What Does Boutique Investment Bank Mean?
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.
Divestopedia Explains Boutique Investment Bank
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 engaginga 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.