Today, Andrew Ross Sorkin, of the New York Times DealBook, wrote an article which states that over the past two years Hewlett-Packard has paid $81 million in acquisition advisory fees to investment banks but received questionable advice. Here is the link:
What this article shows is that Andrew, and most journalists for that matter, have no idea what M&A advisors actually do. I worked as an investment banker for 12 years (Citigroup, Merrill Lynch and First Boston), interacting with numerous boards and management teams on acquisitions. I then worked in private equity where I was involved in decisions on buying or selling companies, which included hiring investment banks. So, let me explain how the process actually works and what investment bankers actually do.
First, investment bankers do not tell companies to make acquisitions or to sell companies. Investment bankers may bring ideas to companies, but universally the companies decided what to buy and sell. Usually, companies identify a company to buy or decide to sell their company. So, what then do the investment bankers do? Very simply, they haggle over the terms. That’s it. Investment bankers try to get the best terms, which primarily means price, for their client. Then, the client decides if they want to proceed. Somehow, the media has this fantasy that investment bankers are these larger than life figures who dupe companies into agreeing to transactions that are not in the companies’ interests. Nothing could be further from the truth. Boards decide whether to proceed and investment bankers have very little influence over them. The investment bankers are advisors. They advise on the pros and cons of a deal, they advise on the financial and business terms of a deal. But, all they do is advise; they do not decide anything.
And, I can remember specific situations where our team advised companies not to proceed with a deal but the company decided to move forward anyway. We told them we did not think the deal terms were in the best interest of the company, but if they wanted to proceed we would support them and continue to advise them. Ultimately, it’s up to companies to decide what to do. How does Andrew Ross Sorkin know what advice the investment bankers gave H-P? Maybe the investment bankers advised against the acquisitions but H-P moved forward anyway? In which case, the investment bankers had a fiduciary responsibility to still work on behalf of H-P to get the best terms possible, even if the overall transaction was not advisable in their opinion.
My advice to the media is to actually understand the industries about which you write. Your active imagination may make for fun reading and tap into readers’ pre-disposition for another reason to hate Wall Street, but it does a dis-service by mis-informing them.
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