Merger and acquisition (M&A) advisory is a big business, which has traditionally been dominated by the largest global investment banks and accountancy firms. However, small shops have been making inroads over the last ten years. Small-sized M&A advisory shops, commonly called M&A advisory boutiques, have increasingly been growing their M&A market share, making them more viable contenders among the bigger players.
This article takes a look at M&A advisory boutiques and their market position.
- M&A boutique market share has grown from 13% in 2008 to 40% in 2018.
- Top companies in the M&A boutique business include: Evercore, Centerview, PJT, and Moelis.
- M&A boutiques can potentially offer the key advantages of stronger relationships and fewer conflicts of interest.
What Are M&A Advisory Boutiques?
M&A advisory boutiques, also known as independent advisory banks, M&A micro-firms, or M&A kiosks, are small-sized firms sometimes owned by one or a few individuals who offer merger and acquisition advisory services. These groups generally have fewer employees and smaller resource centers but may have more focused expertise in the M&A business rather than a broader workforce comprehensively across investment bank advisory services in general. Depending upon the setup size, the services offered may also be more specific to certain businesses, industries, or even geographic regions. The owners of such boutiques are often ex-investment bankers with proven experience in advising on large-sized M&A deals. Boutiques may be owned by single individuals, usually with young and extremely talented staff on payroll. Multiple owners within a partnership structure or a publicly-traded structure can also exist.
M&A advisory boutiques usually distinguish themselves by their small-sized dedication and focused expertise compared to the larger organizational setup of investment banks and accountancy firms.
An Evolution in M&A Advisory Boutiques
According to Dealogic, M&A advisory market share reached a low in 2008 and has been growing ever since.
In 2008, M&A advisory boutiques accounted for approximately 13% of the market share. Since then, that share has grown to around 40%.
What Makes M&A Advisory Boutiques Popular?
There can be several elements that make a M&A advisory boutique more appealing than a big investment bank. Personal rapport and greater attention can be one. All things being equal, people often look for personal rapport in business relationships. The nature of any advisory business in any sector depends on personal rapport. Owners additionally bring an emotional affinity to their businesses, and it can be human nature to trust these relationships more, compared to working with a big setup in a large organization.
Attrition can also play a part in the client relationship, with large organizations potentially showing turnover or lack of commitment by involved individuals, forcing clients to deal with new individuals frequently. Boutiques, directly run by owners, often score well with direct dedicated involvement from an expert strategist and team that stays with the client from beginning to end.
Another big factor can be conflicts of interest. The M&A market is an active and highly regulated one. As such, large banks can frequently be bound by political and regulatory bindings, which may enforce unwanted constraints on advisory businesses for conflicts of interest. M&A boutiques can enjoy some greater flexibility in this regard. With somewhat more independence from political and regulatory provisions, M&A advisory boutiques can offer a fit for specialist advisory services dedicated to specific sectors.
Moreover, large investment banks may also have holdings in client companies, whereby regulations may force them to abstain from getting into any associated M&A transactions and advisory services. Independent boutiques being pure play advisory firms don’t have such constraints.
Comprehensively, conflict of interest is actually one area where M&A advisory boutiques have honed in for an advantage. Business was seen to gather momentum in the backdrop of the financial crisis of 2008 after traditional M&A advisors, investment banks, and accountancy firms were said to have conflicts of interest, basing their decisions and advice on financial statements of the parties. Boutiques capitalized on this, claiming to remain free from challenges of conflicting interests while also rich in human capital and dedicated services beyond the financial ties.
Lastly, a M&A environment conducive to smaller business integrations can also be a factor. Oftentimes, smaller businesses seek the advice of smaller M&A shops. This may occur because of the greater opportunity for more dedicated attention. Taking on business in the small business market can also create more of an opportunity for small M&A shops to get involved when deal size may be less than the minimums required for the bigger banks.
Big Names in the M&A Advisory Boutique Segment
In 2019, data from Statista shows Evercore, Centerview, PJT Partners, and Moelis as the biggest boutique dealmakers.
Leading Financial Advisors to Merger and Acquisition Deals in the United States in 2019, By Deal Value (in Billion U.S. Dollars)
- Evercore Partners: In 2019, Evercore was involved with M&A transactions totaling a deal value of $508 billion.
- Centerview: Centerview reported $206 billion in deal activity in 2019. The company has advised on over $3 trillion in activity worldwide.
- PJT Partners: $189.7 billion in deal volume in 2019. Began trading publicly in 2015. Led by Paul J. Taubman, who founded PJT after years of experience in the M&A market. In 2013, he is reported to have handled more than $175 billion worth of deals.
- Moelis & Co.: $167.66 billion in 2019 deal volume. Went public in 2014. Showing global expansion in Europe, Asia, and the Middle East.
Other notable names:
- LionTree owner, Aryeh Bourkoff, advised the two cable companies Virgin Media and LibertyGlobal, on a $23 billion mega-merger.
- Zaoui & Co.: Run by two brothers, Michael and Yoel Zaoui. The two ex-Goldman Sachs employees have advised several of the top-notch deals in Europe.
- Greenhill & Co.: Another old-timer founded in 1996 with a NYSE listing, this boutique is known for regular dividend payments to its shareholders. It has advised Actavis on a $25 billion acquisition of Forest Labs. It also advised Actavis for its $5 billion purchase of Warner Chilcott.
Challenges with M&A Advisory Boutiques
Although it has been a smooth ride with a high growth rate, the M&A advisory boutique business has its own share of challenges. Claiming to be a dedicated or specialist service provider, the M&A advisory boutique business remains fragmented. While large investment banks can leverage their large size and global reach across multiple industry sectors, boutiques remain confined to their own specialized streams at local or regional levels.
Most of the action is happening in the US and Europe for business boutiques, while investment banks are busy exploring new opportunities in geographies of emerging markets like Asia, Africa, and the Middle East. M&A boutiques may not have a presence in these locations, but this does provide room for further growth.
Most boutiques remain small shops, though a good number have emerged as big businesses with large employee headcounts. Single person dependency remains a risk, which is difficult to mitigate for the clients.
The market environment can be a big factor. M&A boutiques have thrived in the wake of the 2008 financial crisis. However, a new market downturn and recessionary period could potentially shake things up. The 2020 Coronavirus crisis presents new challenges for the economy that could possibly lead to a greater reliance from demand primarily for the larger, more diversified investment banks.
The Bottom Line
Every business has multiple factions, and the same applies to M&A advisory houses. Since 2008, M&A business boutiques have been humbly eating into the market share of traditional M&A business. These boutiques have offered the advantages of dedicated personnel and specialized services. Furthermore, regulatory pressures and fewer conflicts of interest have also been working in their favor. As markets evolve and change, it will be interesting to see if the small shops can continue to thrive, offering a wider variety of choices for M&A clients in the U.S. and worldwide.
Disclaimer: At the time of writing this article, the author did not hold any of the securities listed (2014).