The dampened bank M&A environment gives depository investment bankers greater mobility to switch firms, but the compensation packages for deal advisers are not as robust as they were.
In 2023, bank M&A hit a low point with a total of 99 deals announced, compared to 157 in 2022 and 202 in 2021. Among firms that have depository investment banking teams, base salaries and bonuses increased in 2022, but declined in 2023 due to the M&A slowdown, recruiting professionals said.
"Right now, we are seeing lower bonuses overall, and I think that's just a sign of a lot of banks trying to make sure that they're covering everyone versus opting for layoffs as a result of lower deal closures," said Megan Grabow, head of investment banking and restructuring at Selby Jennings. "Last year is the first time we saw the slowdown in deal flow being reflected in the bonuses."
However, the slower deal flow could make the logistics of changing jobs simpler. Dealmakers typically want to close deals before leaving because their move would run the risk of disrupting the process for their clients. Firms also commonly enforce garden leave clauses, where senior investment bankers are asked to not join another employer immediately to avoid conflict of interest. Taking months off to serve garden leave is more palatable for investment bankers in a low-deal environment.
"Because the bankers are slower now and their opportunity cost is lower, they're more likely to pick up that phone and have a conversation as far as leaving now," said Dave Yancoskie, managing partner and head of investment banking at executive search and talent advisory firm Travillian.
Yancoskie echoed that in general, compensation packages are not as robust compared to when the market was at this peak, but investment bankers will have more time to settle in new positions.
"They're not going to get the same guarantees and overall packages on the front end that they'll get when the market is hot, but they will be able to make a move, hopefully get settled in their new seat, and then fully ramped up by the time the market really picks up," Yancoskie said in an interview.
Acting ahead of the curve
The marketplace currently has "a fair amount of optimism" that bank M&A will likely pick up in the next six months, or at least the next fiscal year, and the anticipation is driving firms' demand to search for senior bankers, Selby Jenning's Grabow said.
Yancoskie is also seeing more hiring this year than last year, "primarily because I think that the firms have a better sense that the market is going to be more monetizable."
Olsen Palmer LLC, which mainly advises depository institutions with assets below $5 billion, has already seen more bank M&A discussions under the surface, said Christopher Olsen, co-founder and managing partner of the investment bank. "It's really by no means frenetic, but there is a higher interest," Olsen said in an interview.
Piper Sandler Cos. is also seeing higher level of conversations around depository transactions, the company's chairman and CEO, Chad Abraham, said on its latest Feb. 2 earnings call. While the current noise around M&A policies creates uncertainty, the banking industry is set to be further consolidated in the long term, Abraham said.
"The environment is going to just warrant consolidation as a way to drive more earnings, and that's certainly what we're seeing in it. But it's going to be a real slow recovery there," Abraham told analysts.
Some firms are looking for talent now as the deal pipeline is warming up, because the skillsets of depository-focused investment bankers are so niche and specific that building a competitive team may take time, Grabow said.
Interpersonal communication is one of the skills in particular important in M&A advisory, said Brandon Pelletier, a managing director of the M&A advisory group at ALM First Group LLC. The Dallas-based firm advises financial institutions, primarily credit unions, on balance sheet strategy and M&A.
"It does take time to get individuals up to speed on the process," Pelletier said in an interview. "You can have the smartest person in the world, but if they don't have the humanistic side of it and being able to communicate effectively, they're not any good."
On the lookout for expansion
The search for talent to accelerate geographical expansion, instead of simply beefing up staffing, is a current theme among firms looking for depository bankers.
"It's been more of a time of expansion, less of a time of reinforcing the existing team," Selby Jennings' Grabow said.
Unlike some investment banks that went through a hiring and firing cycle catering to changes in the market, Olsen Palmer keeps a steady pace of hiring, and currently holds about five to 10 interviews a week at all levels, Olsen said.
The Washington, DC-headquartered firm has been in an expansion mode in recent years, with offices in Birmingham, Ala., Chicago, Dallas, Denver and Kansas City, Mo. In May 2023, it announced the hiring of Preston Simons as a managing director and the corresponding launch of its Dallas office. In February 2023, it promoted Frank Berndt as a managing director to lead the new office in Kansas City. Michael Rediker joined the firm in February 2020 as a managing director to lead its office in Birmingham.
The current footprint allows Olsen Palmer to cover most of the country, but it is interested in continuing to expand, potentially in the Northeast or on the West Coast, Olsen noted. The choice of new locations will be opportunistic, depending on the right talent, the executive added.
Some of the hiring opportunities come from the consolidation of depository-focused investment banks in recent years. In 2019, Janney Montgomery Scott LLC acquired FIG Partners LLC, and Performance Trust Capital Partners LLC acquired Banks Street Partners LLC. In 2020, Piper Jaffray Cos. and Sandler O'Neill & Partners LP completed their combination and rebranded to Piper Sandler.
As some of the larger and midsize firms have been acquired, some prior retention payments could start to burn off, Olsen noted. "There's an interesting opportunity for our firm and other firms to capitalize on it," Olsen said.
