Boutique Investment Banks

What are Boutique Investment Banks?

Boutique investment banks are small financial institutions that offer specialized corporate finance and investment banking services. Boutique investment banks are non-full service, small-sized investment banks that specialize in some particular aspects of investment banking such as corporate finance. They generally work on middle-market firms assisting on the sell side. They do the same work as larger bulge-bracket banks but for smaller deal amounts, typically with enterprise value between $5 and $100 million.

Boutique investment banks generally work on smaller deals involving middle-market companies, and usually assist on the sell or buy-side in mergers and acquisitions transactions. In addition, they often specialize in certain industries such as media, healthcare, industrials, technology or energy. Some banks may specialize in certain types of transactions, such as capital raising or mergers and acquisitions, or restructuring and reorganization. Typically, boutique investment may have a limited number of offices and may specialize in certain geographic regions, thus the moniker, ‘regional investment bank’. Traditionally, boutique investment banks are specialized in certain fields of corporate finance and thus not full-service. However, the term is often also used for non-bulge bracket full-service investment banks, banks that also are knows as middle-market investment banks.

Boutique Bank Services

Boutique investment banks may be engaged in providing one or more of the following financial services:

  • Underwriting of debt and equity securities
  • Mergers and acquisitions advisory
  • Connecting clients, especially with regard to IPOs or further stock offerings
  • Capital raising (such as through private equity deals – not as common, due to size of firm)

What Does Boutique Investment Bank Mean?

Boutiques may only maintain a small number of offices, situated near the areas where their clients are most likely to be based. Given the smaller geographic reach of these entities, they cannot cater to the needs of large multi-national businesses. Instead, their clients tend to be smaller, usually with sales of less than $1 billion. However, this also means that their investment in the fixed cost of office space and support staff is reduced.

The smaller size of a boutique means that its employees are more likely to obtain a broad range of experience in short order, but only if the management team can land new business on a consistent basis. Otherwise, employees may work on sales support activities, such as the creation of pitch books for a variety of potential clients. Thus, the employee experience at a boutique can vary from rewarding to spotty.

A full service investment bank would be involved in underwriting, trading, merchant banking, etc., while boutique investment banks focus on a particular segment. These may further be regional investment banks or elites with a larger national or international presence. The primary activities of boutique investment banks are capital raising, mergers and acquisitions (buy and sell side engagements) and restructuring and reorganization.

The majority of boutique investments banks are founded or led by former partners of large banks where they were eager to get more involved in the process, but felt constrained. Also, boutique investment banks filled in the gaps left by most big banks which would not look at smaller deals unless there was some exceptional value attached to them.

Pros of  boutique investment bank: Boutique investment banks specialize in a particular industry or a specific transaction or they may specialize in certain geographical areas and, hence, are well-known in their niche. Their fees are lower than bulge bracket investment banks, but these smaller firms can offer unwavering attention to the clients resulting in long-term relationships as opposed to transaction-based ones. Also in the boutique firm, the deal maker may be more directly involved in completing the transaction as opposed to larger investment banks where analysts and associates would do a bulk of the work in a deal.

Cons: Boutique investment bank may not have the network of contacts that a larger firm will have to find the best prospective buyers. Online social network and deal sourcing platforms are narrowing that gap. Smaller firms might lack the necessary resources of professionals to properly execute large and complete transactions. Another downside of the boutique investment bank is that there is limited scope on the suite of services to offer growing companies such as the ability to take it public. Oftentimes the services are limited to the expertise of the deal-makers within the firm.

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