Goliaths Go Down, Boutiques Rise Above

Francesca Bartolomey, Updata Advisors

While the US has been in the midst of the current financial crisis, much ink has been spilled over the deaths of investment banking behemoths and of Wall Street as we know it. But as Wall Street titans go down one after another, boutique investment banks that specialize in M&A advisory are well-positioned to reap the spoils. Although M&A deals already vastly outnumber initial public offerings as an exit strategy, this spread will likely expand as the market remains hostile to IPOs and more companies see their stock values fall pushing them into the arms of acquisitive tech vendors.

While valuations may fall as a result of the volatility of the stock market, it all may even out as more companies look to be sold to larger technology companies. And those large tech companies are still voracious buyers. As we have noted in a previous blog post, large technology companies such as Microsoft, HP, and Cisco have been taking advantage of the economic downturn by shopping for target companies in order to augment their growth and bolster their product offerings. What’s more, despite the events that have taken place on Wall Street since that post, some tech giants report that their M&A strategy will continue unabated. At OpenWorld, Oracle’s president Charles Phillips, Jr. suggested that Oracle will continue its aggressive acquisition strategy.

While it’s unclear whether the really huge deals (like HP’s $13.9 billion bid for EDS or Oracle’s $7.2 billion acquisition of BEA Systems) will increase or decrease in the current economic climate, it is possible that the next few quarters will see increased M&A activity in the smaller (couple hundred million) deal range. This is the sweet spot for boutique investment banks that specialize in mergers and acquisitions advisory. Additionally, top MBA talent is flocking to boutique investment banks as opportunities for employment dry up at their larger brethren. Armed with top talent and largely insulated from the credit crisis plaguing bigger banks, boutiques may well come out on top during this time of economic uncertainty.