sydney where she breeds racehorses and he also owns a house in Perth.
“The pressure sitting in a big investment bank is every deal is scrutinised as to why you are on it or not on it,” he says. “One of the great things about this is we’re not focused on league tables.
“We can do bits; we can co-ordinate the whole process. It won’t be for every client and every situation, but I think there is a real role for that independent adviser.
“Clients do tend to feel quite vulnerable when they’re stepping off the ledge and going public with a capital markets trade, because the market judges them and they don’t do them that much.”
Helping Reunion’s cause has been their timing, with the initial public offering market reopening late last year after a dearth of deals since 2009.
Through an agreement with Investec to help on certain deals, Reunion is advising SCA Hygiene and PAS Group on their options, which may end up as floats on the stockmarket. The firm also recently advised the board of Wesfarmers’ insurance broking arm before it was bought by Arthur J. Gallagher, and is helping private equity group Ironbridge on a range of their assets.
“It definitely will evolve. We’re not blind to the fact IPO market windows open and close. But we don’t want to pretend to be something we’re not, so it’s still going to be a capital markets focus,” says Penney, 45, of Reunion’s strategy.
Senior bankers starting their own shops can be lucrative. Simon Mordant, Ron Malek and Peter Hunt shared in a multi-million-dollar windfall after selling Caliburn to US-based Greenhill in a $181 million deal in 2010.
Everett, Penney and Lidia Ranieri, another ex-Goldman banker, are equity partners in Reunion, but indicate they are more motivated by the greater control over their work-life balance than a bumper payday from being bought out. The trio hope to hire three to five bankers in the next 12 months now that they’re not “running around in coffee shops” and have offices.
“All of us wanted something that was a bit more flexible,” says Penney, who joined JBWere — which became Goldman — out of university in 1991. Everett and Ranieri have worked together for almost 20 years, firstly as analysts at County NatWest.
“But we didn’t leave Goldman with a view to do this. I don’t think any of us had any idea what we were going to do. We all wanted a break,” adds Penney.
While not alone in tougher times for banking since the GFC, Goldman has lost other senior bankers to retirement or rivals in recent years, such as Stephen Fitzgerald, James McMurdo, Ross King and Tony Osmond.
Some bankers claim the culture was affected when Goldman’s Wall Street head office in 2011 bought out the 55 per cent of the Australian business that it did not own.
However, Goldman has maintained its spot at the top end of the local league tables alongside the likes of UBS and Macquarie.
“It wasn’t Goldman,” says Everett, who is clearly relishing dealing with clients 100 per cent of the time rather than being bogged down with administrative demands.
“Big banks are great, I’ve worked in them for 25 years or so, but you don’t get a chance to step back and think about what you really want to do for the next five years.
“Nearly all things we work on will have investment banks involved at some point in the chain, so we don’t think we are competing against the big banks, we think we are partnering with them, but assisting our clients and making sure they’ve got a sanity check.”
After some troubled recent floats, such as McAleese and Pact Group, investors are also doing some sanity checking to pick the best new companies.
Ranieri, who is close to fund managers, is confident good IPOs will win backing, suggesting deal flow should remain healthy.
“It may appear the window is opening and closing, but really all that investors want is good assets at a good price and a good process, and if you can deliver that the window should stay open,” she says. “There is genuine demand among investors for new product. They want new, interesting stories to invest in.”