Boutique advisory firms now receive nearly half of all mergers and acquisition fees in Europe, stealing market share and top deal-makers from global investment banks hamstrung by a renewed focus on cost-cutting and regulations on how much they can pay.
Founded largely by veterans fleeing bureaucracy and shrinking paychecks at the large banks, these low-profile small firms are proving popular among companies who value their niche expertise and independent advice as opposed to mega-banks who tend to cross-sell other services like financing.
Advisory boutiques have captured 44 percent or $1.7 billion of total completed M&A deals fees in Europe, Thomson Reuters data collected up to August 10 shows. Boutiques based in Europe captured 24.9 percent, or $964 million, and other boutiques took the other 19 percent, or $728 million.
That compares with 42.8 percent for the whole of 2015, 30.5 percent at the height of the last M&A boom in 2007 and 20.1 percent in 2000, when Thomson Reuters began recording the data.
The data excludes some of the massive deals of 2015 that have not yet been completed, including Anheuser-Busch InBev’s $100 billion-plus merger with SABMiller.
“We are not trying to sell multiple products. Our sole focus is on high-value-add advisory business, and as such we have no conflicts,” Pieter-Jan Bouten, managing director at Greenhill, one of the early U.S.-based boutiques to set up in Europe, told Reuters.
Boutiques are defined as firms earning greater than 85 percent of their fees from M&A and equity capital markets activity (ECM), with M&A accounting for at least 70 percent of that wallet.
“With the number of boutique firms occupying M&A league tables at its highest since the 1980s, we can expect the attractiveness of independent advisories (for job seekers) only to increase,” said Alex Howard-Keyes, Head of Wholesale Financial Services at Alderbrooke, the executive search firm.
Crossing the Atlantic
Boutiques have made more progress in stealing business from investment banks in Europe than in the United States, where they accounted for 27.5 percent or $2 billion of total completed M&A deals fees so far this year.
As a result, more American bankers are crossing the Atlantic to set up shops in Europe and poaching top dealmakers.
In July, U.S. boutique bank LionTree, founded by former UBS bankers Aryeh Bourkoff and Ehren Stenzler in 2012, hired Jake Donavan from JPMorgan in London to be president of LionTree Europe to grow its business in the region.
In 2015, PJT Partners, an independent financial advisory firm led by Paul J. Taubman, the former senior Morgan Stanley dealmaker in New York, hired a raft of bankers to build out his European arm.
Last year former senior Goldman Sachs investment banker Gordon Dyal launched his own boutique Dyal Co, which then emerged as the lead advisor to Switzerland’s Syngenta on its sale to ChemChina.
“Looking ahead, Donavan’s move could be the tip of the iceberg when it comes to sell-side switches if we see a further proliferation of M&A boutiques,” Howard-Keyes said.
Boutiques range from established firms like Lazard and Rothschild to “micro” outfits such as Zaoui & Co, an advisory firm set up by brothers Michael and Yoel, and Robey Warshaw, set up by Simon Robey and Simon Warshaw, former Morgan Stanley and UBS bankers, both based in London.
Bankers who leave for these boutiques stand to earn potentially more money if they make a success of it, free from a cap imposed by the European Union after the financial crisis that stipulates that bank bonuses can no longer exceed 100 percent of fixed salaries, or twice that with shareholder approval.
Robey Warshaw, which worked on the BG Group and Shell merger, has earned $42 million in fees on completed deals in the year to date, ranking it fifteenth in the league tables in Europe, above HSBC, Societe Generale and Mediobanca.
The figures do not include fees it expects to reap for its work advising SABMiller and most recently having advised Japan’s SoftBank on its acquisition of ARM.
“Boutique expansion is a direct consequence of bulge brackets paying less, adding layers of bureaucracy and admin work for senior people,” said one New York-based boutique banker, using a colloquial expression for the top banks. “In a nutshell working for a bulge bracket is no longer fun.”
Large banks tout their financing muscle as well as their prowess in areas ranging from currency hedging to treasury management to win big M&A assignments.
But for many M&A bankers this just means having to fend off other departments and deal with more bureaucracy.
“A coverage banker at a bulge-bracket is essentially a glorified salesman,” said a second boutique banker.
To be sure, some of Wall Street’s biggest M&A banks still maintain a dominant share of fees in Europe, with Goldman Sachs, JPMorgan and Morgan Stanley in the top five in terms of fees earned so far this year.
Advisory revenues across European investment banks Credit Suisse, Deutsche Bank and UBS fell 21 percent in the second quarter versus a year ago, however, and none are in the top 10 for fees earned on deals completed so far this year.
“Amid reduced advisory revenue at our competitor group, the trend toward independent M&A advisers remains intact,” said Greenhill’s Bouten.
“Year-to-date advisory revenue at Greenhill is up 16 percent, whereas advisory revenue at the big five U.S. banks is down slightly and the big European banks are down more.”
Boutiques on both sides of the Atlantic may struggle to replicate 2015’s phenomenal growth in worldwide M&A as activity slows, however.
Mega deals drove global volumes up 41 percent to $4.6 trillion in 2015, but European volumes were up a meager 6 percent to $880 billion from a year earlier and have sunk 20 percent to $409 billion so far this year, Thomson Reuters data showed.