Former Rivals, Brothers Now Team to Shake Up M&A World
Zaoui & Co. Has Advised on Some of Europe's Biggest Deals This Year
Yoel, left, and Michael Zaoui at their London office. Their firm, Zaoui & Co., has advised on some of Europe's biggest deals this year. Daniella Zalcman for The Wall Street Journal
LONDON—Yoel and Michael Zaoui spent more than two decades as Wall Street investment-banking rivals, repeatedly facing off across the negotiating table as they advised dueling clients.
Today, frères Zaoui work side by side in a London office, and their eponymous firm, which they launched last fall, has shot to prominence. Zaoui & Co. has advised on some of Europe's biggest mergers and acquisitions this year, upstaging many blue-chip investment banks.
The firm was hired by the U.K.'s GlaxoSmithKline GSK.LN -0.25% PLC to work on a deal valued at more than $20 billion with Novartis AG. France's Lafarge SA LG.FR +0.28% retained the firm for its $50 billion merger with Holcim Ltd. HOLN.VX +0.50% And Michael's longtime relationship with the Bettencourt-Meyers family, heirs of the French cosmetic group L'Oréal SA, OR.FR +0.43% paid off when they turned to the Zaouis to represent them when L'Oréal bought 8% of its own shares held by Switzerland's Nestlé SA NESN.VX +0.07% .
Most recently, the brothers were hired by Gerard Mestrallet, chief executive of GDF Suez SA, GSZ.FR +0.19% who has worked with Michael since 1995. Mr. Mestrallet said in an interview that he has retained the Zaouis to work on an "important potential deal" for the French power company. He declined to give specifics. A spokesman said the company has publicly stated that it is only interested in small and medium-size deals.
The brothers have a long history in European investment banking. Michael, 57 years old, was the vice chairman of Morgan Stanley's MS +1.13% institutional securities group and of European mergers and acquisitions. Yoel Zaoui, four years his junior, was the co-head of global M&A at Goldman Sachs Group Inc. GS +0.36%
The recent success of their fledgling firm, which employs 10 people, speaks to the popularity of boutique investment banks, founded and staffed by refugees of Wall Street firms.
"With us, all the decisions are made between me and Michael," Yoel said.
The trend is due in part to corporate clients' cravings for personalized service and the problems with large banks following the financial crisis. For investment bankers, working for a small shop can be lucrative. Boutiques can often command the same multimillion-dollar advisory fees that big Wall Street banks get, but the payouts are divvied up among fewer employees.
What helps set Zaoui & Co. apart is that it is a family enterprise. "Two brothers finally…creating their own boutique together," Mr. Mestrallet said. "That's a very amazing story."
The brothers' careers have moved in tandem. Their father was a United Nations civil servant, and the family moved from Morocco to Rome when the brothers were young.
Michael wanted to become an orchestra conductor, Yoel a doctor. When those dreams didn't work out, both went to business school, Michael at Harvard and Yoel at Stanford.
Michael joined Morgan Stanley's investment-banking department in New York in 1986, just as a major M&A boom was getting under way. Yoel joined Goldman two years later on Wall Street.
Following "Big Bang," the deregulation that shook up the insular City of London in 1986, U.S. investment banks expanded their trans-Atlantic reach. Yoel was sent to London in 1989. Michael followed the next year as one of about 10 bankers setting up Morgan Stanley's European M&A operation. For a year, the brothers shared an apartment in London.
One or both advised on many of Europe's largest transactions, including Credit Lyonnais SA's $20 billion sale to Credit Agricole SA in 2003 (Yoel), the $18 billion merger of Guinness PLC and Grand Metropolitan PLC to form Diageo PLC in 1997 (Michael), and Sanofi-Synthelabo SA's nearly $70 billion hostile bid in 2004 for Aventis SA (Yoel and Michael).
The brash styles they cultivated during their years in the U.S. proved effective with some would-be clients.
In 2006, Michael said he flew to Luxembourg on behalf of Morgan Stanley to try to win steelmaker Arcelor as a client after a hostile bid by rival India's Mittal Steel. While trying to persuade the chairman, Joseph Kinsch, to hire Morgan Stanley as sole adviser, Michael suggested the company pay a dividend to shareholders equal to the Mittal bid as a defense tactic. Mr. Kinsch responded: "It's easy for a banker to say. It's not your money."
"With all due respect, Mr. Chairman, it's not yours either," Michael said he shot back. Efforts to reach Mr. Kinsch were unsuccessful.
Michael left the meeting worrying he had gone too far. But Morgan Stanley ultimately won the assignment. At Goldman, Yoel worked for Mittal. The brothers promised their clients that they wouldn't discuss the situation while it was a hostile deal.
Michael departed Morgan Stanley in 2008. Yoel left Goldman Sachs in 2012. They decided to work together for the first time. In the winter of 2012, they started visiting longtime clients. Their pitch boiled down to their financial acumen and the one-on-one attention clients would receive from the brothers, who would personally handle the work.
When PSA Peugeot Citroën was about to undergo a restructuring in February, Robert Peugeot, whose family controls the French auto maker, called Yoel for help. The company already had hired investment bankers, but when it came to the family's stake, Mr. Peugeot said he wanted one person to look after the family's interests.
The company initially planned to raise €4 billion ($5.44 billion) in private capital that would have diluted the family's stake to less than 10%. Yoel pushed instead to turn to the public markets for a portion of the funds and carve off a smaller slice for private investments, a change made halfway through the process that allowed the Peugeot family to maintain a 14% stake. "It was very helpful [for Yoel] to have an open mind," Mr. Peugeot said.
Energized by their recent success, the brothers said they now are looking to return to their investment-banking roots and have started to woo U.S. corporate clients.
"We go well with American CEOs," Michael said.
