Markets are in turmoil, initial public offerings are looking far too dangerous, and merger and acquisition activity has fallen to its lowest level for nearly a decade. It doesn't sound too hopeful, but thanks to the likes of WorldCom, Vivendi Universal and Enron, the coming months are emerging as a feeding frenzy for corporate financiers.
"Optimism is dead and realism has set in," said one senior executive at Lehman Brothers. "Companies are seeing that they need us investment banks to do things for them again or the eventual crunch will be much worse."
The ticket that the corporate finance departments are now eagerly jostling for is restructuring – the business of offering advice and other services to companies that need to change fast in order to ensure their survival.
The grim combination of US scandals and plunging global equity markets has exposed certain sectors as being deeply troubled. Industries where vast sums of money were lavished on rapid expansion are now finding that their assets have fallen in value and that the mouth-watering profit margins which drove the spending sprees have simply not been forthcoming.
The WorldCom and Enron scandals have also reminded the banks of a previous heyday of restructuring where sudden legal issues forced companies into undertaking a lightning period of reorganisation. The collapses of Barings and Texaco in the early 1990s had a similar effect: bankers were offered lots of work.
Added to the bankers' arsenal is that the bleak climate has made the two big rating agencies, Moody's and Standard & Poor's, acutely nervous of being caught out. Credit downgrades have reached new highs, and the cautious ratings are pushing companies into approaching the banks for advice on how to recover a few vital notches.
Across the Atlantic, restructuring has gradually gained acceptance as the best way for the likes of Morgan Stanley, Goldman Sachs and Merrill Lynch to make money when the economic cycle is otherwise against them.
But Europe is rapidly catching up. Since 1996, companies in the UK and on the Continent have expanded aggressively, and have been prepared to accept much more debt on their books in the effort to finance that drive. Now that they have run into repayment problems, advisers are suggesting a number of remedies – among which the sale of non-core assets is emerging as the corporate financiers' favourite. As well as requiring at least one adviser for the seller, these deals create roles for banks advising the buyer.
The biggest current example is the French media empire Vivendi Universal, which has splashed out nearly €100bn (£60bn) on acquisitions over the past six years. In recent months, though, the market has questioned this strategy. With Vivendi's shares down more than 70 per cent since January, and with the resignation of the chief executive Jean-Marie Messier last month, the restructuring advisers have moved in.
In order to help with the task of reorganising debt and selling off assets, Vivendi has retained at least seven firms: Goldman Sachs, NM Rothschild, Citigroup, Lehman Brothers, Deutsche Bank, Société Générale and BNP Paribas. Others queuing up for involvement include Merrill Lynch, UBS Warburg, Morgan Stanley and Credit Suisse First Boston.
The current cold financial climate puts the largest houses at the biggest advantage. For the heavily indebted media companies in particular, cash is a big draw, and the most likely firms to win the lucrative advisory work are those that are also prepared to extend generous loans.
Even if they do not make it on to the Vivendi gravy train, the banks can smell work from plenty of other sources. "I know where the restructuring deals are going to come from, and we're actively pursuing those opportunities," said one US corporate financier. "It is clear that, in the short term, it is the European telecoms, media and technology sectors that are needing the work doing."
Most of the big European telecoms companies seem to have their debts under tighter control than before. But since the high-profile demise of Marconi, the banks have set their restructuring sights on those telecoms equipment makers such as Ericsson and Alcatel that pursued similar strategies.
Also targeted are the "altnets" – companies that hoped to make their fortunes offering telecoms networks to corporate clients and other groups.
At Citigroup, the corporate finance department believes that the restructuring game may eventually spread into other sectors, and that troubles will next visit those sectors which expanded rapidly to meet the demand of the long European consumer boom.
As Steve Din, Citigroup's head of European restructurings, said: "Consumer confidence continues to appear particularly fragile. An erosion in such confidence, possibly combined with a double-dip recession, could very well lead to wide-scale corporate restructurings and insolvencies that extend well beyond the telecoms sector."
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