The new norm
A four-tiered structure is emerging in the middle-market investment banking industry—all of which exists below the radar screen of the average bulge bracket firm:
1. National full-service middle-market firms
A small handful of firms (such as R.W. Baird, William Blair and Piper Jaffray) have established national practices with a broad range of industry verticals. Some of these firms have related wealth management or private equity arms and are often descended from old-line financial or brokerage firms.
2. National advisory-only firms
There's been significant consolidation among these companies over the past year, with Big Four accounting firm Deloitte swallowing McColl Partners, and Piper Jaffray acquiring Edgeview Partners.
3. Single-industry boutiques
Some firms have narrowed their exclusive focus to a single industry, ranging from biotechnology and media to basic industries. These firms tend to be based in single offices and have small teams of a few dozen bankers or less.
4.Small generalist firms and individual proprietorships
A danger zone of generalists and "single shingle" bankers. These players still exist in the market and get small deals done from time to time, but these regional and "lifestyle" firms are increasingly struggling in a tight and competitive landscape.
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My national advisory-only firm recently completed a merger with San Francisco-based MidSpan Partners. We believe it lets us be more focused on specific-industry verticals, most of which are technology-enabled in one form or another. It gives us a national footprint—critical in the less and less regional, more and more liquid middle-market deal world—and it puts us more in tune with the future we see emerging.
Even though my firm is trying to respond to what we're hearing from the marketplace, it's not always clear that Wall Street's way of sorting the world is appropriate for all middle-market clients. The criteria for hiring a good middle-market M&A advisor still rests on the track record of the firm and the specific bankers involved, experience in the quirky turns that smaller M&A transactions can take, and the amount of attention and bandwidth the client company can realistically expect to receive for its deal.
With increasingly active universes of middle-market private equity firms and earnings-growth-hungry public companies, the quick pace of middle-market M&A deals is likely to increase in 2014. Market leaders in the oft unseen world of middle-market investment banking will have to find a way to keep pace.
—By Mike McGill, co-founder and managing director of MHT-Midspan, a Dallas, Texas–based middle-market investment bank, and member of the Young Presidents Organization
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