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Boutique vs. Big Banks: Why Sellers Should Opt for Boutique Financial Advisors in M&A Transactions

Dalma Capital

20 March 2023
By Zachary Cefaratti

In the complex world of mergers and acquisitions (M&A), choosing the right financial advisor is crucial for achieving the best outcome. While large financial institutions may seem like the right choice, boutique advisors offer unique advantages for sellers and are typically the better choice. In this article, I will share the reasons why sellers should consider hiring boutique financial advisors over large institutions, focusing on potential conflicts of interest, the motivation to maximize value, and the importance of relationships in the M&A process.

Conflicts of Interest in Large Financial Institutions

Large financial institutions may face conflicts of interest that can negatively impact the seller’s position in an M&A transaction. These conflicts can arise from various sources, such as:

  • Existing relationships with potential buyers: Large banks may have ongoing direct or indirect business relationships with potential acquirers, which could compromise the bank’s ability to negotiate aggressively on behalf of the seller. This conflict is particularly pronounced for entrepreneurs or families selling their company, as the bank will see that family as a one-off client but the buyer could be a source of repeat business

  • Financing arrangements: Large financial institutions may also provide financing for M&A transactions, creating a potential conflict between their roles as advisor and financier.

Boutique advisors are less likely to face these conflicts, as they tend to have fewer relationships and do not provide financing services. This enables them to focus solely on their role as an advisor, advocating for the seller’s best interests throughout the transaction. A good boutique advisor will have access to multiple financing options, and will be more creative and aggressive in seeking the best financing option for the deal.

The Motivation to Maximize Value

Boutique financial advisors can be more motivated to maximize value for the seller in an M&A transaction for several reasons:

  • Performance-driven compensation: Boutique advisors often have compensation structures that are more closely tied to the success of the transaction, incentivizing them to secure the best possible deal for the seller. In a boutique advisor, a much higher percentage of fees flow to the team directly involved in the deal than at a big bank

  • Reputation and deal flow: Boutique firms rely heavily on their reputation and track record to attract new clients. As a result, they are highly motivated to achieve strong results in every transaction, which can translate to better outcomes for sellers.

  • Focused expertise: Boutique advisors typically have specialized industry knowledge and experience, allowing them to identify value drivers and tailor their approach to the unique needs of the seller

  • Long-term results orientation: Boutique firms tend to be driven more closely by their owners, who are more concerned with long-term success and less focused on quarterly results or short-term targets. They are more likely to provide the best advice to the client, and less subject to internal pressures

  • Lower turnover: Boutique firms today are less likely to have turnover. With large banks downsizing staff, the risk of losing a key team member on a deal is high.

  • Reduced up-front costs: Large banks will typically require sellers to hire a host of external consultants with a large scope of work. While vendors may also be necessary with a boutique firm, the boutique will often shoulder much of the scope by doing work internally, and will help negotiate more aggressively with vendors to reduce costs.

When Boutique Advisors are Absolutely Necessary

Small companies and those without a strong track record in (M&A) often face unique challenges when navigating the complex M&A landscape. In such cases, boutique financial advisors can provide the tailored support and expertise needed to ensure a successful outcome. I will write another article explaining why small or less experienced companies with regard to M&A should always opt for boutiques.

People and Relationships Matter

In M&A transactions, the process and relationships are critical drivers of success. While large financial institutions may have extensive resources at their disposal, it is ultimately the people you work with, not the institution, that determine the results. Boutique advisors offer several advantages in this regard:

  • Personalized attention: Boutique firms typically have smaller teams, which can mean more direct access to senior-level advisors and a higher level of personalized attention throughout the transaction. They also may be more flexible in lending other resources to the

  • Stronger relationships: Boutique advisors often have deep relationships within their areas of expertise, which can be instrumental in facilitating introductions and generating interest from potential buyers.

  • Better communication: Smaller teams can lead to more efficient communication and coordination, reducing the potential for miscommunication or delays in the transaction process.

When it comes to selecting a financial advisor for an M&A transaction, sellers should carefully consider the unique advantages that boutique advisors can offer over large financial institutions. By choosing a boutique firm, sellers can benefit from a more focused, personalized approach, free from potential conflicts of interest, with a stronger motivation to maximize value. Additionally, the people and relationships that boutique advisors bring to the table can play a pivotal role in ensuring a successful outcome in the complex world of M&A.

Cant Decide between a boutique and big bank?

Opt for a co-mandate. In many cases, you can appoint 2 advisors to help. Opting for one big bank and one boutique could offer a hybrid solution. Try to be sure that they add unique value, for example one advisor can be a regional expert and the other a sector expert.

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