Footing The Bill: Fees Paid By Sponsors Soar In First Half

Financial sponsors around the world continue to spend money for syndicated loans, equity investments and other investment banking services at a healthy clip. The aggregate payments made during the first half of this year climbed 82 percent from the revised total for the comparable period in 2010.

The total payments to investment bankers for the first six months of this year rose to $5.76 billion, with the top 20 financial sponsors responsible for 54.4 percent of the total, or $3.14 billion. The year-earlier tally has been revised upward to $3.18 billion.

The largest fee payer so far this year has been The Carlyle Group LLC with an outlay of $345.7 million. Kohlberg Kravis & Roberts & Co. was the only other shop that spent more than $250 million, with payments of $307.2 million. TPG Capital, Bain Capital and CVC Capital Partners rounded out the top five spenders, with TPG payments at $249.2 million.

Clayton Dubilier & Rice Inc. was involved in the second-quarter’s largest deal. It bought Emergency Medical Services Corp, a Greenwood Village, Colo.-based provider of medical care services, on May 25 for $2.9 billion. Barclays Capital, Deutsche Bank AG, Morgan Stanley, RBC Capital Markets and UBS advised the New York-based shop. Overall, CD&R’s fee payments this year stand at $96.1 million, with 17 percent earned by Deutsche Bank.

Among investment banks JPMorgan was the top fee earner from sponsors ($663.1 million) during the first half of 2011. It had the No. 1 bank relationship with Carlyle and the No. 3 ranked relationship with KKR during the latest period. In fact, JPMorgan had the top banking relationship with three of the eight largest spenders.

Carlyle’s $3.7 billion purchase of CommScope Inc. in January was a major contributor to the payments the New York-based shop has shelled out this year. JPMorgan was the financial sponsor’s only adviser in this transaction.

Bank of America Merrill Lynch earned the second most in fees ($570.5 million) followed by Goldman Sachs & Co. ($504.1 million) during the first half of 2011. Bank or America Merrill Lynch earned a large share of fees working on deals in the consumer and retail, health care and financial industries. Goldman Sachs was the top fee earner in media-related transactions.

Fee distribution by region remains concentrated in the Americas. The region accounted for about 70 percent of the fees distributed so far this year. Europe, Middle East and Africa accounted for an estimated 28 percent of the total and roughly 3 percent was directed to Asia. Compared with unrevised tallies from a year earlier, the Americas saw a 2 percentage point growth and EMEA region experienced a 1 percentage point decrease. Asia’s market share was flat.

The most active product line was syndicated loans, which accounted for 35 percent of the total payments during the first half of 2011. The equity capital markets grabbed a 25 percent market share, followed by M&A advisory with 21 percent. The debt capital markets lagged behind with a 19 percent share.

The industrial sector generated the most fees during the first half of this year. It was responsible for about $1.1 billion, and the year-over-year growth came in at 67 percent. Carlyle was the sector’s top payer at $122.7 million and JPMorgan received the most fees in the industry ($148.4 million).

In fact, three industries saw fee payments more than double compared with revised tallies for the comparable period of 2010. Energy, power and commodities led the way with a 135 percent increase to $719.4 million. The financial sector followed with a 133 percent hike to $400.9 million. The health care industry also experienced a boom with a 114 percent growth rate to $767.9 million.

The data was generated by New York-based boutique advisory firm Freeman & Co. in conjunction with Buyouts magazine’s publisher, Thomson Reuters. The methodologies and assumptions used to gather the fees data, along with the complete charts are on pages ## and ##. Buyouts magazine will feature additional charts regarding fee payments during the first half of 2011 in the next issue.