MERGERS AND ACQUISITIONS
Research shows that more than 80% of acquisitions fail to earn back their cost of capital. In these deals, buyers overpaid. We believe this occurs most often because of what is, in our view, a dysfunctional reward system for one key group of players: investment bankers. Buy-side i-bankers get paid only if the deal closes . . . and their pay is a percentage of deal price. This incentivizes buy-side i-bankers to seek deals that cost more and to close deals that shouldn’t close.
We believe buy-side i-bankers should work on an hourly basis. That significant change in the reward system will result in far fewer bad deals closing. Yet i-bankers will still get paid, though not as much as they would if the deal didn’t close.
On the sell side, we want deals to close. A contingency fee here works very well for the selling owner(s).