Selecting a Boutique vs. Middle-Market Investment Bank

When it comes to providing M&A services to SMBs, boutique investment banks (“boutiques”) and middle-market investment banks (“MMBs”) are the primary players. This overview is meant to help in selecting which advisor to use for your transaction.

• General Services and Structure: A typical MMB offers a wide range of investment banking services that may include M&A, corporate finance, research, trading, cash management, and corporate debt. MMBs are usually larger than boutique banks, but not as well known or global as the “Bulge Bracket” banks (Goldman Sachs, Citi, etc.). In contrast, boutiques specialize in one or two core services, which are generally M&A and capital raising advisory. In regards to M&A and advisory services, MMBs generally have two broad internal divisions: industry groups and product groups. Industry groups focus on serving clients only in a specific industry (technology, healthcare, consumer, financial services, natural resources, etc.) while product groups specialize on specific transaction types (M&A, leveraged finance, equity capital markets, private placements). At a boutique, teams focus on specific clients rather than specific services, since the services offered by boutiques are already specialized.

• Transaction Size: To cover high costs of offering many services, MMBs focus on large transactions that justify large fees. MMBs occasionally take on smaller transactions when the M&A markets are slow, but neglect smaller deals once they sign larger clients. Boutiques on the other hand target smaller transactions, so each transaction is incrementally more important to the firm.

• VC vs. Bootstrapped Businesses: MMBs do a large amount of other work for financial sponsors on the buy-side, which gives them easy access to VC-backed portfolio companies when these companies are interested in a transaction. As such, MMBs have significant experience working with heavily VC-backed businesses, but not founder-led businesses that have taken minimal funding. Consequently, MMBs are highly focused on financial sponsor IRRs in transactions, but do not consider consequences many founders desire such as tax and estate planning, employee retention, or brand legacy.

• Single vs. Multi-track Process: Because MMBs are segmented in duties, they are very good at running single-process transactions. A single-process transaction is where a company explores only one potential option (i.e., only an IPO, only an acquisition, only a divestiture). However, a multi-track process is frequently difficult as it causes the internal divisions to pitch for the same business. For instance, a healthcare business looking to explore the options of raising capital or selling outright might work with the healthcare industry group, the M&A group, and the Equity Capital Markets group. In this scenario, the M&A and Equity Capital Markets groups are at odds with each other because each group pushes for their transaction to happen. This frequently leads to inefficient situations that can draw out a process and ultimately hurt the client. In contrast, what boutiques lack in manpower is made up in agility; boutiques can easily accommodate capital raising and M&A routes simultaneously, which results in unconflicted advice and a more timely transaction to the client.

Tags: Boutique Investment Bank, Deal Process, Deal Timing, Internet M&A, M&A Preperation, Selling My Company

• Older Posts
• Newer Posts