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FIG i-bank deals in 2019 will remake league tables in 2020

Several investment banks focused on financial institutions agreed to sell in 2019, and the transactions should reshape future M&A league tables, especially in the depository sector.

Three of 2019's announced targets — Sandler O'Neill & Partners LP, FIG Partners LLC and Banks Street Partners LLC — finished among the top 15 bank and thrift M&A advisers by deal volume in 2018. Since 2014, only two other i-banks, Sterne Agee LLC and Austin Associates LLC, finished in the top 15 of that ranking one year and announced a sale the following year.

Other FIG-focused investment banks also agreed to deals in 2019. Ambassador Financial Group Inc., focused on depositories, sold to PNC Financial Services Group Inc.; Silver Lane Advisors LLC, focused on the wealth management industry, sold to Raymond James Financial Inc.; and Freeman & Co. LLC, focused on non-depository financials, sold to Houlihan Lokey Inc.

One common theme in these deals is that the targets gain access to a larger platform with more resources, while the buyers add some sector expertise, said Gagan Sawhney, who advised on a number of i-bank M&A deals over the years as a managing partner at Freeman.

"Us, the specialized teams that don't have the brand name and global coverage, feel like we're missing out," Sawhney said in an interview.

Becoming part of a larger platform can give smaller investment banks access to more products they can pitch to clients, and the additional offerings can help offset slowdowns in areas such as M&A. Many market pundits have been anticipating a stock market correction, which often leads to a drop in M&A. Concern about a drop in equities could have been one motivating factor for the deals.

"If you're coming off a very good year, the S&P 500 is at all-time highs, you think your pipeline is a little weaker than [it was historically] — that may push you over the edge a little bit [to sell]," said one financial services i-banker who spoke on condition of anonymity.

The i-banker added that some of the companies that agreed to sell could have started soliciting offers after their peers announced deals. "They start looking around when they see deals getting printed and ask themselves whether they can replicate it," the person said.

Investment banking sources also said firms could have had extra incentive to sell during 2019 because of the looming 2020 U.S. presidential election. Elections often introduce market uncertainty that can slow dealmaking. Fewer deals can mean a drop in expected revenue for i-banks, and that could lower their valuation when trying to sell. In parts of FIG, there are particular concerns about how the outcome of the election could impact M&A.

One presidential candidate, Sen. Elizabeth Warren, D-Mass., has co-sponsored a bill called the Bank Merger Review Modernization Act that would establish heightened regulatory hurdles to ensure that regulators are not "rubber-stamping" approvals.

When there is a slowdown in deal activity, larger firms tend to move downstream, adding competition for deals they would normally leave to smaller i-banks. In the depository space, i-banking competition is high in good times and bad.

"It's really, really tough sledding if you're on the periphery," said one depository investment banking veteran and former Sandler O'Neill employee.

Becoming part of a larger organization can give the smaller investment banks exposure to different clients. FIG Partners' sale gives it access to Janney Montgomery Scott LLC's wide retail distribution network, and Banks Street's sale allows it to leverage the established fixed-income business of its buyer, Performance Trust Capital Partners LLC. Silver Lane's leaders believed they would have a better chance of working on larger deals after becoming part of the Raymond James platform.

Joining a platform that covers multiple sectors can allow talented investment bankers to branch out and even work on deals in other sectors. Some around the depository investment banking industry anticipate certain Sandler O'Neill investment bankers will land some deals outside the financial services sector after the company completes its sale to Piper Jaffray Cos., which covers several sectors aside from financial services.

The belief is that i-bankers such as Sandler O'Neill Senior Managing Principal James Dunne III have the connections and skills to develop relationships with leaders from companies from different sectors.

"You mark my words, you're going to see him put up a $35 billion, $45 billion print in healthcare, consumer or energy," the former Sandler O'Neill employee said.

If that does happen, the i-bank deals of 2019 could have ramifications on league tables even outside of the FIG sector.