Morgan Stanley Witnessed A Big Jump In M&A Market Share In Q2, But Goldman Still Made The Most Money

The second quarter of 2018 was a strong period for the global M&A advisory industry, with deals worth $889 billion being closed and deals worth a whopping $1.3 trillion being announced over the period. The difference between the two figures here can be explained by the fact that a bulk of the deals announced in Q2 were mega-deals worth more than $5 billion, which generally take several months to close. That said, upbeat M&A activity level in the first quarter of the year as well made the first half of 2018 the best-ever period for the global M&A industry in terms of total deals announced. This is good news for global investment banks, as a strong pipeline of deals should translate into higher advisory fees over subsequent quarters.

Notably, Morgan Stanley’s M&A performance for the quarter stands out, as the investment banking giant closed deals worth $343 billion in Q2 2018 – the highest by any bank in a single quarter since the economic downturn of 2008. This represents a market share just shy of 40%, and can be attributed to the fact that several mega-deals the bank had been working on over the past few quarters closed in Q2.

We capture the trends in M&A advisory fees for each of the five largest U.S. investment banks over recent years in detail as a part of our interactive model on M&A fees, while also forecasting how these revenues are likely to change in 2018. The chart below captures the total size of M&A deals completed by the five largest U.S. investment banks since Q2 2017. The green-to-red shading for figures along a row show the variations in deal size for a particular bank over this period.

M&A advisory deal volumes for individual banks were taken from Thomson Reuters’ latest investment banking league tables. The table below captures the respective market shares for each of these banks over this period. The green-to-yellow shading for figures along a column should help compare the relative standings of these 5 banking giants in a particular quarter.

It should be noted that the largest M&A deals employ many investment banks, so the market share figures are not exclusive – explaining why total market share for these 5 banks are often above 100%. The sharp increase in average market share of these banks is also evident from the table above, with the figure jumping from an average of just 17% in Q1 2018 to almost 28% in Q2 2018.

An interesting point to note here is that each of the five largest U.S. investment banks ranked #1 in terms of total M&A deals completed in one of the last six quarters (with Morgan Stanley capturing the top spot in each of the last two quarters). Despite this, Goldman grabbed the largest wallet share in the industry each quarter – something we attribute to the fact that the latter usually acts as lead advisor in many of the biggest M&A deals that close in a given quarter.

This stands out in particular in Q2 2018, as Thomson Reuters estimates Goldman’s advisory fees for the quarter to be ~25% higher than that for Morgan Stanley, despite the latter garnering a market share (in terms of deals completed) which was more than double Goldman’s.

Details about how changes to M&A Advisory Fees (and other Investment Banking Fees) affect the share price of these banks can be found in our interactive model for Goldman Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup

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