Boutique advisory firms are earning almost a quarter of all investment-banking fees paid in the Middle East, up from just 9 percent in 2009, according to Freeman Consulting Services
In the midst of the financial crisis, as bankers around the world worried about their fate, May Nasrallah made a bold decision.
Having reluctantly agreed five years earlier to a request by Morgan Stanley’s John Mack to move to Dubai and set up an investment-banking hub for the US company, she decided to resign. N ot because she wanted to do less in the region. She wanted to do more.
In 2010, she established a boutique advisory firm, deNovo, to work with wealthy clients in the Middle East. Nine years later, her decision is paying off.
Boutiques are earning almost a quarter of all investment-banking fees paid in the region, up from just 9 percent in 2009, according to Freeman Consulting Services.
After the financial crisis, “big banks like Morgan Stanley were focused on multibillion-dollar cross-border deals for the region’s largest sovereign wealth funds,” Nasrallah said in an interview.
“I thought people that really needed our advisory help were the family groups and the firms operating in the region’s real economy.”
Fee pool
Since Nasrallah made the leap, a raft of her peers have followed suit, echoing a global trend of bankers leaving big institutions to set up their own firms. Ziad Awad quit Bank of America Corp. to start Awad Capital in 2012.
More recently, Rody Yared and Samer Katerji, who formerly worked at JPMorgan Chase & Co. and Citigroup Inc., respectively, started Trussbridge Advisory DIFC Ltd.
They have benefited as a protracted economic slowdown across the Middle East encourages more firms to merge or restructure debt. The fee pool in the Middle East and North Africa has risen more than 20 percent since 2009, according to Freeman’s data.
Still, bankers looking to go it alone in the Middle East face a variety of challenges, said Alex Gemici, a former managing director at Deutsche Bank AG who left in 2011 to form Dubai-based investment-placement firm Greenstone Equity Partners.
“Even if the founder has deep personal relationships within the region, clients and counterparties want to feel comfortable that any new firm will have longevity and will operate with the same standards as the global banks,” he said.
“Once these challenges are overcome - which took years in our case - there is substantial interest in working with boutiques that are based in the region and offer an alternative to the global firms.”
Sovereign funds
Nasrallah’s firm has carved out a niche advising family groups on deals, and working with sovereign wealth funds or large corporations on acquisitions and restructuring. They also can offer a second opinion not tied to selling any other bank products.
Being focused on the Middle East can help differentiate a boutique adviser, said Amer Huneidi, chairman of regional industrial gas company Gulf Cryo.
“We had been working with a global bank on a transaction but the shareholders were not happy with them,” he said. “So we engaged deNovo and, frankly, the local knowledge they had of the market and mentality of the region was much better.”
Ultimately, Nasrallah said her goal is to build an investment advisory firm of the same ilk as Rothschild & Co. for the Middle East. That commitment is a change for someone who spent most of her early career avoiding the Middle East after wars forced her to leave Lebanon in 1975 and Kuwait in 1990.
She shifted between roles in New York, Hong Kong and London before eventually moving to Dubai in 2005 as Morgan Stanley looked to capitalise on an oil-fuelled economic boom.
Male dominated
Political instability wasn’t the only thing that had put Nasrallah off moving to the Middle East. She also was wary of moving to a region dominated by men.
“At first I thought it was a strange to have John Mack ask me, a woman, to go to the Middle East to head investment banking, and suggested he consider asking a man do the role instead, but his answer was, ‘You are the right man for the job,”’ said Nasrallah, who has a master’s degree from Massachusetts Institute of Technology’s Sloan School of Management.
Often the only woman in the room, she was able to turn that to her advantage.
“So long as you were knowledgeable and credible, clients noticed you and remembered you,” she said. “So it ended up being an advantage in its own way. Perhaps John Mack was, in hindsight, actually pretty wise.”
A spokesman for Morgan Stanley declined to comment.
Since starting deNovo, Nasrallah and her team, which includes former Morgan Stanley colleagues Alex Reuter and Ahmed Osman, have worked on deals for sovereign wealth funds like Malaysia’s Khazanah Nasional and the Abu Dhabi Investment Council.
They’ve also advised on deals for Majid Al Futtaim Group and is also working with Goldman Sachs Group Inc. on the sale of luxury chocolatier Patchi.
Even with the growth of small boutiques, the largest deals from the Middle East are still dominated by the likes of Morgan Stanley and Goldman Sachs.
In a bid to expand deNovo’s services, Nasrallah is looking at forming an alliance with an international bank so she can use their global reach to pitch for advisory work on initial public offerings. She also hopes to do more fundraising for technology start-ups in the region so they’re positioned for when these companies become takeover targets.
‘More attractive’
“The tech companies here are growing and will become more attractive to global firms,” she said. “So we’ve taken on some deals that are probably smaller than we would typically work on because this is a sector that we think it would be onerous to ignore.”
Deals in the Middle East typically take much longer to be completed compared with other regions, posing a challenge for firms focused on advisory work. Slower economic growth is also putting many businesses under pressure, meaning negotiations over price are taking even longer.
“We have a very strong pipeline of deals, but with the caveat that it’s taking longer and longer to get them to close,” she said.
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