JPMorgan: How we landed the AT&T deal
JPMorgan's chief banker Jes Staley talks about the AT&T-T-Mobile deal, how the firm responded to the Japan crisis, and why Facebook's valuation might be justified.
JPMorgan's chief dealmaker, Jes Staley
With its role advising AT&T on its proposed $39 billion purchase of T-Mobile, JPMorgan Chase has solidified its lead atop the mergers and acquisitions league tables in 2011. There's been a lot of talk about the $20 billion bridge loan that JPMorgan Chase threw in as part of the deal -- an obvious and important competitive tool in outflanking perennial M&A front-runners Goldman Sachs (GS) and Morgan Stanley (MS). But here's the thing: they're leading the league tables both in deals in which they've provided additional financing and those in which they didn't..............
I caught up with JPMorgan investment bank chief Jes Staley to find out just what they're putting in the bankers' water over there.
Part of the rationale for a big bank like JPMorgan Chase (JPM) is the multiple capabilities that you can offer in a deal like this, including using your balance sheet. Does it help you get mandates like this one?
The range of what this bank can do with both its product set as well as its global reach is a strength that clients like us to have. The position of the bank in the equity, credit, and risk management markets as well as strategic advisory services is certainly something that clients look for. And we can provide it.
How do you get all the moving parts in sync, especially when you're competing against someone like Goldman, who might just offer M&A advisory? It must make for a very complicated pitch process.
We're not an investment bank led by any one individual. You can't deliver the range of products and services we have unless you're doing it as a team, and your clients are confident in both your ability to provide financing and strategic advice to their boards. The first call on the AT&T (T) deal came into our senior telecom banker, Kurt Simons. We also have a terrific syndicated loan group -- led by Andy O'Brien -- that stepped up when they needed to. When emails about a transaction like this go around, it's a long cc: list.
The reaction to a deal of this size is like the athlete that runs the big race with the TV cameras rolling. But that athlete has been training for years to be in the position to take the race. Last year we were 4th in the M&A league tables, and we got a lot of questions about the strength of our franchise. But there's no difference in our franchise from last year through today. It's all about what our clients are doing and whether we can help them get transactions done. It's great when something like this can happen, especially if we can help out with our ability to put up capital. But it's the same strong franchise it's always been.
People always talk about a big deal like this auguring more deals. Do you think that's the case? What does the M&A market look like to you?
I think we are at an inflection point. Back in the financial crisis of 2008/2009, companies were managing their balance sheets and strategic moves based on a high level of concern with the state of the markets. In 2010, companies continued to get their balance sheets as strong as they could -- you noticed a lot of talk about levels of cash held by major corporations. People were getting ready for a recovery, but they weren't investing yet.
I think this transaction is reflective of the fact that in boardrooms we're seeing an emerging consensus that despite the many political challenges around the world, the recovery is well on its way. CEOs and boards have to put their cash to work or return it to shareholders, and the level of strategic dialogue is quite high today. People are willing to put money to work. The fact that the financial markets support an iconic company like AT&T is making a big strategic move that can't help be anything but a positive sign. I thought we had that this kind of signal with the attempted $40 billion deal between BHP Billiton (BHP) and Potash Corporation (POT) last year. But it's better now. There's a better tone out of Washington, and boards are more comfortable thinking about strategic investments.
I saw that Jamie Dimon was in Japan yesterday. How has the whole crisis affected your operations in the country?
You know, only if you were there did you realize that after the quake, there were follow-on quakes for days on end. People thought our building in Tokyo might go down. But no one left their desks. The remarkable thing is that the markets continued working at the same time you had buildings shaking and rampant rumors of radiation. You know, the guy who runs our Tokyo office got an email the first night after the quake from the guy who heads our commercial bank business in Louisiana. They communicated daily, with a lot about Katrina and about how to deal with this kind of crisis. It was inspiring to see that.
The market reaction wasn't too extreme, even if the yen did surge for a bit and oil was as volatile as ever. Did you see any threats to the stability of the bank in the aftermath of the quake?
We stress test our business all the time. From the day when the yen came close to 76 and with roiling Middle East challenges, we are always looking at what we might need to do. You have to manage your risk positions with the assumption that a lot of things can go wrong quickly and at once. Even in times of stress, we need to be there providing capital. The scale that allows us to do a $20 billion bridge loan for AT&T also allows us to provide significant amounts of capital in Japan at a moment like this. When the world is getting buffeted, the fact that we can continue to be a provider of capital is big deal.
Okay, let's finish with everybody's favorite topic, the valuation of Facebook and other tech companies. Are we looking at another bubble?
Any time that valuations are being driven by a revenue model that has yet to be proven, you need to keep both eyes open. But keep things in context. When Netscape launched, we were talking about a total of 10 million Internet users in the United States. When Facebook did its recent deal, it was being used by eight million people in Egypt alone. We might see justification of that valuation yet.
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