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Mizuho's $550mn Acquisition of Greenhill

Updated: Oct 30, 2023

Acquisition Overview

Japanese banking holding company Mizuho Financial Group has announced a definitive agreement to acquire the American investment bank Greenhill & Co. for 550 million USD, including debt. The acquisition allows Mizuho to build on Greenhill’s 27-year history of M&A, restructuring and capital raising transactions-related advisory and advance its investment banking growth strategy. This deal is consistent with Mizuho’s strategy of active acquisitions of international financial institutions, including its acquisition of Capstone Partners, a Dallas-based, middle-market firm which focuses on fundraising and advisory services to private equity, credit, real assets and infrastructure investment firms.

Deal Structure

Mizuho has agreed to acquire Greenhill in an all-cash deal for $550m, a sum that includes assumed debt. The purchase price of $15 per share represents a substantial premium of 121% on Greenhill’s unaffected stock price, though only 60% when compared to the bank’s 90-day share price average. Upon completion, Greenhill’s 370 front-office staff will move across to Mizuho’s banking division, including Scott Bok, Greenhill’s current CEO, as chair of M&A and restructuring. Moreover, Greenhill’s brand will be maintained in order that Mizuho can leverage its impressive legacy. Following the announcement of the deal, Greenhill’s share price increased by a factor greater than two. The deal is expected to close towards the end of 2023, subject to shareholder approval and regulatory clearance.

Paul, Weiss, Rifkind, Wharton & Garrison LLP, Davis Polk & Wardwell LLP, and Citigroup Inc. are advising Mizuho, the latter supplementing the company’s own financial advisors. Greenhill, meanwhile, are being advised by Houlihan Lokey Inc. and Wachtell, Lipton, Rosen & Katz LLP.

Mizuho Overview

Mizuho Financial Group (MFG) was formed on the 1st of April 2002, following the merger of Dai-Ichi Kangyo Bank, Fuji Bank, and the Industrial Bank of Japan, three historic pre-war banks. Initially, Mizuho was split into two subsidiaries: Mizuho Corporate Bank, catering to large corporations and financial institutions, and Mizuho Bank, focusing on smaller companies and individuals. They have, however, since been remerged. In Japan, Mizuho is regarded as one of the country’s three ‘megabanks’, alongside MUFG and Sumitomo Mitsui Banking Corporation. While Mizuho maintains a strong presence in its traditional Japanese market, it has also experienced steady growth in China and the Middle East. Yet, geopolitical challenges have prompted the bank to shift its focus away from China, towards the US. Mizuho’s international focus has above all been on capital markets, both debt and equity, and M&A advisory, largely due to their greater growth potential.

The vast majority of Mizuho’s equity is held by institutional investors, owning 71.26% of shares. The largest individual shareholder, by far, is The Master Trust Bank of Japan (15.25%), followed by the Custody Bank of Japan (4.93%), and State Street Bank (1.92%). Foreign investors own only 24.15% of Mizuho’s common stock.

Founded: 2002 Number of employees: 51,212 LTM Revenue: $2.83tn Market Cap: $37.75bn

Greenhill & Co. Overview

Greenhill is an American investment bank founded in 1966 by Robert Greenhill, the former president of Morgan Stanley and former chairman and chief executive officer of Smith Barney. It operates in 17 offices globally throughout the Americas, EMEA (Europe, the Middle East and Africa), Asia and Australia. It grows by recruiting a large number of managing directors from investment banks and senior professionals from other institutions. Greenhill & Co. offers advisory services on M&A, restructurings, capital raising, financing to leading corporations, partnerships, institutions and governments across multiple industries.

Founded: 1996 Number of employees: 382

LTM Revenue: $244.16m

Market Cap: $124.33m

Industry Insight

Mizuho is not alone, among Japanese banks, in pursuing a US-centric policy. The Bank of Japan’s continued commitment to ultra-low interest rates (0.1% in April 2023) has prompted its financial institutions to seek growth in other markets. Additionally, the shares of Japanese banks have long traded at discounts to their book value; it is hoped that a show of force in the US could change this. As such, Japan’s largest lenders have, in recent years, made a series of strategic moves to strengthen their foothold across the Pacific. MUFG owns an enormous 22.4% of Morgan Stanley’s common stock and their joint venture has had considerable successes, being the top advisor for Japanese M&A in the first half of 2022. Sumitomo Mitsui, meanwhile, recently bolstered its connection with Jefferies, increasing its stake from 4.5% to 15%. This partnership increases Jefferies’ lending capabilities, while also expanding collaboration on cross-border M&A and leveraged finance.

