“Tech” Paid $5 Billion in Fees to Wall Street in 2016, and Look What it Got for it

Most often it just leads to more shut-downs, write-offs, and layoffs.

Investment banks have not been very lucky in extracting fees from Corporate America so far this year, and overall fee income has plunged 18% from the same period last year. But there was one standout: technology companies.

Nowadays “tech” includes non-tech companies such as shopping sites, home-delivery apps for beer, anything having to do with the new gig economy, anything that takes place on a device, rather than inside a brick-and-mortar location.

These tech companies have handed Wall Street investment banks $5 billion so far this year in fees related to Mergers & Acquisitions – up 5% from the same period last year – for advice on M&A and handling the associated debt deals, equity underwriting, and syndicated loans.

That’s the highest amount paid since dotcom-year 2000 when they’d paid $8.3 billion, according to Dealogic.

The tech M&A boom came into full bloom last year and is continuing this year. Since January 2015, tech companies have announced $1 trillion in deals, according to Dealogic, cited by the Wall Street Journal. Investment banks make money on numerous aspects of these deals, coming and going. Advising on deals alone generated 42% of the fees. But there are also bonds, syndicated loans, and, sometimes peculiar, equity offerings involved.

Dell’s highly-leveraged $67-billion acquisition of EMC has captured the wildest dreams on Wall Street. It’s the new “largest tech deal ever.” Dell is privately held, so paying for the acquisition, announced in October last year, by just issuing more shares wasn’t in the cards. This complicated things, and generated massive fees, including for advisory work, a $20-billion bond offering, syndicated loans, and the issuance of Dell’s iffy VMware tracking stock where potential investors don’t know what they’re getting, only that it’s not anything real, and are clinging by their fingernails to the hope that this, unlike other tracking stocks during the dotcom bubble, will work out somehow. Dell’s EMC deal closed on Wednesday. Ka-ching.

Growth-challenged Microsoft, which finally finished sloughing off its botched Nokia purchase – After Losing $11 Billion on $9.4-billion Nokia Acquisition and Axing 27,650 Jobs, Microsoft Dumps Consumer Smartphones – went out again and this time is acquiring struggling LinkedIn for $26 billion, which also generated a bonanza of fees for Wall Street, including from a $19.75 billion bond offering to fund the acquisition.

Then there was chipmaker Avago Technologies’ $37 billion acquisition of Broadcom, at the time “the biggest tech deal ever,” $17 billion in cash and $20 billion in stock. Announced last May, it closed earlier this year. Getting this cash entailed arranging a very lucrative $16-billion loan that was syndicated to other banks.

Softbank is acquiring chip-design firm ARM Holdings, which had $1.5 billion in revenues, for an astounding $31 billion (so 20 times revenues!), hoping to boost its “Internet of Things” future, and paying investment banks out of its nose for this sort of advice.

Walmart is buying online retailer Jet.com. Everything is tech these days. Even old-fashioned credit bureau Equifax, founded in 1899, now uses the newfangled moniker “FinTech” to boost its shares in hopes for a big buyout offer from Microsoft.

In the startup space, Intel – after announcing 12,000 layoffs earlier this year, and after requesting 14,523 H-1B visas and green cards to bring in foreign workers – is chasing after Artificial Intelligence as the next big thing. AI has been the next big thing for decades. So in August, it agreed to acquire 48-employee Nervana Systems for around $408 million.

Apple bought AI outfit Turi for $200 million in August, after having bought AI outfit Emotient, which is trying to recognize and react to facial expressions, a capability your iPhone 7 desperately needs after you lost another $159-AirPod – the umpteenth in three days. Google, Amazon, Facebook, they’re all going after AI.

Outside of tech, M&A in the US has been a dismal year to date, according to Dealogic. Despite the rise in tech deals, acquisitions by US companies in the US have plunged 40% from last year at this time, to a measly $702 billion, the lowest since 2012. The number of deals plunged 18% to 5,177, the lowest since 2009. Mega-deals of $10 billion or larger are also drying up, with only 12 such deals announced so far this year, for $203 billion, down from 23 deals and $606 billion last year to date.

That’s bad news for investment banks. The only saving grace for them: $311.5 billion of inbound deals by foreign companies of US companies, up 7% from last year to date, and an all-time record. This includes the announcement on September 6 by Canadian oil & gas company Enbridge that it would buy Spectra Energy of Houston for $43 billion. Inbound US M&A reached a 31% share of all US M&A, another record.

