As the years go by, more and more boutique and independent firms gain market share in the industry of M&A advisory. Last year, for instance, boutique and independent firms accounted for 30 percent of all fees relating to financial advisory in completed transactions, a jump from 28 percent in 2012 and 25 percent in 2011.
Although the big investments banks – Goldman Sachs, JPMorgan Chase, Morgan Stanley and Bank of America Merrill Lynch – remain the major players in the market, the fact is that these smaller and independent boutiques are taking the space of the mid-size investment banks and will probably remain doing so in the following years. For example, banks such as Barclays, UBS and Deutsche Bank all posted a double-digit percentage decline in advisory revenue last year.
The main reason behind this trend is that companies and their boards are increasingly looking for highly specialized advice rather than just the large amounts of money the big banks provide. Also, by staying away from major banks, some companies are trying to avoid the common conflicts of interest that arise when big investment banks act in numerous roles in the context of complex deals, such as being the financial advisor and debt provider.
There are a number of stellar examples among the boutique and independent firms that can better illustrate this current trend. One of the main independent firms in the industry is Lazard, a global leading independent financial advisory firm and asset management firm. Lazard has recently announced that its profits rose 35 percent in the fourth quarter of 2013 and that it is frequently involved in the most significant M&A deals, such as the IntercontinentalExchange’s $11 billion takeover of NYSE Euronext.
Another rising star is the M&A firm Moelis & Co., founded in 2007 by Wall Street veteran Ken Moelis, among other partners. Although being only six-years old, Moelis & Co. has been able to build from scratch revenues that exceeded $300 million in 2013. Rumors are that the firm has IPO plans for the near future, revealing how aggressively these independent firms have been gaining market share.
Interestingly enough, this trend has also allowed certain prominent Wall Street bankers to venture out as solo deal advisors. Take, for instance, the case of Mr. Paul Taubman. Since he decided to leave Morgan Stanley after being passed over for the head position of the bank’s M&A division in 2012, Taubman has been personally involved in a number of major deals, ranging from Verizon’s $130 billion takeover of its Verizon Wireless venture with Vodafone to the recently announced $45 billion merger between Comcast and Time Warner Cable.
In some ways, the growth of the boutique and independent M&A advisory firms reflects an overall trend in the market of financial advisory towards the creation of a more honest and stronger relationship with the clients – whether companies or individuals – free of the usual conflicts of interest that routinely impair clients from receiving services that best address their own interests.
For an interesting glimpse on the current trends within the financial advisory industry, check Thomson Reuters’ “Mergers & Acquisition Review – Financial Advisors” report for the year 2013, available at this link.