Takeovers are generating huge bond deals for Wall Street.
The Anheuser-Busch InBev-SABMiller deal, which was announced November 11, generated the biggest bond deal in the history of Wall Street: $US75 billion, according to Dealogic.
For the banks that worked on the debt package for the deal, it translates to a payout of about $US200 million, according to Jeffery Nassof of Freeman & Co., an industry consulting group.
Broadly, companies have issued a record $US989 billion in bonds this year, according to Dealogic.
But the one piece of the M&A-debt puzzle that generates the biggest profits for Wall Street — the private equity industry — is mostly still absent. PE firms have scaled back big bets after so many huge pre-crisis buyouts flamed out spectacularly.
Because leveraged buyouts are so much riskier than corporate deals, the related bond-sales are harder to pull off. That, of course, means that the banks get paid more for taking them on, Nassof said. A lot more.
Comparing this week’s big beer deal to the Dell-EMC deal, announced last month: the $US40 billion in financing behind the largest deal involving a private equity firm post-crisis likely generated $US400 million in bank fees, Nassof said.
“That’s where you see the highest revenue,” Nassof said.
There’s another driver of large bond deals, but that could actually slow next year.
Activist investors have been pushing many of the biggest bond deals, in part to fund dividends to shareholders or stock buybacks. But a recent Moody’s report said that in 2016, activism could subside. And that is likely to result in a pullback in the roaring jumbo bond deal market seen throughout this year.
If that’s the case, banks might start missing those big LBOs.
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