In Tech, however, M&A serves a special role. Some of the biggest players, such as Microsoft and IBM, can’t figure out how to grow or develop new technologies on their own. For them, M&A is seen as the solution – a way to grow faster, or to grow at all, or at least to not be left behind too far, though it rarely works. For others that are still growing, like Google, M&A is a way to chase after the latest and greatest, even if they blow a lot of money on something will then just disappear.

While there are some examples where M&A actually worked and produced results for the acquiring company and did some good for the overall economy – I can’t think of any at the moment, but there are some – most often it just leads to more shut-downs, write-offs, and layoffs. But that doesn’t matter to the executives. They’ve already been paid their bonuses and stock options and got their ego boost. And some of them have moved on. And it doesn’t matter to Wall Street investment banks because they’ve already pocketed the billions of dollars in fees.

But taking on a lot of debt and buying Wall Street hogwash for six years turns out to have some drawbacks. Now reality sets in. Read…  The Great Debt Unwind Beneath the Surface: US Commercial Bankruptcies Soar

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  27 comments for ““Tech” Paid $5 Billion in Fees to Wall Street in 2016, and Look What it Got for it

  1. curious cat says:

    Thanks, Wolf. Analysis available no where else!

  2. Ptb says:

    Yes, it’s either growth or getting rid of competition. Or both. I guess front running and inside trading doesn’t pay enough….racking up fees for getting deals done is nice gravey.

  3. Shawn says:

    Awesome analysis of the tech landscape here in the Bay Area. Tech, buoyed on by cheap money and unlimited amounts of hubris is going to crater. It will make 2001 look like a flash in the pan.

  4. Chicken says:

    Just remember you read it here first. The present may stink, but at least now we can look forward to a better yesterday.

  5. nick kelly says:

    I wonder if we should remind folks of the AOL- Time Warner deal at the height of dot.com. 1
    Although billed as a merger in essence AOL bought Time Warner for 164 billion. This was 16 years ago so build in whatever inflation number you like.
    The purchase was made with AOL’s stock, and in hindsight, available just a year later it was a brilliant move for AOL. Not so much for Time-Warner.
    The dot.com bubble burst within months.
    In 2002 AOL wrote down 100 billion.
    Its stock value went from a value of 225 billion to 20 billion.
    Eventually AOL- Time Warner wrote down the value of AOL to, I believe, nothing.
    An embarrassment to everyone involved, the two then split.

    Relevance to dot.com 2- apart from the obvious ( or is it obvious?)
    In 2000, the year of the deal, there were 10 internet companies with a valuation of 1 billion or more.
    Today there over 40.
    Anyone one of them might want to look at the one thing AOL did right- it bought a real company.

    • william says:

      I read quite a few executives and businessmen that sold their companies or took salary in the form of AOL/TW stock rode the price down to pennies with fear of being arrested for fraud if they sold their shares. They all were insiders of huge fraud and didn’t want to be a public fall guy. Even the TW CEO took a 90% cut in net worth but still emerged with a enough money for a much younger wife and Manhattan pad.

  6. VegasBob says:

    And it’s all courtesy of trillion$ in counterfeit electronic money-printing from the world’s central banks.

    I only hope I live long enough to see this whole edifice of fraud collapse.

    • night-train says:

      “I only hope I live long enough to see this whole edifice of fraud collapse.”

      Me too. Although I fear when it falls it is going to land on me.

  7. Graham says:

    “LinkedIn for $26 billion”

    Good God. What on earth is Microsoft’s management thinking??

    At 450m subscribers that’s $58 per subscriber.
    If around 25% use it every month that’s $231 per subscriber. Crazy!!!

    And that $26 bn, well Windows 10 is free, so that leaves MS Office for those too dumb to switch to ODF (Open Document Format).

    At an estimated average of $200 per copy they’ll need to shift 130 million copies of MS office to break even.

    What on earth is Microsoft’s management thinking??

    • Mike G says:

      What on earth is Microsoft’s management thinking??

      The same thing that seems to drive most management “thinking” these days:
      “I gotta do something — anything that looks like a shiny object to shallow minds, no matter how stupid — to look busy so they’ll continue to overpay me.”

      • Meme Imfurst says:

        Wow…that does hit the mark.
        A pal’s company, the company a semi company, was ‘acquired’ not o long ago. They ran out of ideas. The company that bought them doesn’t have any ideas either. Now, all the guys sit and stare at each other looking for some utterance that will spark the management to INVEST in something besides their own homes at company expense. The pink slips still have wet ink, so watch the pen pocket protectors less you wear the ‘mark’.

