Independent advisory firms are supposed to be the banker’s safe haven. As Wall Street goliaths scramble for capital and bonuses get squished under government thumbs, M&A bankers are racing to hang out a shingle or join someone else who already has. What can be seen as large-scale “super-boutiques” also have been on hiring binges – exploiting the bulge-bracket backlash to poach top talent disillusioned by the impact of the crisis on their employers.
But the headlong expansion of the independent advisory sector may already have gone too far. Quirkily named boutiques have risen from the ashes of Bear Stearns and Lehman Brothers. These include Denis Bovin’s Stone Key Partners and Michael Tory’s Ondra Partners. Frank Quattrone has resurfaced from his own personal dot-com boom-and-bust with Qatalyst Partners.
Other established firms, including Centerview Partners and Tricorn Partners – founded by former UBS and Merrill execs, respectively – have used the crisis as an excuse to expand.
ONE-time UBS rainmaker Ken Moelis has exploded onto the scene with a staff of 175, including more than two-dozen managing directors, in less than two years.
The indies are thriving as never before. Partly that is directly down to the collapse of the big boys. But sentiment among chief executives is also drifting away from the disarray at many one-stop shops. So far this year, independent advisory houses have grabbed their biggest market share ever – 16% of total estimated merger fees, according to Dealogic. That compares to 10% during the last downturn.
But this year’s run-rate is weaker than the 2002 tally. What’s more, there are more firms competing for the independent dollar. Perella Weinberg Partners and Gruppo Banca Leonardo weren’t around a few years ago. All these newcomers are squaring off with the likes of Lazard and Rothschild, which are more diversified and have survived more cycles than the Tour de France.
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Early results are revealing the extent of the struggle. Lazard’s non-restructuring-related fees in the first quarter plummeted, creating a shock loss of $54m. Lazard and Rothschild, which commanded 90% of the indie-advice dollar in 2002, now account for just 57% of it. But their loss doesn’t mean everyone else is winning. Evercore managed to increase revenue in the first three months of 2009 and stay in the black – but still suffered a 72% decline in net profit.
A true boutique, with a handful of aging partners, can make a nice living by landing a few mandates from longstanding relationships. As the downturn bites, restructuring deals will make up some of the M&A shortfall. But even baking all that into the equation, the fee pie doesn’t look big enough to feed all these hungry mouths.
