Why Are Big Banks Suddenly Interested in Small Deals?

We really enjoyed an interesting read from The Wall Street Journal this week on why investment banks are more aggressively pursuing mid-market deals. Any investment banker worth his or her salt typically wants to be involved with advising on the large, global mega deals that dominate news cycles. So why then are so many investment banks, in the Journal’s words, “tripping over themselves” to win business advising companies in smaller deals and setting up offices “in cities like Dallas and Atlanta?”

Well, the mid-level is where much of the M&A activity is happening. According to the Journal, there were just 135 deals in the U.S. last year valued at over $2 billion, versus a whopping 2,200 under that amount. Also, deals in the middle market tend to be less complex, they close faster, and the fees are spread among fewer banks who are involved.

These mid-tier deals have typically been dominated by regional firms; and while every so often big banks get the idea to invest resources in this market, it usually doesn’t last, and they go back to mostly chasing mega deals. It will be interesting to see if this trend continues for good this time around.