Yet, recent years have shown that US expansion can be a poisoned chalice for foreign banks. Nomura recently took a considerable hit from the collapse of Archegos in 2021, forcing the bank to wind down its cash-prime brokerage operations in the US and Europe. European banks have also faced challenges, though it is worth noting that this has primarily been in retail banking. HSBC sold its American branches to Citizens Bank and Cathay Bank, while BNP Paribas offloaded its Bank of the West. Yet, even in other – more lucrative – sectors, European banks have proven to be more cautious than their Japanese rivals. Where wealth management has tended to be a focus for Europe’s premier financial institutions, Japanese banks have targeted dealmaking.

As mentioned, Greenhill has recently been surpassed by more effective rivals, and the same can be said, to a lesser extent, for Lazard. Where its share price fell to less than $7 prior to the announcement of acquisition, having traded at as much as $95 in 2009, firms such as Evercore have been able to sustain growth since IPO. The most remarkable boutique story of the past few years has undoubtedly been Centerview Partners, though. Almost presenting itself as a disruptor, Centerview capitalised on a general desire post-2008 for a different kind of advice to that provided by bulge brackets. The firm’s revenue per employee dwarfs that of rivals at $3.4mm, compared to Greenhill’s 0.9m, or even Evercore’s $2.1m, as of 2021. Even in 2023’s depressed market, Centerview, remarkably, was Wall Street’s third largest dealmaker, by value, trailing only JP Morgan and Goldman Sachs, both of which advised on as many as triple the number of deals. However, the story of Centerview is perhaps indicative of a broader trend for boutiques. The firm is no longer the lean, effective operation that it was in the late 2000s, yet is also nowhere near the ranks of the bulge brackets. The real challenge for boutiques, then, comes in sustaining success beyond an initial boom.

Strategic Rationale

The main rationale for Mizuho Financial Group Inc. to acquire Greenhill & Co. is to scale up their M&A business in the United States, as stated by Jerry Rizzieri, the president and CEO of Mizuho Securities USA in an interview with Reuters. Greenhill is an industry leader in M&A advisory, having previously advised complex transactions for global clients, including advising Tesco’s 3.7 billion GBP acquisition of Booker, the United Kingdom’s largest food wholesale operator in 2017. The incorporation of Greenhill into Mizuho will strengthen its M&A advisory presence in the United States. In addition, after the acquisition, Greenhill’s 370 existing employees will join Mizuho, and Scott Bok, the chairman and chief executive of Greenhill will become chairman of Mizuho’s M&A and restructuring advisory business. Given that a significant proportion of Greenhill’s existing employees were managing directors of investment banks or senior professionals from other businesses, their transition to Mizuho will add significant M&A advisory expertise to the Japanese financial giant.

Another strategic rationale behind Mizuho’s acquisition of Greenhill is to keep up with industry trends, given how its competitors, including Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group who own huge stakes in American investment banks Morgan Stanley and Jefferies respectively.

Long-Term Prospects

The success of this deal relies on both the success of post-merger integration and the extent to which Mizuho is able to nurse the atrophying, if still respected, Greenhill brand. Shedding the reputation for lethargy, often associated with Japanese banks, will be essential to inspire confidence in both the market and Mizuho’s incoming dealmakers. Integration into a larger corporate ecosystem may well allow Greenhill to break through its ceiling, returning to something at least somewhat akin to 2009’s highpoint, by circumventing the pressures inherent on boutiques as they mature. Of course, an uptick in deal volume may ostensibly vindicate this deal, yet this acquisition’s success must be judged longer-term, by Mizuho’s success or failure to become a leading dealmaker in the US.

Written by Thomas West (St John’s College) & Jade Wong (St. Annes College).

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