Can you have a good year without closing a lot of deals?

I am a Senior headed to a specialized boutique investment bank in New York. I was wondering what your thoughts were on gauging profitability of private boutiques. The firm I am going to work for has only closed one deal so far in 2010, and it was relatively small for them. Usually they are a juggernaut in their sector, but lately it seems like their competitors are closing far more deals. However, I know some of the analysts and associates and they are working around the clock even more than usual. Are closed deals really a good measure for how well a firm is doing? I know this particular firm has been doing more buy-side lately. Is there any way to tell whether or not they have done well so far this year? Is it conceivable that they are doing great, just haven't closed much? I guess my question is how close is the correlation between closed deals and fees collected?

Comments (10)

Mar 19, 2010

are you kidding me....where else can they get the money from? pull it out of thin air?

Mar 19, 2010

Correlation between closed deals and fees collected is likely close to 1. The size of the deals can make a difference, but other than that if they aren't closing they aren't doing well..

Mar 19, 2010

No I was not kidding you. And I agree that if a boutique isn't closing deals, the perception is that they aren't doing well. However, I am not sure I believe that the fee correlation is close to 1, but I could be wrong.

Since it is a specialized firm, I was thinking along the lines of retainer fees from buy-side firms and retainer fees from companies "pursing strategic alternatives". Also, they have a solid restructuring presence in their specialized market. So I thought they might be collecting fees in that area is well without necessarily closing any deals or disclosing any relationships.

I don't have a good sense of how often bankers, particularly those at boutiques with and industry specialty, get paid for things other than closed deals.

Mar 19, 2010

Yes, they can.

Some boutiques are more advisory oriented than transaction oriented. This is mostly true for very small shops. These places are often referred to business valuations shops, where they basically get paid to provide an opinion on something. The big pops are obviously in closing fees / retainers.

Mar 19, 2010

Thanks MoneyKingdom- interesting take. This is a very small firm, 4 person analyst classes. Hopefully they are making money in the opinion game.

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Mar 19, 2010

From what I've seen at M&A boutiques, retainer fees barely cover expenses and are often credited against the success fee. Unless the engagement is structured differently, you usually don't generate any substantial revenue until you close the deal. Therefore, I would think correlation between fees and deals closed is very close to 1.

It's possible that they have a few deals very near closing, but are just having a slow diligence process. If that's the case, they'd still be very busy like you mentioned, and come next month or so, might close several deals within a matter of weeks. Give them some time, if they stil haven't closed anything in a few months, then I'd start to get concerned.

Mar 19, 2010

A nice bit on ibankers giving advice, compensation and nature of the business:

http://epicureandealmaker.blogspot.com/2010/03/psy...
Ah, found it! Even more on fees and where the big bucks are to be made:

http://epicureandealmaker.blogspot.com/2008/02/pen...

Mar 19, 2010

No deals = no money. Investment banks are in the deal closing business, not the working hard for no money business. How hard people are working is completely irrelevant. Deal flow is the one and only consideration to think about with a boutique.

Mar 19, 2010

Just because they aren't working on any deals doesn't mean you don't have to work. You still have to WORK to get deals started.

Mar 19, 2010
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