Breakingviews: Rothschild’s downmarket deal looks like canny M&A

Britain’s upper-classes have traditionally frowned on those “marrying down”. Not anymore at Rothschild. The advisory firm founded by Mayer Amschel Rothschild in the 18th century, acquired “lower mid-market” focused peer Livingstone for an undisclosed sum. The latter’s fees probably won’t move the dial much at first. But with Wall Street rivals increasingly dominating big-company mergers advisory, there’s a logic to family scion and Executive Chairman Alexandre de Rothschild’s pivot to the small fry.

To some extent, $2.2 billion Rothschild is a victim of its own success. Its 7.6% of Europe’s M&A fee pool was the highest last year, according to Refinitiv data, bolstered by dominant positions in the continent’s deepest capital markets based in the UK and France. Ergo, there’s not a lot of room to grow. And competition from both U.S. banks and boutiques has intensified: Goldman Sachs, Centerview Partners and Moelis are among those trying to bolster their operations in Paris in particular.

Going downmarket to serve smaller companies – Livingstone’s clients typically are valued at between 50 million and 150 million pounds – is a prudent move. True, its fees won’t cushion Rothschild’s top-line much: the firm has made a meagre $1.25 million so far this year, according to Refinitiv – although that does not capture revenue from its restructuring and debt advisory arms. But Livingstone offers a source of earnings diversification away from Rothschild’s traditional clientele among FTSE 250 Index companies. And should some small clients grow into big ones then Rothschild should share in their success.

True, eponymous boss Alexandre is also making a push into the much more lucrative American market where it has a more modest 0.5% estimated share of the advisory wallet. But U.S. expansion is a long and expensive process – as many European lenders who tried and failed to take on domestic rivals there can attest. With U.S. competition among large companies intensifying on Rothschild’s home turf, marrying downmarket – and expanding the gene pool – makes eminent financial sense.

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