Banks That Aided GE Acquisitions Now Profit

Refinitiv: Banks That Aided GE Acquisitions Now Profit

Several of the Wall Street banks that helped General Electric Co (GE.N), Toshiba Corp (6502.T), and Johnson & Johnson (JNJ.N) become giant conglomerates through acquisitions are now gaining from their break-ups.

Over the years, the three businesses, which recently announced intentions to spin-off sections, paid banks such as Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N), and UBS Group AG (UBSG.S) hundreds of millions of dollars in fees to advise them on acquisitions. The same banks are now being paid to reverse the transactions’ consequences. 

Goldman Sachs, JPMorgan, and UBS spokespeople did not reply to requests for comment.

Refinitiv: Banks Earned Over $1 Billion On Spin-Offs?

While it’s not uncommon for an investment bank to advise a firm on a spin-off after previously working on its acquisitions, the current wave of high-profile spin-offs sheds new light on the practice.

According to Refinitiv, banks have earned over $1 billion on spin-offs so far this year, nearly double what they received in 2020.

Investors in those enterprises are not guaranteed the same wealth. According to Refinitiv, shares of firms that engage in acquisitions or divestments have had a mixed track record in the previous two years, typically trailing peers. 

Banks normally do not breach any restrictions while working on these arrangements, according to Erik Gordon, a law and business professor at the University of Michigan, because they are carrying out their customers’ objectives. However, he said that this did not free banks of their responsibilities to advise against a deal that they believe is not in a company’s best interests in the long run.

“If the bankers deserve criticism, it is for not pushing back against a CEO who pushes a bad deal,” Gordon said.

Corporate Break-Up Advice

According to estimates from M&A attorneys and bankers, Goldman Sachs, together with Evercore Inc (EVR.N), PJT Partners Inc (PJT.N), and Bank of America Corp (BAC.N), stands to earn tens of millions of dollars by advising on GE’s break-up. 

According to Refinitiv, Goldman Sachs has previously received about $400 million in fees advising GE on acquisitions, divestitures, and spin-offs since 2000, making it the company’s top consultant in terms of M&A fees.

According to Refinitiv, JPMorgan, which advised J&J on its intended breakup, has already generated $206 million in fees advising it on mergers since 2000. According to Refinitiv statistics, UBS, which worked on Toshiba’s demise, received $12 million in fees.

According to Dealogic, Goldman Sachs has collected the most fees from corporate break-up advice so far in 2021, followed by JPMorgan and Lazard Ltd (LAZ.N). Corporate dissolutions are on the rise, owing to a growing agreement on Wall Street that corporations perform best when they focus on adjacent business sectors, as well as increasing pressure from activist hedge funds.

According to Dealogic, 42 spin-offs worth more than $200 billion have been announced internationally so far this year, up from 38 spin-offs for around $90 billion in 2020. According to Dealogic statistics, investment banks have earned more than $4.5 billion advising on spin-off acquisitions throughout the world since 2011.

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