        • william says:

          That’s the big secret of the semiconductor industry. They use the same chip architectures from decades ago and go through generations of adding/removing IO while increasing speed, folding it accessory functions, reducing size, and in the last decade reducing power consumption since they’re running off batteries.

          ARM architecture was tapped to displace Intel in the datacenter due to its lower power usage. ARM Ltd even promised taking over 20% of the datacenter by 2016, yet they still have nearly zero share.

        • CrazyCooter says:

          I always like the “AI” angle myself – and in case folks didn’t see the magic trick here – let me ramble a bit.

          Cooters Proposition #1 – software does exactly what it is designed to do – nothing more, nothing less. Computers are “smart” the same way tv’s are “magic” (how do they fit the little people in there anyway?).

          AI can be defined as (I think Bill Joy said this) “that which we don’t understand” – so it will always by definition be a tomorrow technology.

          A car that drives its self is not “smart” or “artificially intelligent”, it simply has an array of sensors and other inputs, processes that info, and makes a decision to turn a wheel or brake – it isn’t magic, just complicated. This tech has been years (decades?) in the making – it isn’t like it invented itself or something!

          Cooter’s proposition #2 – software “solves a problem” and if you can’t define the problem you can’t define the software to solve the problem, thus the “generalness” of software is inversely proportional to its usefulness.

          The precise value of software is that it solves a specific problem – efficiently – be it a spreadsheet application or a CAD modelling program. If you need to crunch a bunch of weird depreciation schedules – Excel is freaking handy! However, that CAD program isn’t very useful for the same task.

          That is what folks think AI is – software that will solve problems that we haven’t planned for it to solve – akin to that Tesla that will drive itself around, answer your kid’s calculus homework when he asks you and you have no idea, suggests that you should buy your wife flowers on the way home, and remind you that your door is a jar.

          They work hard to make it looks like it is thinking, but it really isn’t – it just responds the way it was programmed to respond (regardless of how complicated the logical plumbing really is). And that means – what freaking problem are they solving?



    • nick kelly says:

      How about this for an alternative investment for MS- I’ve been doodling here for 5 minutes…but with 27, 000, 000, 000 I believe you could hire 100,000 new grads, or self-taught coders with promise ( neither Gates or Jobs owed anything to their university education) or whoever, for 3 year contracts at 90K per year.
      That’s based on all the hires getting the same salary. But you could tinker with it and pay some kids 50K and others 130.
      Their job would be to invent of course, and MS would own whatever they came up with, with bonuses etc. and a chance to put an idea into practice, for which your reward is…getting to put another idea into practice, (known as pin ball)
      And they could work on whatever projects MS assigned them.
      This is obvious but there is more.
      MS would be tying up most of the IT talent for three years, an eternity in IT.
      I’m suggesting that MS, as well as getting talent for its projects, could corner the market on talent. Anyone wanting talent would have to pay what MS wanted.
      MS would become a talent agency, or if you like a …procurer.

      It’s an off the wall idea but… Linkden? Isn’t it already passe?
      With that many subscribers it sure can’t say it’s exclusive .

      • Chip Javert says:

        An amusing way to piss away $27B, especially since there probably aren’t 100,000 new coders just sitting around (USA graduates about 40-60k CS grads/year). Probably not going down easy with the shareholders.

        Come day 1 of year 4, the company is basically broke, credibility is shot and you need to lay off (at least) 100,000 coders.

        MicroSoft’s major problem is they don’t have the management chops to drive what comes next (they’ve already spent billions missing mobile).

        • nick kelly says:

          If there aren’t 100,00 coders, what are ALL the other IT outfits going to do if MS hires all there are? We know you can corner a market in a commodity, why not a human commodity?

          OK- let me tweak the idea. Instead of hiring 100,000 at 100K how about hiring 10,00 hot shots at a million a year?

          I’m saying in a nut shell invest in human capital- which is after all the source of everything.

          Re: year 4 and company is done. Why assume that pretty much ALL the talent in the US (remember they all work for this outfit now) won’t come up with something in three years.
          If they come up with one Linkdin you’re even on that idea.

