Boutique banks have had a good run recently.
In the past year, small shops like Centerview Partners and Robey Warshaw have taken the lead on deals like the Kraft-Heinz merger last March and more recently Deutsche Boerse’s and the Intercontinental Exchange’s bids for the London Stock Exchange.
The conventional thinking on the rise of tiny banks is that it reflects the power of relationships that bankers like Blair Effron and Paul Taubman built over long careers at big Wall Street firms. They also promise a level of focus — working on only a handful of deals a year — that huge banks can’t offer.
Wall Street Journal’s Liz Hoffman this week fleshed out another explanation for the rise of the boutiques — and it has less to do with those firms themselves than with a looming problem within their larger rivals.
Essentially, Hoffman reports, bigger banks are ceding major deals to the boutiques because, amid a takeover boom, they face too many conflicts of interest with other clients.
Sometimes that’s because the bank’s own reputational risk committee, or other overseers of key relationships know to stay away from a potential client. A bank that values its relationship with a big client won’t risk that by working for a rival.
But often its the clients who make that decision for the bank after it’s already worked for someone else.
One example is JPMorgan, which the drugmaker Perrigo last year hired as an adviser to help dodge a takeover bid from Mylan. JPMorgan then lost Perrigo’s business after working on a separate deal — Allergan’s sale of its generic drug unit to Teva — which convolutedly had a positive impact on Mylan. Perrigo wasn’t pleased.
The fact that some industries have seen a lot of consolidation recently doesn’t help the bigger banks, either. Hoffman writes that one thing companies look at when hiring advisers is the past work they have done, and that gets messier and messier as companies combine or compete for fewer assets.
Boutiques aren’t quite so sprawled out, and face less of these problems.