How boutiques have snatched bankers and M&A business from the Wall Street giants
With bonus season kicking off this week, one or two investment bankers at Wall Street heavyweights may well have cast an envious eye over the recent results of London boutique Robey Warshaw.
The firm, which was founded in 2013 and has three former Wall Street bankers as its partners, reported profits of £36.6m for the year to March 2016, up 89 per cent.
Revenues increased 81 per cent to £43.3m, which compares extremely favourably with recent investment banking trends. Thomson Reuters revealed last week that fees in the area fell seven per cent globally in 2016, and 14 per cent in the UK and Ireland.
Robey Warshaw is a prolific example, but industry observers see its rise as part of a growing trend in which boutique investment banks are taking up a greater share of the mergers and acquisitions (M&A) space.
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Looking at 2016, it’s difficult to identify many big and significant deals that did not involve a boutique.
Robey Warshaw, which focuses on large UK deals, is lead adviser to the London Stock Exchange on its merger with Deutsche Boerse. It worked for SoftBank on its smooth post-Brexit vote takeover of Cambridge-based Arm Holdings. And the firm also advised National Grid on the international auction of its £14bn gas distribution network.
Looking at the biggest deals of the year globally, AT&T was advised by Perella Weinberg on its $85bn takeover offer for Time Warner, which itself took on Allen & Co. Rothschild worked for Bayer on its $66bn pursuit of Monsanto, which itself was advised by Ducera Partners. And British American Tobacco is being advised by Centerview Partners on its takeover attempt for Lazard-advised Reynolds American.
Figures for 2016 demonstrate the extent to which boutiques are involved in bigger deals.
Dealogic tracked 2,703 UK-targeted deals during the year worth a total of $205.3bn. While boutiques advised on just 210 (eight per cent) of the deals, these transactions totalled $110.7bn (54 per cent) in value. Globally, boutiques worked on 32 per cent of all deals in terms of value.
| Boutique bank* | Value ($bn) | Number of deals |
| Evercore Partners | 294.6 | 152 |
| Centerview Partners | 268.4 | 44 |
| Perella Weinberg | 196.9 | 43 |
| Allen & Co | 148.4 | 9 |
| Qatalyst Partners | 109.4 | 12 |
| PJT Partners | 71.2 | 45 |
| Ducera Partners | 67.7 | 5 |
| Robey Warshaw | 66.8 | 4 |
| Moelis & Co | 65 | 133 |
| Raine Group | 53.5 | 8 |
*Dealogic defines boutiques as small specialist banks which focus on specific regions and industries and which typically have less than 1,000 employees and where their majority of fees are generated from M&A deals
Murdoch turns to boutique for latest Sky bid
One of the most politically-significant UK deals announced in 2016 was 21st Century Fox’s £11.7bn takeover offer for Sky. A look at the bankers working on this deal perhaps best demonstrates, and goes some way to explaining, the rise of boutiques.
In 2010, when Rupert Murdoch first attempted to take full control of Sky through a News Corporation bid, Sky listed Morgan Stanley and UBS as its financial advisers.
This time around, the broadcaster has retained Morgan Stanley, but replaced UBS with Barclays and one other new name: PJT Partners, a boutique that did not exist in 2010.
In 2010, Simon Robey was a leading banker for Morgan Stanley on the deal, while Simon Warshaw worked on the transaction for UBS. They have since moved on to set up Robey Warshaw.
Also on the Morgan Stanley team was Scott Matlock, who left the bank after 25 years, and is now advising Fox on the 2016 deal as a partner at PJT Partners.
Does this explain the growing success of boutiques? Are bankers leaving bigger firms and taking relationships over to startups? Matlock doesn’t quite see it this way.
“It’s not just taking existing relationships,” he tells City A.M. “Much of the business that we do has nothing to do with past relationships, but newly-developed relationships.
“Many people think bankers move to an independent firm or a boutique simply to harvest relationships developed over a career at a big bank. We are not taking that approach at PJT.”
Loss of grey hair
Greenhill & Co is one of the more long-standing boutique investment banks, having been founded by former Morgan Stanley president Robert Greenhill in 1996.
David Wyles, president of Greenhill in London, has been with the firm since 1998, when it launched in the UK. Explaining the rise of boutiques, he says bigger investment banks began to lose some of the trust of companies in the 1990s. This was followed by more “adverse sentiment” around the time of the 2008 financial crisis.
He suggests they have since regained some trust but have been unable to take back market share from boutiques. Not least, says Wyles, because high-profile bankers – like Robey, Warshaw and Matlock – have made their way to smaller firms.
“In recent years many of the most experienced advisory bankers have left the larger integrated investment banks,” Wyles tells City A.M. “This loss of grey hair and experience is one of their biggest challenges. These senior practitioners have either decided the industry isn’t for them any more or they’ve moved to an independent firm like ours.”
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Why do bankers move to boutiques?
Explaining motives for bankers choosing to move on to boutiques, Wyles says: “We all like to work at a place where what we do is the most important thing that the firm does. And if you look at advisory bankers in that context, in bulge-bracket integrated firms, what they do isn’t the most important thing that the firm does.”
Matlock appears to agree with this sentiment.
“In order to be a really great M&A banker, you need to have a firm that’s committed to that business as a priority,” he says. “And when it stops being a priority at the large firms, you start to look for other places to go where everyone in the building is there to provide world-class strategic advice.”
One industry source, who competes in the same space as boutiques and did not wish to be named, was more sceptical about the rise of boutiques, pointing to the fact they had been in the market for many years. But he did concede they have commanded a significant place in parts of the M&A market this decade.
Asked why he thinks boutiques have enjoyed this recent success, he says: “I suspect regulation has been a driver. There is more regulation on investment bankers about what they can and can’t do. That will be one of the reasons, I suspect.”
Of course, money and the sight of boutiques like Robey Warshaw – which has three partners and 15 staff overall – making £36.6m of profit in one year might also have something to do with it.