Lower-Middle-Market IBanking is not for the Faint of Heart

Lower-Middle-Market IBanking is not for the Faint of Heart

It appears that Montgomery & Co. has shut the doors to its M&A Advisory practice. It was less than two-years ago I sat on a plane next to a high level banker from that firm and he told me that “things were great!” We were in one of the worst recessions of our lifetime, so how could things be great?

Since that encounter, I always wondered how that company or any large boutique investment bank could carry so much overhead, so many people, and have so many lavish events. How sustainable is Allen & Co.’s model? I hate to say it, but there are tons of boutiques now and our services are becoming a commodity.

There were about 20 boutiques when I started my career in 1995 and I read in M&A Magazine that there are more than 2,000 now. CEOs are getting smarter, VCs and PEs have access to more information about verticals, and more boutiques mean that there is a surplus of M&A Advisors, thus has a dampening effect on price.

I have always said that I differentiate my firm on better service and lower fees. I guess it sounds too good to be true, but it is. Clients get exceptional middle-market investment banking service without paying outrageous fees. (It’s my blog, I can plug my firm.)

It is only human nature to think that the more expensive product is the better one, but not in middle-marketing banking. The more you pay, oftentimes, means the less service you get. We are coming out of a recession and many companies are “dating out of their league.” This means that investment banks have lowered their standards and come downstream to work on deals they are not enthusiastic about primarily because they have these bloated infrastructures.

Lower enthusiasm for a deals will be reflected in the outcome. Typically the firm collects a large retainer, has a junior staffer work on the deal with a short target list and then the banker says to the client, “the market has spoken,” which is code for “Take it or leave it. I have to move on to the next deal.”

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