Stock Markets
Technology deal doldrums give bankers the job-hopping itch
When a senior Goldman Sachs technology banker delivered a grim prediction to his colleagues earlier this year, it marked the beginning of downturn that would result in some bankers leaving.
Mergers and acquisitions among technology companies could be down as much as 80% in 2023, Sam Britton, one of the leaders of Goldman’s global technology, media and telecommunications group, wrote in an internal memo in February, as an economic slowdown and a hostile anti-trust environment weighed on dealmaking appetite.
Britton tried to boost morale, arguing that market conditions could change quickly, according to sources who described the contents of the memo. But the plunge in the deal pipeline prompted soul-searching and job-hopping among investment bankers accustomed to a feast.
In the months that followed, a number of top technology bankers have left firms such as Goldman, Bank of America and Barclays, often for smaller peers such as Moelis & Co, Qatalyst Partners, Evercore, and Jefferies Financial Group, according to interviews with more than a dozen bankers and previous Reuters reporting.
The latter lured the bankers by promising a bigger payout for their deals, often guaranteeing minimum compensation of millions of dollars for two years, those interviewed said. They added that it was unusual for so many senior bankers to jump ship in the space of a few weeks.
A Barclays spokesperson said the bank was confident in its plan to break into the top five investment banks. Representatives of the other banks either declined to comment or did not respond to requests for comment.
Technology was the top sector for mergers and acquisitions for eight consecutive quarters until the second quarter of 2022, when a bout of inflation forced central banks to raise interest rates, weighing on tech stock valuations.
Global deal volumes in the technology sector have dropped by more than half so far this year, according to data from LSEG Deals Intelligence.
Investment bankers and headhunters say the talent flight could change the competitive position of many banks when technology firms decide to embark on big deals again.
“When the pay is less, bankers feel less committed to the bank they are at. The cost of opportunity to switch is less,” said Anthony Keizner, managing partner at executive search firm Odyssey Search Partners.
Goldman has lost several high-ranking technology bankers this year, including Nick Pomponi, former co-head of global software investment banking who left for Evercore, Rob Chisholm, a partner who moved to Qatalyst, and Troy Broderick, who was named chief operating officer of Goldman’s M&A business in May only to leave for Perella Weinberg Partners.
Barclays, which has struggled to retain bankers following a shake-up in the management of its investment banking division, has lost at least nine top technology bankers in recent weeks. They include Laurence Braham, its former global chair of investment banking, and Richard Hardegree, its head of technology M&A, who both moved to UBS, and Steve Markovich, its former global co-head of software investment banking, who left for Centerview.
Ron Eliasek, one of the software industry’s top investment bankers, left his post as global chairman of technology, media, and telecommunications at Bank of America earlier this month to join Jefferies.
In a big bet on technology dealmaking, Moelis & Co hired 46 technology bankers from SVB Securities, the investment banking arm of failed Silicon Valley Bank, including Jason Auerbach who led the team, a Moelis executive told an industry conference last week.
PAY GUARANTEES
In making the switch, many bankers forfeit the resources of big banks that can help win clients, such as top brokerage coverage and a balance sheet to fund deals, in exchange for a bigger cut of the fees from the deals they put together.
Traditionally, smaller firms have been reluctant to offer investment bankers guaranteed compensation, in order to have more of their pay tied to performance. Yet some are now offering guaranteed pay of between $2 million and $12 million over the first two years to poach top talent, the bankers interviewed by Reuters said.
Alan Johnson, managing director of compensation consultancy Johnson Associates, said that first-year guarantees were common practice in the hiring of investment bankers, but second-year guarantee used to be rare.
He added that bankers who leave big banks for smaller firms are signing up for a bigger slice of a smaller pie, so clinching these two-year guarantees eases the pressure on them to help grow the pie as soon as they join.
“You get paid a higher percentage of revenue than in a big bank, but you have to generate the revenue with perhaps less help,” Johnson said.
On Friday, Argus increased its stock price target on Rithm Capital Corp. (NYSE: RITM) to $13.00, up from the previous $12.00, while reaffirming its Buy rating on the stock. The firm highlighted the company’s ongoing transformation and expansion efforts as the rationale behind the revised target price.
Rithm Capital, which rebranded from New Residential Investment Corp. in August 2022, has since transitioned to internal management after previously being managed by Fortress Investment Group. This change is part of a broader transformation of the company’s business model initiated following the financial crisis in late March 2020.
The company has been actively growing its mortgage servicing operations and seizing new debt-related investment opportunities. In its expansion efforts, Rithm Capital has acquired a 50% interest in GreenBarn Investment Group, a commercial real estate equity and debt investment management firm.
