Is Wallstreet ready to respond to the Toothbrush Test?

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Recent article in the New York Times (In Silicon Valley, Mergers Must Meet the Toothbrush Test) forced me to think about evolution of over 2-centuries old Investment Banking industry. The industry started with a bunch of smart and business-savvy people with information & network of contacts within a specific sector and/or region.The industry has made […]

Recent article in the New York Times (In Silicon Valley, Mergers Must Meet the Toothbrush Test) forced me to think about evolution of over 2-centuries old Investment Banking industry. The industry started with a bunch of smart and business-savvy people with information & network of contacts within a specific sector and/or region.The industry has made a commendable job in establishing itself with massive dominance.

Despite of going through a remarkable evolution from an analog-world to a digital-world of a multimillion Modern Investment Banking Industry, it was insightful to see how the shadow practices may pose challenge to their dominance.

 

The article highlighted how large tech corporations have been conducting more M&A deals with less input from traditional investment banks.

http://dealbook.nytimes.com/2014/08/17/in-silicon-valley-mergers-must-meet-the-toothbrush-test/

The diminished reliance on investment banks comes as technology deal-making is booming. More than $100 billion in such deals have been announced in the United States this year.

At the heart of the disconnect between M&A clients and invest banks is the belief among many (tech) execs that some advisers simply do not (fully) understand their needs and what their firms are looking for.

On one end of the market, billion-dollar deals are starting to move in-house (88% of M&A deals under $100 million) however, software innovation in the space is enabling efficient prospecting at a highly disruptive cost , access to highly relevant M&A deals is becoming democratized beyond traditional wall street bankers.

I have come across few interesting facts from a similar article where author introduces a concept of IB-2.0 by stating – There are 1,205 sell-side companies across 36 different countries & on the buy-side, there are over 1,450 individual companies, each looking for very specific strategic targets for M&A and corporate development expansion. This matrix of over 1,700,000 potential M&A connections. The potential opportunities are end-less and it is far beyond the limits of a human being’s ability to connect the relevant end-points. In today’s information-age where we expect everything at the speed of light – The average connection time between a buyer and a seller is 17.8 hours, compared with the weeks or months needed in a traditional M&A process.

Investment Banks to do TWO things well – “Evaluation” & “Negotiations”. Essentially, they need to capitalize on the power of what they have (can have) in finding the correct match to showcase their importance (during early-stages of evaluation). This may very well come via wide use of structured & unstructured data fed into machine-led algorithms and artificial intelligent models.

The amalgamation of technologies and human-intellect (of creative bankers) can be wall street’s answer for their clients to regain their credibility by proving their ability to respond quickly and more intelligently.

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