Brothers Michael and Yoel have advised on takeovers worth $152bn in two years and changed the fate of business empires
Michael and Yoel Zaoui, collectively Zaoui & Co, are sitting in their swanky Mayfair office discussing 12th-century philosophy. The deal-doing brothers may have advised on takeovers worth more than $152bn in the two years they’ve worked together but today their focus is on the Sephardic thinker Maimonides and his observation that “duality is not possible in a thing that exists of necessity”. It could have been tailor-made for them.
Spend any time with the Zaouis and you sense both a blurring of the borders of individuality and that the formation of their firm always had a certain inevitability.
Yoel and Michael puncture the cultural barriers that can otherwise impede international transactions. They were raised in Morocco and Italy, educated in France and have worked in New York and London. Their roots are north African Jewish.
Their suits are Italian. Their panache is French. Yoel supports Chelsea and Michael Juventus.
“It’s not just a matter of speaking different languages,” says Yoel, who, at 54, is the younger of the two. “It’s understanding how people think.” Once you can do this, mega deals are less likely to founder on nuances.
Businesses such as Zaoui & Co are sometimes referred to as “mergers and acquisitions boutiques”, as if an industrialist could pop out at lunchtime and return with a $20bn corporation in a box with a pretty bow on top. The term is both accurate and misleading.
The advice of these bankers costs millions and the customers who come to their Mayfair offices could as easily drop into nearby luxury goods shops. But their counsel has a wider impact than a diamond necklace or an Old Master painting: they change the fates of business empires.
Independent mergers and acquisitions advisers, long a feature of world banking, are enjoying a golden age. Multinationals are swallowing one another, notionally in order to raise returns to shareholders. In reality, the ambitions of chief executives also drive these power grabs and small but influential businesses such as Zaoui & Co advise these attackers and defenders on their battle tactics.
Michael is, for example, credited with rescuing the €41bn merger of France’s Lafarge company, a building materials giant, and Switzerland’s Holcim, encouraging the Lafarge boss, his old friend Bruno Lafont, to become co-chairman rather than hold out for the job of chief executive.
“Yoel is the boy scout and Michael is the professor,” says the boss of one City securities firm when asked about the pair. “Yoel’s style is more transparent and approachable. Michael’s is more mercurial. I wouldn’t call him Machiavellian but he does tend to approach everything tactically.”
“It’s the return of the consiglieri in high-stakes M&A,” says Yoel.
Old-fashioned merchant bankers, superseded in the 1990s by rivals at big Wall Street investment banks, are back in fashion. Their tight-lipped services are in demand at a time when proliferating gossip networks, such as Twitter, increase the chances of deal news leaking.
The boutiquiers, typically seasoned financiers with good contacts, only sell advice. They do not earn fees for supplying capital or managing cash as senior bankers at bigger rivals often do.
This enhances their objectivity in the eyes of some chief executives and business owners. In the case of the Zaouis, these include the Bettencourt family, which controls French cosmetics group L’Oréal, and Sir Andrew Witty, boss of GSK, the UK’s largest pharmaceuticals group.
“The clients are comfortable with us in the room during a deal because we are so involved and hands-on,” says Michael, whose relationship with the Bettencourt family won Zaoui & Co its mandate to advise L’Oréal on buying back €6.5bn of its shares from Nestlé in February 2014. “They can rely on our presence. That isn’t always possible with senior bankers from big investment banks.”
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The brothers were born in Morocco — Michael in Fez, Yoel in Casablanca — but left as boys in 1964. Their father Charles, a former chef de cabinet of the Moroccan government, had taken a job with the UN in Rome. They lived on the Aventine Hill close to the Coliseum.
“We had the privilege of growing up in two sunny countries,” says Michael. When Charles moved to Unesco in Paris a few years later, the family followed.
The desire to succeed was instilled in them by both parents. According to Michael, their father was “very, very smart.
He had a long-term vision of a kind I’ve never seen anywhere else. But he was not a business person at all.”
He adds: “The drive for performance came from Mother. She was very focused on grades and would ask, ‘Have you done your homework?’ and ‘Why did you come out only second in this exam?’”
After Charles’s death in 2006, the brothers returned to Morocco. “It was important to go back to our roots,” Michael said.
They located the spot in the Mellah, Fez’s Jewish Quarter, where their grandfather’s small jewellery workshop had been. The poverty of the place shocked them and brought home why “the struggle for education” had been a central feature of family life.
