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Small is beautiful

24 January 2013 By Antony Currie

If Greenhill’s results are anything to go by, M&A boutiques should have a certain degree of staying power. The firm led by Scott Bok on Wednesday reported a 4 percent drop in advisory revenue last year, a week after larger rivals JPMorgan and Morgan Stanley posted declines of 17 percent and 21 percent, respectively. It’s a good sign for smaller shops if they can handle a weaker market as well as a strong one.

The type and size of transactions have probably helped. Divestitures and spinoffs accounted for almost half of last year’s $2.6 trillion of deal volume. That’s the highest percentage since Thomson Reuters started collecting data in 1980. Often, such moves require no financing, which diminishes the need to hire an adviser with a hefty balance sheet – and thus plays right into the hands of independent firms.

Large acquisitions also tailed off. The number of completed transactions worth more than $5 billion dropped by a quarter last year to 51 and their value by almost 20 percent, the biggest decline of any segment. Such mega-deals are what big banks rely upon for their all-important league-table credit and the juicy fees to make running the business worthwhile. Boutiques, on the other hand, can rely on smaller mergers to pick up the slack. Some, like Houlihan Lokey, focus on them.

Even so, there’s no reason to think at this stage that an upswing in big-ticket mandates will cause independent houses to wither markedly. With few or no ties to financing, underwriting or trading, their conflicts-free advice has found greater appeal in the post-crisis world. Court castigations of Barclays and Goldman Sachs have only reinforced the precept.

The longer-term momentum is with the boutiques, too. Since 2000, the share of the M&A fee pool claimed by the industry behemoths has shrunk from 63 percent to 44 percent, according to Thomson Reuters data. Over the same period, the top 20 indies – including Greenhill, Moelis, Perella Weinberg, Qatalyst and Lazard last year – have doubled their proportion to 21 percent of the pie. These merger specialists look well placed to keep holding their own.


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