After growing through acquisition, Europe’s UBS Investment Bank decided that to make its mark in the tough US market, it had to beef up its M&A practice. Rick Leaman, co-head of global M&A, talks to Sophie Roell about the strategy that UBS used to compete successfully with the global giants.
UBS has been around a little too long to fit easily into the role of new kid on the block. But, according to Rick Leaman, co-head of global mergers and acquisitions at UBS Investment Bank, that is exactly the stage its US M&A business is at. “With respect to M&A in the US we are a relatively young firm,” he says.
Mr Leaman is fresh from a good week in which the bank did 12 deals globally: four each in Asia, the US and Europe, he reports. But he is far from complacent, saying: “We have done well and we are proud of our accomplishments but we have a long way to go.”
Current plans are still based on the decisions made in 2001, when the acquisition of PaineWebber ended the Swiss bank’s investment banking buying splurge. As UBS forged a plan on how to position itself in the cut-throat US market, it decided to stay the course with its M&A business.
“We had a decision to make,” says Mr Leaman, who came from Dillon Read, the US investment bank acquired by UBS in 1997. “At and around that time, the M&A market was not terribly robust and a lot of firms decided to unwind their M&A groups or merge them into coverage groups.
“We looked at that and we thought it was the wrong thing to do. We think there is a value proposition in having M&A professionals working with coverage bankers to provide a service model to clients that they would want to pay fees for.”
UBS has stuck with that strategy. “Gaining market share in M&A – which is the highest value added product for corporate clients – takes time. So if you believe in your strategy, you have to be patient and let it play out, and that’s what we’re doing,” says Mr Leaman.
US drives the market
If a healthy European presence has given UBS some leverage, the build-up of the US remains key. Mr Leaman says: “The lion’s share of the fee pool is still in the US and the overall health of your M&A business is going to be heavily driven by what happens in the US.”
Underpinning the M&A effort was the hiring of a pool of talent across the US investment banking business. “We made a decision about how we were going to grow the business,” says Mr Leaman. “We were going to hire the best people we could find on Wall Street, who could help us build a client franchise business.”
The hiring spree has continued into this year, with Chicago-based Cary Kochman and James Glerum joining from CSFB in March. Mr Kochman is now co-head of Americas M&A at UBS.
The roll call of recent recruits is a long one. To name a few: Ken Moelis, head of investment banking, was lured from his position as co-head of investment banking for the Americas at CSFB. Mike Martin, who now heads the financial institutions group (where a lot of the M&A action is these days), and Steve Trauber, head of the energy group, are also both former CSFB bankers. Kevin Cox came from Morgan Stanley in 2002 to lead the global industrial group.
As Mr Leaman explains, each of these individuals had global sector responsibilities and their job was to create a coverage model where UBS had identified the clients where it thought it could have impact – and where it could gain a meaningful share of their fee pool or the fees they pay Wall Street.
“And we were going to do that by providing best-in-class service, best ideas, continued follow-up, consistency in our approach – and that obviously involves all the products of the firm: debt, equities and derivatives, and M&A,” he says.
Bigger slice of the action
UBS proudly points to its growing share of the US investment banking fee pool – from 1.9% in 1999 to 5.4% last year. But it has yet to threaten the dominance of the big US players in M&A. At number seven in the global M&A league tables, the bank trails the likes of Goldman and Citigroup (although it is ahead of CSFB). Even so, UBS has participated in some of the year’s big-ticket deals – acting as adviser to Wachovia in its $14.3bn acquisition of South Trust Corp, for example. Says Mr Leaman: “Globally this year, we’ve been involved in half of the top 20 deals, and in the US, we’ve been involved in 40% of the top 10 deals.”
And with each sector, he believes it is partly a matter of time before the bank gains traction. In healthcare, for example – his own area of expertise – UBS started earlier and now has the number one franchise. “Eventually we would love to have the number one franchise in every sector we cover, but it will take more time as we are a younger organisation in the US than many of our peers.”
After a pitiful start to the new millennium for M&A, Mr Leaman is sanguine about the current environment. “We’re seeing steady improvement. In 2003 things really started to turn around and in 2004 our revenue generation has been far better and our share of the fee pool is better,” he says.
Market looking better
Also, while the situation may not look as good now as it did three or four months ago – when a flurry of new deals hinted at a return to boom-times for M&A – Mr Leaman says: “It’s not a wildly robust market, but it’s an improving market, and that’s OK.”
One feature of the current market has been a lot of business in the $300m to $1bn transaction range, rather than the mega deals of the late 1990s. Mr Leaman says he is not sure whether that is a permanent trend, but it makes little difference in terms of the bank’s strategy. “We have to go after the fee pool where it is. If the clients we’re calling on need us to do a $300m-$500m deal, we’re going to do it, and when they need to do a bigger deal, we’re going to do that too.”
Another development has been a tendency for companies to divest and focus on core business rather than making acquisitions. “A lot of the buyers of corporate assets have been financial sponsors and private equity firms,” Mr Leaman says, adding this is good because it has made the market more liquid.
Still, he does not think that means strategic buyers are necessarily out of the picture. “This year, the dynamic was pretty much in favour of the financial sponsors, and we’ll see what happens over the next several quarters. I don’t think anyone should conclude that strategic buyers aren’t looking for growth through acquisitions, they are – they’re just being pretty careful, pretty picky, about what they’re going to put their capital into.”
The US M&A market has performed the best but others are improving. “We’ve started to pick up a lot of backlog in Europe recently, so I’m optimistic that Europe is going to start to grow at a more accelerated rate. We are also seeing a very healthy rebound – or should I say initiation of volume – in Asia,” Mr Leaman says.
UBS was joint financial adviser to telecommunications giant China Telecom Corporation Limited on a $8.2bn acquisition of various telecom businesses across 10 of the country’s provinces earlier this year.
So has UBS (like one or two other European players) paid too much to lure away the talent it needs from some of the bigger names to build up its US investment banking position? Mr Leaman thinks not. “The other option would have been to acquire another US firm. The price tag on those is quite steep, and it hasn’t proven to be a terribly successful strategy,” he argues.
End of a spree
In any case (and, no doubt, to the dismay of Wall Street’s headhunters), Mr Leaman says the hiring spree is nearing its end. “I think we’re 90% of the way there,” he says, though he cannot resist adding: “If there’s a good banker out there that can help us build our franchise, we’re going to be aggressive about going after that person.”
In future, UBS will be turning much more to homegrown flair, says Mr Leaman. “Now that we have the leadership in place we’re going to really focus on growing our own talent. We have a core of executive directors, directors and associates in this organisation that are absolutely outstanding and now the job is to grow that internal talent, and five years from now look back and say ‘wow, look what we’ve done’.”
Career history
2004: named joint global head of mergers and acquisitions for UBS Investment Bank
1997: became co-head of mergers and acquisitions for SBC Warburg Dillon Read (now UBS Investment Bank)
1995: appointed co-head of healthcare for Dillon Read
1992: joined Dillon, Read & Co Inc
1986: joined Smith Barney, Harris Upham & Co. Incorporated as an associate in investment banking
1986: MBA, Duke University Fuqua School of Business
1984: BA in economics, Duke University
