How to value a boutique Investment Bank/Merchant Bank?

Assuming you're looking at a boutique bank which provides advisory services...Given how transient pretty much everyone in the field is, there isn't much value to a boutique bank because employees can simply take their relationships elsewhere and not share their fees with the "house."

very little payment up front, mostly paid via an earnout. All you are buying are client relationships.

jameshunt:

Assuming you're looking at a boutique bank which provides advisory services...Given how transient pretty much everyone in the field is, there isn't much value to a boutique bank because employees can simply take their relationships elsewhere and not share their fees with the "house."

very little payment up front, mostly paid via an earnout. All you are buying are client relationships.

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You're both right, but lets say I wanted to buy said firm, I would have to put a price to it. Would I use earnings multiples? What multiple would you use, since it's quasi impossible to find info on similar deals?

It's difficult to value because as the previous posters have said you're buying relationships. More importantly, you're buying the people; their talent and the connections they have.

From an Australian point of view, some good precedents may be John Wylie's firm before Lazard bought it or Caliburn before Greenhill bought it.

With those firms, there was some brand name associated with the firms in the local market. However, if there's no brand, it's probably better to think of them as an acqui-hire, similar to some tech startups now.

Say you were to buy this boutique advisory-focused bank. You know own 100% of the bank and get to keep everything after you pay your people/expenses. The more money you make, the greater the incentive for some of your more lucrative employees to go off on their own so they don't have to share with you.

If you have to value it, perhaps it would be best to just run a DCF which only goes out through the term of each key employee's employment contract, no terminal value.

Thanks for your advice guys. It's a Canadian company, and the closest i've found to a publicly traded company, resembling this bank are GMP and Canaccord. I'll try to make comparisons with these two...