“When you lose someone, you pause and reflect on his life. I realised then the journey he had travelled,” says Yoel. The Mellah was “a different world” to the one they now inhabit, jetting between London, New York and continental European capitals.
But they are always aware of it as a starting point, a source of perspective as well as identity.
The loneliness factor is very real. I can’t begin to tell you how many late night calls I get from some clients – Michael Zaoui
The alliance of the brothers within a boutique — a common exit vehicle from big investment banks for senior bankers aged in their forties and fifties — was long predicted within the gossipy M&A business.
“Everybody talked about it more than we did,” says Michael, drily.
But for almost two decades they competed for clients as senior bankers at rival US investment banks. Yoel ended up as head of global M&A at Goldman Sachs while Michael was chairman of European M&A at Morgan Stanley.
They even advised opposing camps. Yoel backed up India’s Mittal Steel on its €27bn bid for Arcelor in 2006. Michael helped defend the Luxembourg-based steelmaker, which capitulated. Win some, lose some. Michael had assisted Canadian metals group Alcan in grabbing Pechiney, a French rival counselled by Yoel, for €4bn in 2003.
Then, in 2013, they joined forces. The business plan of Zaoui & Co was essentially a Post-it note with the words “Allons-y!” scribbled on it. “We didn’t want a strategy,” Michael shrugs.
At the start of our interview, their PA issues each brother with a tiny cup of espresso, a weeny packet of French ginger biscuits and a small bottle of Evian. They slide their BlackBerrys back and forth across the boardroom table, reading each other’s messages and pinging new ones to clients.
Both men rest their chins on their right hands and hold those water bottles with their left. When I glance away, they have adopted a new, identical pose by the time I eyeball them again.
Both are voluble on pet topics: Yoel on deal tactics; Michael on the arts. Michael is a governor of the Southbank Centre and adores classical music, observing that a well-lived life passes from Beethoven to Mozart to Bach (from passion to harmony and, then, acceptance).
But vault doors clang shut in response to questions about their families. They both now live in Kensington and Chelsea, an enclave for the super-rich. Both are married and both have a couple of children but that is as far as they will go. Secrecy is reflexive for deal advisers for whom discretion is a vital professional qualification.
Yoel is scandalised when asked who referred US engineering group Dresser-Rand to them for advice on a $7.6bn bid from Siemens. That’s confidential, he says. I tell them that being a journalist I am not strictly a gentleman, and so may ask intrusive questions.
Later, I read the pair this quote from a senior Wall Street banker:
“The Zaouis have a very good reputation. The bulge bracket houses have nothing to lose sleep over. But if I was at Rothschilds [a relatively large, long-established independent bank] I might be worried.”
“Who said that?” Yoel demands. Mind your own business, I say. “So now I’m a journalist too?” asks Yoel.
They fall about laughing. You can see them thinking: imagine it! Yoel Zaoui working as a journalist! The idea!
They dissolve into laughter a second time when describing Yoel’s baby steps as an investment banker in the late 1980s. Having completed a French finance degree and a Stanford MBA he was hoping to convert a summer placement at Goldman Sachs into a full-time job.
“I was thinking, ‘What if they don’t offer me the job?’” he says. They roll around chortling, struck, presumably, by this thought: Yoel Zaoui, of all people, worried Goldman would give him the bum’s rush!
In the event, both Goldman and Morgan Stanley wanted Yoel. Michael, a Harvard MBA with a French law degree, was already at Morgan Stanley. So Yoel stuck with Goldman, thinking it was best to make his way in a workplace where he wasn’t a colleague’s kid brother.
The Zaouis can be just a bit full of themselves. A graphic from a financial weekly portraying the pair as the strikers in a fantasy football team of London M&A bankers adorns their boardroom.
They answer with an incredulous “No” when asked if it had been nerve-racking making their first calls to old clients when they no longer had big banks behind them. Why wouldn’t Europe’s top industrialists want their advice?
However, the pair do not take themselves entirely seriously. Michael’s parting shot at the end of one of our meetings, triggered by a mention of photographs for this article, is:
“If there is an opportunity to make us look like rock stars or fashion icons, we’ll happily oblige.”
