Today, Frontier announced that it would be buying out Spirit and merging with them in a multi billion dollar stock and cash deal. Spirit Airlines (SAVE) shareholders would receive around 1.9 shares of frontier plus $2.13 in cash. Which comes out to $25.83 per share, which is more than 21% from last Friday's session lows. Spirit shareholders will own 48.5% of the company while Frontier shareholders will own the other 51.5%.
Citigroup, Morgan Stanley, and Barclays are advising the deal that will come out to be worth over $6.5 billion dollars. Investment banks like Citi, Morgan Stanley and Barclays only make money from advisory fees from these large transactions. These firms will run comprehensive financial models to find a fair market value for these companies. After doing some market research they can determine which companies are undervalued and ripe for acquisition. Then after charging a finders fee, the buying company will stand to benefit by owning assets that they got to pay a slight discount for. However, a majority of the investment banking work is done on the sell side. This is when a company comes to a bank needing money or wanting a potential profitable exit. They can use equity or debt financing, or even be offered on the pubic markets for the first time. Obviously, all of which will require a fee.
Citigroup, Morgan Stanley and Barclays have helped Spirit and Frontier leapfrog to the #5 position by size in the airlines group. Not only may they have gotten to collect their fee but with Frontier having a negative EBITA and less than a billion in cash, something tells me that these banks will also have collected their fees as market makers. Undoubtedly, Frontier will have had to raise money either by debt or equity financing through the banks to acquire Spirit.
Sources:
https://www.npr.org/2022/02/07/1078842162/spirit-frontier-spirit-airlines-merger
https://www.cnbc.com/2022/02/07/frontier-and-spirit-to-merge-creating-5th-largest-airline-in-us.html
https://money.usnews.com/investing/news/articles/2022-02-07/spirit-airlines-frontier-to-merge-in-2-9-billion-deal