Are The Boutique Investment Banks Making A Strong Comeback?

1. Are The Boutique Investment Banks Making A Strong Comeback? This article presents a short summary of trends in investment banking (pre-and- post credit crisis), and also highlights key features of boutique investment banks, its differentiators, and some key challenges. This article is based on author’s live work experience with global investment banking firms. During the golden days of the global investment banking (IB) industry, prior to the subprime mortgage crisis, large firms pursued multiple multi-billion-dollar deals across capital-raising, mergers and acquisition, and advisory functions. Undoubtedly, during this time, individuals in senior leadership roles would have witnessed: The availability of multi-billion dollar deals across sectors and regions, Relatively shorter deal closure periods, Deal exclusivity, Reasonably higher retainer fees during the deal cycle, Attractive commissions, Hefty bonuses and the resulting flashy lifestyles, Little to no work-life balance – not that anyone cared. Large, mid-sized, and small IB firms alike benefited proportionately from this golden era. Even newly established IB firms enjoyed rapid success at that time, growing nearly 100 percent with every deal they closed, courtesy bull market. Fast-forward approximately 11 years, and the IB world is vastly different. To suit the current market situation, large IB firms have restructured their businesses and cleaned up the balance sheets. However, for the small and mid- sized firms who survived, it’s still a struggle to adjust to a more dynamic, challenging, and relatively less glamorous IB world. At this time, most mid- sized and boutique investment bankers would agree that: There are relatively fewer deals, The industry boasts rising competition, Declining commissions are more commonplace, There is no exclusivity and little to no retainer fees, Deal closure periods range from 6 to 24 months, with huge uncertainty,

2. There are low to no salary and bonus hikes, rising attrition, and corporate restructuring. Yet, interestingly there has been a spurt in small or boutique IB firms across the globe! Most of these firms (particularly those I’ve come across) are founded by senior investment bankers with around 15-20 years of core IB experience. These founders have often spent extended periods in senior leadership roles with large global investment banks, featuring strong client relationships and professional trust. A good example is, Dyal Co., set up by Gordon Dyal, a former Goldman Sachs investment banker (1998-2015). For the $43 billion sale to ChemChina in 2017, Dyal Co. emerged as the lead advisor to Switzerland’s Syngenta. How Do These Boutique Investment Banks Make A Difference In This Market? Relationships Matter! Strong, extended relationships open doors for these founder-bankers to pitch for potential deals and compete with large players, including their former employers. Although it’s never easy to break into the deal, as multiple stakeholders need to be convinced, relationships cushion that difficulty and facilitate deals. This clearly indicates that for clients, their banker matters even more than their IB firms, and the relationships move when the banker moves to the other IB firm. Flexible And Creative Solutions These boutique investment banks are blessed with some of the sharpest minds in the industry, thus offering clients a great value by executing creative solutions in a cost-effective manner. The creative solutions offered may include: faster and better access to potential investors, high-speed, flawless execution, creative deal structures, and strong negotiation skills and deal closures Due to the lean structure of these firms, they can offer aggressively competitive fees and keep their costs under control. Some smart IB firms also maintain an optimal onshore and offshore team mix, utilizing low-cost countries like India, Egypt, Lebanon, Sri Lanka, Costa Rica, and Argentina, for outsourcing deal- specific research support or entire deal execution support. This cost- arbitrage-

3. driven outsourcing model which is well-adopted by large banks including Deutsche Bank, Credit Suisse, HSBC, and Barclays, is gradually gaining approval among boutique IB firms too. More details: https://www.valueadd-research.com/blog/boutique-investment- banks/