Further bolstering its portfolio, Rithm Capital has also made significant acquisitions, including purchasing $1.4 billion worth of Marcus consumer loans from Goldman Sachs for $145 million. Moreover, the company has completed the acquisition of Computershare Mortgage Services Inc. and its affiliates, including Specialized Loan Servicing LLC (SLS), for an approximate total of $720 million.
Completing its notable transactions, Rithm Capital finalized the acquisition of the $33 billion alternative asset manager Sculptor Capital Management (NYSE:) in the fourth quarter of 2023. These strategic moves have contributed to the firm’s positive outlook on Rithm Capital’s stock and its increased price target.
InvestingPro Insights
In light of Argus’s stock recent price target increase for Rithm Capital Corp. (NYSE: RITM), InvestingPro data further supports the optimistic outlook. Rithm Capital’s market capitalization stands at a robust $5.55 billion, while maintaining an attractive P/E ratio of 7.41, indicating that the stock may be undervalued relative to its earnings.
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The company’s significant dividend yield of 8.73% as of the last recorded date, coupled with a history of maintaining dividend payments for 12 consecutive years, reflects a strong commitment to shareholder returns.
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This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
On Friday, JPMorgan upheld its Overweight rating on CK Infrastructure Holdings (1038:HK) (OTC: CKISY) with a consistent price target of HK$50.00. The firm’s analysis was based on a review of the company’s financial year 2023 results and current operating trends. Adjustments were made to the earnings forecasts for the years 2024 and 2025, with a slight reduction for 2024 by 2% and an increase for 2025 by 2%. These revisions take into account the influence of regulatory changes, inflation, and fluctuating exchange rates on the company’s regulated assets, particularly in the United Kingdom, Australia, and other regions.
The updated model reflects the latest developments and anticipates the potential financial impact on CK Infrastructure. The firm has decided to roll forward its price target to June 2025, while maintaining the previous target of HK$50. The Overweight rating suggests that JPMorgan continues to view the stock favorably in comparison to the sector average.
CK Infrastructure Holdings, which operates a diversified portfolio of infrastructure businesses, has been assessed for its performance and outlook in light of various external factors. The company’s exposure to regulatory resets and economic conditions in different geographies necessitates a nuanced understanding of its earnings potential.
The revised earnings estimates are a direct result of the firm’s comprehensive evaluation of the company’s regulated assets. These assets, which are subject to oversight by regulatory bodies, can be affected by policy changes and economic shifts, such as inflation and currency exchange rates.
JPMorgan’s reaffirmation of the Overweight rating indicates confidence in CK Infrastructure’s ability to navigate the complexities of its operating environment. The price target of HK$50 remains unchanged, signaling the firm’s belief in the company’s value proposition and its prospects for the future.
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This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
On Friday, Argus maintained a Buy rating on Ashland Inc . (NYSE: NYSE:) and increased the stock’s price target to $118 from $109. This adjustment suggests a potential total return of approximately 21%, including dividends, based on the current share prices.
The specialty chemicals and additives provider has experienced underwhelming operational and financial performance over recent quarters, including the second quarter of 2024. This was attributed to slower economic growth in key regions such as China, Europe, and parts of Asia. These areas faced challenges due to soft customer demand and ongoing inventory destocking by suppliers, which adversely affected Ashland’s revenue and profit margins.
Despite these challenges, there have been positive signs in the last quarter indicating a shift in market conditions. Ashland’s management has reported a gradual increase in demand across most of the company’s end markets.
According to Argus, this improvement is a result of the destocking cycle nearing its end and customer demand beginning to rise, which are seen as favorable trends for Ashland’s future growth.
The revised stock price target reflects the analyst’s confidence in Ashland’s recovery trajectory as the market dynamics that previously hindered the company’s performance are starting to reverse. The upward revision in the price target is based on the expectation of a continued recovery in customer demand patterns and the conclusion of inventory destocking.
Investors and market watchers will be monitoring Ashland’s progress closely, as the company aims to capitalize on the improving demand in its various markets and work towards delivering value to its shareholders.
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InvestingPro Insights
As Argus maintains a positive outlook on Ashland Inc. (NYSE: ASH), highlighting the potential for a 21% total return, InvestingPro data provides additional insights into the company’s financial health and market performance.
Ashland’s management’s aggressive share buyback strategy and a high shareholder yield are noteworthy, as noted by InvestingPro Tips. Furthermore, the company’s consistent dividend growth, with dividends raised for five consecutive years and maintained for 54 years, underscores its commitment to shareholder returns.
From a market perspective, Ashland’s stock is trading near its 52-week high, with analysts predicting profitability for the year. The company’s strong liquidity position, with liquid assets surpassing short-term obligations, is reassuring for investors.
Key financial metrics include a market capitalization of $4.98 billion, a P/E ratio of 26.25, and a dividend yield of 1.64%. Despite a decline in revenue growth over the last twelve months, the stock has experienced a significant price uptick, with a 29.41% total return over the last six months.
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This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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