        • Chip Javert says:


          Your pipe-dream of MS hiring all the IT taken won’t work for essentially 3 reasons:

          1) MS shareholders simply wouldn’t stand for it; shareholders don’t have 100% control over management, but they are a force to be reckoned with (see what happened to Yahoo)

          2) Other IT outfits wouldn’t simply sit around and watch MS hire 100% of the talent

          3) This is the real issue – MS has time after time demonstrated they simply do not have the management talent to manage something like this

  8. Chip Javert says:

    How about this for an alternative investment for MS:

    1. Admit management is out of gas & can’t create productive ways to spend shareholder capital.
    2. Strategic plan is to milk the cash cow called Windows & office for the next 30 years.
    3. Massively increase the dividend to shareholders so pathetic management can’t piss capital away buying the next Nokia or LinkedIn…or (god forbid) build a driverless car.

    • Michael S. says:

      Microsoft has hoodwinked Wall Street into thinking “cloud” revenue will replace the Office and Windows cash cows. If you look at Microsoft’s earnings though, they fake the cloud revenue by including traditional server platforms in with cloud because those platforms can theoretically drive “private cloud”. The entire enterprise landscape is filled with complete dolts at all levels. I have worked for a good chunk of these companies and the reality was that they are run by people without a clue as to what the customer wants or needs. It is all about sales, expensive dinners, and strip clubs. I wouldn’t wish my worst enemy to go into IT.

  9. william says:

    Walgreens just closed drugstore.com which was bought a few years ago for hundreds of millions of dollars. Brick-and-mortar rarely successfully break into the online business through acquisitions. Today, a large-scale digital business strategy and operations is so complex that running it alongside monstrous and sprawling brick-and-mortar is nearly impossible. Walmart’s purchase of Jet may succeed but likely not.

  10. Cheri says:

    I live in Boise, Idaho. We have the ITC .. Idaho Technology Council which was started in 2008.

    It started out with the sponsorship of a boutique patent firm and grew and is now funded by larger regional law firms. What’s ironic is that all of the founders have left Boise…..

  11. Intosh says:

    In other news, Wells Fargo fined for creating 2M fakes accounts for clients. Employees (now likely former employees) claim they were under tremendous pressure to do so. Crazy insane sickening dog-eat-dog world we live in.

    • Wolf Richter says:

      Dog-eat-dog for sure…

      Khalid Taha, former personal banker at Wells Fargo and a member of the Committee for Better Banks Los Angeles, issued the following statement:

      “The Wells Fargo sanctions are a long overdue victory for the frontline workers who have been standing together to fight Wells Fargo’s predatory sales practices in Los Angeles for years. When I worked at Wells Fargo, I faced the threat of being fired if I didn’t meet their unreasonable sales quotes every day, and it’s high time that Wells Fargo pays for preying on consumers’ financial livelihoods. But sanctions on one bank are not enough—we need to crack down on the hostile work conditions and predatory sales metrics that hurt underpaid bank workers like me and our consumers alike.”

  12. Time to go to bed, I have just read the funniest thing on the internet.
    “Microsoft building a driverless car”

    Remember the jokes 20 years ago “if microsoft built cars” ?

    If they do get into it, Wolf will do a post called “Auto body lobby pays microsoft to keep them in business into 2210 and beyond”

    Love it.

  13. Humpty Dumpty says:

    Editor note: The article began, for me, at “In Tech…;” the examples would follow.

    That structure issue aside, the article neatly tags a big sector of the headline writing economy, the financialization sector, that rolls around town with huge, crazy amounts of money ostensibly to give incentive to innovation when in fact it is yet an old fashioned suckers game.

    To wit: Investment Banker/Venture Capital offers Innovative Loser to the stock market, then negotiates (for a fee) A Great Whale to buy IL and drive the stock price higher, with the understanding that the IB/VC will also continue to “arrange” financing for Whale’s own stock repurchasing and, therefore, existence (for a fee). To sum up: the IB/VC cooks a run up in stock prices, takes fat fees, and best of all they are never in the headlines, at most on page two. There is a word for all this and it goes back a long way. It’s a Sting.

    The key to a Sting is the Hook – meaning that once in a blue moon an Innovative Loser will actually be an Innovative Winner. Imagine that. The IB/VC must laugh themselves silly when that happens. Who knew? Ha! This brings more suckers in who now think they are part of the Big Wink Wink, too. And they are! For awhile. This is great! The IB/VC is just so cool and grabs pots full of money and runs – just when The Mark (the stock investor) thought he had played the players.

    The best part of all: no one ever admits he has been fleeced; he just didn’t read the prospectus well enough. Perfect.

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