Wednesday's Deal Journal had some fun with the fact that Oracle Corp. reached its $8.5 billion agreement to buy BEA Systems Inc. without the help of investment bankers. The item noted that instead of i-bankers (who "can't catch a break these days") Oracle could rely on some in-house Wall Street experience in the person of co-president Charles Phillips (ex-Morgan Stanley), plus an able deal team. 

Which is OK, as far as it goes. But why not go a little farther?

Yes, it is unusual to see a deal of this size and tactical complexity (a hostile deal with Carl Icahn invested in the target) done with no i-bankers on the buyside. But Oracle's self-reliance is very much part of a trend among corporate acquirers to build up their in-house deal capabilities and use outside help much more selectively. There are plenty of consequences to this. One is that the success rate for corporate deals, notoriously bad in the past, is inching up. Another is that the notion of a single  M&A market, with Wall Street bankers at the center of it, is rapidly becoming an anachronism.

The dynamic quickly becomes evident when you listen to corporate dealmakers talk about their plans and concerns -- as, for example, Phillips does in this 2003 Q&A with The Deal, just as Oracle's industry consolidation campaign was getting underway with a hostile offer for PeopleSoft. 

For savvy corporate acquirers, making deals work (as opposed to just making deals, which is what bankers are best at) inevitably means building teams that take responsibility for more of the process, using bankers only to add specific capabilities (geographic, technical, extra staff, etc.) they may lack in a particular transaction. 

Thus, a scan of the The Deal's database shows that Johnson & Johnson used Goldman, Sachs & Co. when it bought Pfizer Inc.'s over-the-counter healthcare products for $16.6 billion in 2006, but no banker when it bought Conor Medsystems for $1.4 billion later that year. Cisco Systems Inc. used Lehman Brothers Inc. when it bought WebEx for $3.9 billion in May of 2007, but only for a fairness opinion. And when Cisco bought Navini Networks in October for $330 million, there was no banker.

Josh King, a corporate development professional and member of the Corporate Dealmaker advisory board, summed the corporate attitude up this way in a September 2006 column entitled "The uses and abuses of i-bankers":

Where your goal is to create shareholder value, the banker's goal is to do deals. This doesn't create a problem for good bankers -- they'll encourage the right decision, confident that the client relationship is more important than any single deal. However, for those ethically challenged, hungry or simply less experienced, the banker's keenness for the deal -- prodded along by league tables, bonus payouts, etc. -- can create an impulse to put a thumb on the scale. Your "build" option will look riskier; your "buy" option sweeter, even at a higher price. Despite the extra help you're getting with the analysis, you've got to check all that work to make sure you're not getting sandbagged.

All in all, you're spending more time, taking more of a risk to your sterling reputation for objectively measuring potential deals against shareholder value and increasing the cost of doing the deal by the fees you pay the bankers.

So use them if you must -- but first, make doubly sure you really need them.

- Kenneth Klee

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