The reference may be to breathless articles in the press, including a profile in French Vanity Fair. The photographs that illustrated that piece shamed balder, rounder rivals in baggier suits. Michael is described as having “la voix d’Al Pacino” and the “physique de Ben Stiller”.
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There are no prizes for self-effacement in investment banking, an arena where people with big egos do big deals for big rewards. It can be an aggressive, backbiting business. Yet it is hard to find rivals with a bad word to say about the Zaouis.
Some, however, question Michael’s decision to quit Morgan Stanley and go into business as a one-man band. Would it not have been braver to hang on and help the bank weather the credit crunch?
Michael says: “I was 50 and figured either I stay on and bow out gracefully later — which is not always possible — or I had the energy and ambition to do another lap on a different track.” A former colleague, now a senior executive at a different investment bank, says: “There was never any suggestion that Michael had a duty to stick around. It would be wrong to describe him as a sole trader. But he wasn’t institutional in any sense. He didn’t share his client relationships with anyone.”
After the deal has been announced, you feel a sense of relief. Then you miss the deal. You miss the adrenalin – Yoel Zaoui
Yoel left Goldman Sachs in June 2012. “You have to recognise that working for a big bank is a young person’s game. You don’t want to be viewed as this guy who’s just hanging around,” he says.
The most trenchant criticisms you can make of Zaoui & Co apply to all M&A bankers. When they join Wall Street banks in an advisory panel, it means extra cost for shareholders. Meanwhile, the fees paid for a successful deal may give these consiglieri an incentive to engineer one, even at a bad price.
Nevertheless, boutiques have an established place in the financial ecosystem. They are manifestations of the relationships a shrewd banker can build up during a career. The chief executive of one vast company says:
“You should not underestimate how lonely this job can be. Some transactions might require you to fire your immediate colleagues. If you have stayed close to an adviser through both your careers, you can tell him things you might not tell your wife.”
Michael says: “The loneliness factor is very real. I can’t begin to tell you how many late night calls I get from some clients.”
Isolation can nag at the adviser as well as the advised. Yoel calls me in April just after Nokia of Finland announces it has agreed to take over Alcatel-Lucent of France for €15.6bn. Being sole adviser to the French telecoms group is a big feather in the firm’s cap.
But he sounds deflated. He says: “When you’re working on the deal, you’re in a bubble and you’re anxious to see how people will take it. After it has been announced, you feel a sense of relief. Then you miss the deal. You miss the adrenalin.”
He says he misses the deal team too: the Alcatel-Lucent people, the lawyers, the accountants. After working long hours together for weeks, they all go their separate ways.
Until the next time. London has “endless possibilities”, Michael says. It is a great place for businesses, he adds, because politicians are friendly to wealth creators.
British bankers, many of whom feel vilified by politicians and press, would scoff at that notion but the British capital is a popular destination for French expatriates, including entrepreneurs and bankers fed up with high taxes and restrictive employment laws.
Asked whether he and Yoel are “non-doms” — beneficiaries of a favourable UK tax status for wealthy foreigners — Michael arches his eyebrows and declines to answer.
London he says, seeking safer ground, “is lively and full of interesting people who are here for good or passing through for some period of their life”. The brothers may have passed through Rabat, Rome, Paris and New York. But London feels like home.
Jonathan Guthrie is the FT’s City editor
Born Fez, Morocco, 1956
Education Masters in Law from Université de Paris, doctorate from Université Panthéon-Sorbonne, Harvard MBA
Career Joined Banque Rothschild in Paris 1978 and Morgan Stanley in New York in 1986. Moved to London in 1990. Promoted to head of European M&A. Steps down to become independent adviser in 2008
Family Married to Anna, who he met in Paris 20 years ago. Has a son, 18, and daughter, 17
Interests Music lover. Governor of Southbank arts centre in London. Member of board of advisers to dean of Harvard Business School
Born Casablanca, Morocco, 1961
Education Doctoral degree in finance from Université Paris-Dauphine, Stanford MBA
Career Joined M&A department of Goldman Sachs in New York in 1988. Moved to London in 1989 and became partner in 1998. Promoted to head of global M&A and membership of Goldman’s management committee. Stepped down in 2012 to set up Zaoui & Co with brother Michael
Family Married, with a daughter, 17, and son, 15.
Interests Member of Stanford’s business advisory council. Chelsea fan. Voracious reader. Enjoys visiting islands
Portraits by Dan Burn-Forti