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Bank of America is hoping its ultra-rich clients who have founded their own companies will be a goldmine for its investment bank. To see that happen, it’s rewiring its private bankers to think more like dealmakers.
Since 2016, BofA has been going after middle-market companies — a space of banking that typically values businesses between $500 million and $2 billion — through a unit it calls emerging growth and regional coverage. And owners of privately held companies represent a good chunk of the business the investment banking unit has been chasing.
In an effort to supercharge that growth, Hanley’s now working hand-in-hand with Evan Beard, head of private business services at Bank of America’s private bank, to help usher in new clients.
As part of their collaboration, which kicked off last year, Beard has adjusted the private bank’s operations, including through its business-owner group, a unit initially focused on traditional private-banking needs like business loans or wealth-management services.
The role of business owner strategist, for example, has been revised to better cater to private business owners eyeing acquisitions, looking to raise money, or weighing divestitures. These staffers sit in the private bank and work exclusively with business-owner clients on everything from estate planning to corporate sales, which can of course be transitioned to the investment bank, where M&A and capital-markets opportunities await.
„We’re training our private bankers to go find origination opportunities,“ Beard told Insider.
BofA’s amping up its strategy as investment banks generally eye the next middle-market darling to take public or sell to their private-equity clients, which are sitting on about $1 trillion in unused capital.
Competition is fierce for middle-market deal flow as bulge-bracket banks tussle with direct lenders, buyout shops, and boutique investment banks.
Direct lenders, like Owl Rock or Golub Capital, can often lend to middle-market companies quicker than big banks because they’re not subject to the same regulatory red tape that BofA and its Wall Street peers face.
Private-equity firms like KKR and Apollo have also built their capital markets and credit desks that they use to lend to, or invest equity in middle-market companies.
„You have nimble competitors in the middle market that have set up their operations to thrive,“ said Mark Williams, the chief revenue officer at Datasite, a software platform that monitors the life cycle of M&A deals. „They don’t carry the overhead of a large bulge-bracket bank.“
And Wall Street banks, from JPMorgan to Jefferies, have been deeply-entrenched in middle-market business, particularly through financing private-equity firms‘ acquisitions in the high-yield bond and syndicated-loan markets.
Bulge-bracket peer Citi is also competing in the space — and recently nabbed four bankers from BofA’s private-capital-markets team, as Insider reported in August. Like Hanley and Beard’s teams, this unit also scouts young companies in high-growth sectors that can be nurtured through private transactions, before tackling the public markets with the investment bank.
UBS, meanwhile, adopted a similar strategy when it brought together its wealth-management business and investment bank to target more middle-market deals, as Insider reported last November.
Even before it teamed up with the private bank to boost business, BofA’s middle-market efforts have borne fruit since the group’s inception in 2016.
After failing to crack the top 10 in 2018, BofA finished third in US middle-market M&A fees in both 2019 and 2020, according to Dealogic data.
This year-to-date, the bank sits fifth, with about $176 million in mid-market M&A transactions, Dealogic data showed, behind Goldman Sachs, JPMorgan, Jefferies, and boutique Moelis. Dealogic classifies middle-market dealmaking as transactions valued between $100 million and $1 billion; however, some Wall Street firms calculate mid-market clients differently.
Bank of America says that based on its proprietary calculations, it currently sits fourth with nearly $1.8 billion in fees from almost 1,300 deals so far this year.
BofA’s currently marketing $725 million in loans to support the acquisition of Summit Behavioral Health, a source familiar with the transaction said. Jim Momtazee’s healthcare-focused investment firm Patient Square Capital agreed to buy Summit from middle-market investors Lee Equity Partners and FFL Partners in September.
BofA’s also leading a $400 million loan for data science tech firm System1 Group, which will support its merger with special purpose acquisition vehicle Trebia, a second source said. BofA also advised Trebia on the tie-up with System1 in late June.
The firm this year also sold privately-owned waste-water utility platform Ni-Pacolet to SouthWest Water Company and petroleum terminal operator Lincoln Terminal Company to Colonial Pipeline.
„Given the level of activity, there is so much more to do here. We’ve never seen more demand than we do right now,“ Beard said. „You have historically low interest rates and a huge pot of capital on the sideline competing to take out these founders.“
But it’s not the first time BofA has tried to crack the space.
When the bank hired individuals dedicated to tackling the middle market in 2016, it came four years after BofA dismantled a similar business to focus on larger clients and bigger deals, Reuters reported at the time.
Bulge-bracket lenders may be making a more concerted effort to tackle the middle market this time around, especially given the appetite by private-equity firms to buy smaller companies. But BofA’s stuttering effort in the last decade is not lost on market observers.
„It’s not the first time the bulge brackets have looked at or tried to enter the middle market. The question is how long they’re going to be there,“ said Datasite’s Williams.
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Bank of America Rewires Its Private Bank to Generate Deals Business – Business Insider
