Dealtalk: Barclays M&A team rises from Lehman's ashes

A worker carries out maintenance in a branch of Barclays bank in central London February 15, 2011.

NEW YORK (Reuters) - Skip McGee's most fulfilling moment as an investment banker came in 2002, when his team at Lehman Brothers helped Williams Cos (WMB.N) avert bankruptcy.

"They had this big celebration," recalled McGee, now head of Global Investment Banking at Barclays Capital. (BARC.L) "People were coming up and asking, 'You're from Lehman Brothers?' And they were just giving us hugs."

Six years later, McGee was not able to guarantee the same outcome for his own firm, but was able to help orchestrate a deal to sell Lehman's North American operations to Barclays.

Turns out, the timing could not have been better. Since Lehman's bankruptcy came early in the financial crisis, the combined bank was also the first to become stable, allowing McGee and Paul Parker, head of global M&A, to hire aggressively in 2009 as others tottered.

"They were all in their foxholes with their chinstraps buckled," McGee said. "We were the only firm hiring then."

As the third anniversary of Lehman's collapse approaches next month, McGee and Parker said Barclays' buildout of the M&A team outside the United States is nearly complete.

Barclays -- long an also-ran in the field of M&A -- is taking on the likes of Goldman Sachs (GS.N), Morgan Stanley (MS.N) and JPMorgan Chase. (JPM.N)

Last year Barclays came in No. 4 in the ranking of advisers in M&A deals involving U.S. companies, Thomson Reuters data shows. So far this year, it is No. 7 in the U.S. league tables.

McGee said he wants the bank to become one of the top five M&A advisers in Europe and Asia over time. According to Thomson Reuters data, so far this year Barclays ranks No. 7 in Europe and No. 19 in Asia.

"I'm pleased with our progress so far, but we still have plenty to do to get where we want to be in the league tables," said Matthew Ponsonby, co-head of M&A in Europe.

Others have taken at least 10 years to build a global practice, so it is still too early to judge Barclays' success, said Roy Smith, a finance professor at New York University's Stern School of Business and a former Goldman Sachs partner.

"The real question is, despite their early apparent success maintaining the client relationships they had, are they going to be able to hang on to all that?" Smith said.

OLD NEW BANK

Barclays has retained more than 90 percent of Lehman's U.S. M&A bankers and poached scores of people from rivals to build the business outside the United States from scratch.

These hires include Ponsonby and Mark Warham -- from Citigroup Inc (C.N) and Morgan Stanley, respectively -- to head M&A in Europe, and Ed King -- also from Morgan Stanley -- as head of M&A in Asia-Pacific.

They have managed to keep most of their M&A clients in the United States like Williams and are breaking ground in Europe and Asia with new ones, such as the London Stock Exchange (LSE.L), GDF Suez (GSZ.PA) and Lenovo Group (0992.HK), bankers said.

For a bank that traces its roots back to the late 17th century, the average tenure of M&A bankers in Europe is less than a year and half, and even less than that in Asia.

"On one hand, we're one of the oldest banks but on the other hand, we're one of the newest," said Gary Posternack, head of M&A in the Americas. "We've only been in the M&A business in a meaningful way for three years now."

The challenge now is for the new hires to convert Barclays' corporate relationships into M&A and equity mandates, a task that requires moving up the chain of command at client firms, where the bank's traditional relationships were primarily with the chief financial officer and finance staff.

"M&A is a CEO and board-level conversation, and it takes some time to elevate the relationship to that level," McGee said.

HOLY GRAIL

The bank is marrying Lehman's M&A expertise with Barclays' balance sheet and risk management capabilities in an effort to achieve the holy grail of the business -- a seamless suite of products to clients.

One area in which the strategy has yielded results is the energy sector -- a traditional strength of the old Lehman energy M&A team which has stayed together for many years.

Take BHP Billiton Ltd (BLT.L) (BHP.AX), for example. Barclays had a long financing relationship with the mining giant, but when BHP made a bid for Potash Corp (POT.TO) last year, it also was able to land an M&A role.

Although that bid did not succeed, BHP made Barclays a corporate broker. The M&A team, meanwhile, went on to advise BHP on two other deals this year -- the $4.75 billion Fayetteville shale purchase from Chesapeake Energy Corp (CHK.N) and then the $12.1 billion takeover of Petrohawk Energy Corp. (HK.N)

McGee said Barclays was also ready to finance the Petrohawk deal for BHP. "The ability to even contemplate commitments of that size -- on a sole basis -- is not something we could have done at Lehman."

That ability is evident in other sectors as well. Barclays, along with the boutique Perella Weinberg Partners, advised Hewlett-Packard (HPQ.N) on its $11.7 billion deal to buy UK software company Autonomy Corp. AUTN.L Barclays provided a 5 billion pound ($8.2 billion) bridge loan to HP for the deal.

Parker said he recently held a half-year review of the business with the team in Europe.

"At a certain moment we all looked at each other and realized we had achieved what many people said couldn't be done, especially in such a remarkably short period of time," Parker said. "No time for victory laps yet, but we did it."

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(Reporting by Paritosh Bansal and Michael Erman in New York and Victoria Howley in London, editing by Matthew Lewis)