Investment banking newcomers Barrenjoey, Jarden navigate tougher deal climate

Barrenjoey Capital founding partners, from left: Chris Williams, John Cincotta, Brian Benari and Guy Fowler.

Investment bankers are closely watching the fortunes of relative newcomers Barrenjoey and Jarden in the latter half of this year.

With the market for initial public offerings still anaemic, and coming off a record 2021 for mergers and acquisitions, this year will throw up some challenges. Firms that have piled on the headcount need the fee income to keep rolling in.

While announced mergers and acquisitions have stayed at healthy levels, bankers need deals to complete to get the fees on their books. Sharply rising interest rates, volatility, swelling inflation and lingering supply chain bottlenecks can all act as a hand brake on activity, as uncertainty curtails dealmaking.

That’s not to say activity stops, given this environment will spur opportunistic moves and revised offers by suitors. We’ve seen that already with Dye & Durham’s revised – but then sweetened – tilt for Link Administration.

The choppy macroeconomic environment has also created some confusion at Barrenjoey around when staff will be informed of bonuses. This column understands some staff were expecting bonus day to fall this month, after ruling off a June 30 balance date, but have since been told that won’t happen until ­August.

This has caused some consternation at Barrenjoey among staff cohorts, which are also reporting a laser-like focus by bean counters on costs in recent months.

Given 2021-22 marked its first full financial year in operation, maybe the top brass should be given some leeway on the bonus timing – but in investment banking, bonus day is a big deal!

Over at Jarden, bonus day earlier this year was said to have sparked a revolt after those at the top suggested senior people take large chunks of stock instead of cash to align their commitment with that of the business. There was a standoff before a backing down of sorts by head office.

That coincided somewhat with Jarden raising about $NZ60m via a convertible note issue to fund near-term growth.

For the newcomers the timing of revenue recognition and completion of deals is key. The firms need to prove they are sustainable through market cycles.

The risk for firms that have to stump up big on bonus day for staff payments is that they cut headcount to preserve the pool of money that is then left for remaining staff. That would be a risky move for the likes of Barrenjoey or Jarden, but a top banker at a more established firm told this column he expected job cuts may happen across the board locally and globally by the end of the year.

For Barrenjoey watchers, some insights into the firm will be available next month, when shareholder Magellan Financial Group reports annual earnings.

The carrying value of Barrenjoey in Magellan’s interim accounts rose to $118.1m as at December 31, from $114.5m six months earlier. The first-half accounts also noted a $50m unsecured working capital facility provided by Magellan to Barrenjoey, of which $25m was drawn and then repaid in the six-month period. After December 31, $15m was drawn by Barrenjoey.

Barclays – which has a turbulent track record in Australia after exiting in 2016 – in May increased its shareholding in Barrenjoey to 18.2 per cent by subscribing to $75m of new capital. That diluted existing shareholders.

While Barrenjoey has worked on some notable deals this year, including advising a KKR-led group in its acquisition of Ramsay, it will need the overall deal pipeline to stay healthy to sustain its cost base. The firm sits outside the top 10 in the Refinitiv investment banking preliminary 2022 first-half fee league tables, but Barclays, helped by a number of offshore deals, leads the announced mergers and acquisitions volume rankings.

For fees on mergers and acquisitions Barclays/Barrenjoey sit in third position in Dealogic’s first-half league tables, trailing UBS in second spot and Macquarie Capital at the top of the table.

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Selling the farm

The waving of the white flag by digital bank Volt sent shockwaves through the market last month, underscoring the challenges involved in scaling up a new bank.

But this column understands there are dozens of parties – spanning technology players, banks, consultants and non-bank lenders – taking a look at the leading technology that is on the block via Rothschild. It’s still early stages in the auction, but given the amount of interest Volt’s shareholders will be hopeful there are serious bidders among those just keen to get a closer look at the technology.

Volt chief executive Steve Weston.

Webinars begin early next week to take potential buyers through the technology’s commercial benefits and how it could be integrated. Volt and its shareholders want to round out the sale process for the technology over the next few months.

Volt handed back its banking licence and is returning deposits after failing in its latest capital raising attempt. While the bank had a highly experienced team and logical growth aspirations, investor sentiment this year has soured, making that process an uphill ­battle. Shareholder caps in the ­financial services sector also complicated the process.

While ANZ is said to have had preliminary discussions about acquiring what’s left of Volt, Bank of Queensland is another that will kick the tyres. But given its systems overhaul and internal drive to become an efficient digital player, the logic for BoQ may not be that compelling.

While Suncorp assesses spinning off or selling its bank, BoQ is said to have looked at more than a handful of potential acquisitions over the past 12 months. That included talks to acquire all or parts of ASX-listed Humm, which didn’t eventuate, but the bank did snap up ME last year.