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The new route to big money in M&A: the hyper-niche boutique

M&A bonuses were down last year. And they will be down this year. With M&A MD at leading banks and boutiques contemplating the terrible challenge of living on their $500k salaries alone, a new route to financial nirvana is presenting itself: a judiciously timed jump to the right sort of niche firm serving the middle market.  

Gary Goldstein, the veteran New York banking headhunter and founder of search firm the Whitney Group, says this has become the preferred route to cashing-in. It’s not just that firms in this category compensate staff in direct proportion to the value of the fees they bring in; it’s that consolidation in the sector also offers an opportunity to cash out if the firm you join is acquired by a larger rival.

“If you’re in a big bank, we’re not talking about 2021 compensation anymore,” says Goldstein. “People are being recalibrated back to the pre-pandemic days.” With bonuses at big players unlikely to recover soon, more people are willing to risk joining firms in the upper-middle market where bonuses typically equate to 20-25% of financing revenues in a year, and 25%-40% of M&A revenues. These kinds of pay structures are appealing to bankers who are in big firms where compensation is a black box, says Goldstein. “At a big bank, you can have a $50m or a $105m year and see no difference to your pay.”

Mid-market firms with these kinds of pay structures are thought to include the likes of William Blair, Baird, Cohen, Piper Sandler and Raymond James. However, the real sweet spot isn’t joining one of these firms directly: it’s joining a hyper-niche boutique that’s then acquired by one of these firms as the banks serving the middle market consolidate.

“A lot of senior bankers today went to join firms where they have an equity opportunity,” says Goldstein. “If that firm is acquired, it can mean significant wealth creation for the bankers concerned.”

How much money can be made when a mid-market firm acquires a niche boutique? In 2019, Nomura paid $92m for Greentech, the boutique founded by banker Jeff McDermott, who left again last month. Similarly, last year Piper Sandler acquired DBO Partners and its 23 technology-focused bankers for $66m. Boutiques matching the new criteria include the likes of Dean Bradley Osborne, another technology-focused boutique on the West Coast.

And if you can’t join an existent hyper-niche player? Goldstein says some senior bankers are contemplating forming new niche players of their own: “People are thinking, ‘Jeez, why don’t we get together and do something like this ourselves,” he reflects.  

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Photo by Derek Thomson on Unsplash

AUTHORSarah Butcher Global Editor

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