M&A Rainmakers Flock to America's Heartland in Search for Growth

(Bloomberg) -- Manhattan is the center of finance, but some of the world’s top investment banks are thinking more about Minneapolis.

M&A Rainmakers Flock to America's Heartland in Search for Growth

Dealmakers of all sizes are pushing deeper into America’s heartland, adding top bankers in cities like Chicago, Houston and St. Louis. They’re seeking to grab market share in the competitive world of advising on mergers and acquisitions, and scouring every corner of the U.S.

It’s a question of, “How do we actually unearth opportunities we otherwise wouldn’t see?” Matt Gibson, Goldman Sachs Group Inc. co-head of global investment banking services, said by phone. The bank last year started a push to place dozens of bankers in markets including Atlanta and Dallas to be closer to clients. “We are putting a lot of effort and intensity behind it.”

The firms see room to run in the U.S., the biggest market for M&A, even after an eight-year surge in dealmaking. The push into the nation’s center is helped by a flurry of smaller companies looking to merge, the emergence of new types of buyers like ultra-wealthy families and a spate of buyout firms raising new cash, said Noah Schwarz, senior client partner at executive-search firm Korn Ferry.

“If you are a major investment bank and want to play in the middle market, you need to be present not just in New York,” Schwarz said. He named Denver and Charlotte as among the hot cities. But, he said, “Chicago is the home base of it all.”

Chicago has been a boon especially for boutique firms. Perella Weinberg Partners opened an office there in January, then hired two partner-level bankers from Citigroup Inc. and a third from Morgan Stanley. Paris-based investment bank Rothschild & Co. opened its Chicago office about two years ago, and since May has hired three more senior bankers from UBS Group AG to continue expansion.

Guggenheim Partners hired Jeff Yingling, previously the head of Midwest investment banking at JPMorgan Chase & Co., and has been seeking more staff to build out in the region. Evercore Partners Inc. also added U.S. staff outside New York, as has Lazard Ltd.

“We’ve made a big investment in Chicago, Houston, Minneapolis, and we think those investments are really paying off,” Lazard Chief Executive Officer Ken Jacobs said by phone. “We’re really doubling down and making sure we have talent to be able to take advantage of the opportunities that we see there.”

Lazard and Perella Weinberg are among investment banks that for years have been seeking growth in Europe. Jacobs said the U.S. also presents opportunities because it’s “a great market with a big fee pool, and in parts of the country, relatively under-served client bases.”

JPMorgan has spent about six years expanding in places like Chattanooga, Tennessee; Kansas City, Missouri; and Sarasota, Florida, to provide more M&A and underwriting advice to companies that generate $500 million to $5 billion in revenue. There are signs the effort is paying off: Commercial bank clients contributed almost 40 percent of North American investment banking fees last year, according to JPMorgan’s annual report.

There are smaller investment banks like William Blair & Co. and Stifel Financial Corp., based in St. Louis, that have dominated this market for years.

‘Rocket Science’

“It’s not rocket science, it’s just old-fashioned building relationships,” said John Richert, JPMorgan’s regional head of investment banking. “It’s getting more crowded. We like to think that the head start we have will keep us in a competitive position.”

Wells Fargo & Co. also added a head of Midwest investment banking, Rick FlorJancic, who joined from from JPMorgan.

Not all banks are expanding in the central U.S. Deutsche Bank AG shut its Houston office amid a restructuring, and has been cutting staff in Chicago, according to people briefed on the matter, who requested anonymity. The bank said it still views a presence in the region as key for its corporate finance division. While UBS has lost some talent in recent months to rivals, a person familiar with the bank’s plans said they’re also investing in the region.

Gibson, based in Chicago for Goldman Sachs, said the city has been an important market for many years, and one of the bank’s former leaders -- Hank Paulson -- had worked there. Gibson has hired two top bankers in the city since the beginning of last year.

He’s leading the effort to find new cities for an eventual expansion, and while no decisions have been made, St. Louis and Minneapolis are among places that could be considered. The bank has also moved partners to Toronto and Seattle.

Cost of Living

“We see it as an investment that’s going to provide a good return,” Gibson said. “It just becomes more efficient. It also happens to be markets where the cost of living is lower, and so your ability to train and house people in these regions is more cost-efficient than it would be in New York or San Francisco.”

Among major transactions this year is Chicago-based Boeing Co.’s more-than $4 billion deal to buy aerospace company KLX Inc., in which Goldman and Citigroup are among advisers. Wells Fargo advised WestRock Co., based in Georgia, on its almost $5 billion agreement to buy KapStone Paper and Packaging Corp., with headquarters in Northbrook, Illinois. Moelis & Co. and Rothschild advised the seller.

There’s risk in being a banker outside New York. In an economic downturn, offices in the central cities may be the first ones to suffer, according to Korn Ferry’s Schwarz. Still, he said, the industry’s commitment to far-flung locations probably won’t wane.

“The demographics and dynamics have changed enough over the years to make cities like Atlanta, Charlotte, Chicago and Minneapolis very important places to cover,” he said.

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