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Sprint/T-Mobile merger largest transaction for two investment banks

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Sprint/T-Mobile merger largest transaction for two investment banks

If completed, the pending merger of T-Mobile US Inc. and Sprint Corp., the third- and fourth-largest U.S. wireless carriers, would mark the biggest deal to date for boutique investment banks PJT Partners Inc. and Raine Group LLC, which stand to rake in sizable fees from the transaction.

The two banks are the smallest among five financial advisers on each side of the deal. PJT Partners, which was spun out of private equity firm Blackstone Group in 2015, is among the advisers to T-Mobile; Raine Group, formed in 2009 by former Goldman Sachs investment banker Joe Ravitch and former Morgan Stanley and UBS banker Jeff Sine, counts Sprint parent SoftBank Group Corp. as its largest client.

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While T-Mobile and Sprint have yet to disclose expected advisory fees for their pending merger, the size of the fees is generally correlated with the total deal value. With a deal value of $26.61 billion, excluding assumed liabilities, the T-Mobile/Sprint merger would be the 12th-largest in the technology, media and telecommunications sectors in the last decade, just behind Microsoft Corp.'s $28.13 billion acquisition of professional social network LinkedIn in 2016, according to data collected by S&P Global Market Intelligence.

LinkedIn paid $55.0 million in total financial advisory fees related to its sale to Microsoft. Also in 2016, Sprint parent Softbank paid out $145.6 million in total financial advisory fees associated with its $31.25 billion acquisition of U.K. chip manufacturer ARM Holdings PLC, which ranked as the ninth-largest deal of the decade in the TMT sectors.

If two companies have been considering a transaction for some time, like Sprint and T-Mobile, it can lead to lower advisory fees since much of the valuation work has already been done, said Lam Nguyen, director at i-banking and capital markets research firm Freeman Consulting, in an interview. He estimates that T-Mobile will pay about $75 million to $95 million for its advisers, and Sprint will put down about $80 million to $100 million in fees. The fees would be split among each side's five financial advisers.

For T-Mobile, aside from PJT Partners, financial advisers include Goldman Sachs & Co. LLC, Deutsche Bank Securities Inc., Evercore Inc. and Morgan Stanley. For Softbank/Sprint, aside from Raine Group's Raine Securities LLC, financial advisers include J.P. Morgan Securities LLC, Centerview Partners LLC, Mizuho Securities Co. Ltd. and SMBC Nikko Securities Inc.

In 2012, Sprint paid $20.0 million in advisory fees when it joined Softbank's portfolio in a $22.14 billion deal that marked Raine Group's largest advisory deal prior to the pending T-Mobile/Sprint merger, according to data from S&P Capital IQ. That deal was one of six advisory contracts between Raine and Softbank to date, in addition to the pending T-Mobile/Sprint transaction.

The majority of Raine's advisory clients (53%) come from the consumer discretionary industries, followed by information technology (23%). The firm has been active in the media and entertainment sector as well, advising clients like Dick clark productions Inc., IMAX China Holding Inc. and talent manager and entertainment consultancy Endeavor LLC. PJT Partners, which counts former parent Blackstone as its biggest client, gets the largest share of its advisory deals from the financial industry (24%), followed by the consumer discretionary sector (17%).

If the T-Mobile/Sprint deal falls through or gets blocked by regulators, the advisers stand to receive much smaller fees, and T-Mobile would have to pay Sprint a $600 million breakup fee. Concerns about regulatory approval have thwarted earlier attempts for Sprint and T-Mobile to combine, though today's regulatory environment is seen as more friendly to the deal, with members of the Federal Communications Commission's Republican majority suggesting they are open to considering it.

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