Opinion on COVID impact on IB Boutiques

I am an avid reader of Bloomberg's Matt Levine's "Money Stuff" daily newsletter (10/10 recommend subscribing ). Today's edition also discusses the impact on the M&A markets and how IB Boutiques are dealing with this pandemic and I thought this might be insightful for most users on this forum.

Here is the excerpt:

There is a Financial Times article titled “What does an M&A boutique do when the deals dry up?,” and I assumed that the answer would be “golf.” Mergers and acquisitions advice is a lumpy business; some months you do a huge deal and make a $100 million fee; other months you do no deals and spend your time on planes going to low-probability meetings with small potential clients. If there are no deals and you’re not getting on planes, that leaves golf. The big fees in the good times subsidize a lot of plane tickets in bad times; in very bad times, you’re not buying plane tickets and the money goes even further. If you are the head of an M&A boutique, you are not insulated from a downturn by having other business lines that pick up during the downturn; you are insulated from a downturn by making a whole lot of money during the good times and not having a lot of fixed costs. You just, you know, spend the money.

Well, fine, you have one other business line that picks up in downturns:

Above all, the fortunes of the independent investment banks — whose founders typically left large institutions to strike out on their own — now depend more than ever on whether they can mitigate the drop in M&A revenues by helping companies to restructure and giving them strategic advice on how to navigate the crisis.

Shares of PJT and Houlihan Lokey — which have prominent restructuring practices — have risen this year. Evercore, Lazard and Greenhill — which are more vulnerable to a downturn in traditional M&A — are down between 24 per cent and 42 per cent.

Restructuring is kind of like M&A, in that it often involves selling bits of the business to be restructured, and in that it is a high-stakes, high-fee, advisory sort of business. If you can do both well, then you do mergers in the good times and restructuring in the bad times and are always busy.

More generally, the M&A advisory business itself is really two businesses:

Befriending corporate chief executive officers, having dinner with them, doing them favors, giving them advice on strategy and corporate finance and investor relations and industry dynamics and family and personal finances, and generally being a smart trusted person whom they call with their thorniest problems; and
Occasionally buying or selling companies for them and collecting enormous fees.
The first part occasionally brings in some revenue: If you’re an M&A banker at a big bank you might get some credit for referring a CEO to your debt capital markets or private-wealth divisions; even at an advisory boutique you might pick up some sort of paid strategic-advice assignment. The second part is much more lucrative; mergers tend to be bigger than other corporate transactions, and more important, so clients are willing to pay a lot to get them right. If you could only do the M&A part, and not the advising and hand-holding and baby-kissing part, you would have a much more efficient business. But you can’t. If a CEO calls you up in the middle of the night and says “my largest shareholder is criticizing our environmental record, what should I do,” and you reply “I am going back to bed, call me when you’ve got a merger to do,” she will not. She’ll call the banker who is helpful all the time, even when she’s not paying for his help. The M&A fees don’t just pay for the merger advice; they pay for all the other, free advice along the way.

So good M&A bankers don’t think of the M&A drought as an M&A drought; they think of it as an opportunity for client bonding:

Effectively, the top rainmakers at the boutiques are trying to turn relationships they have developed with chief executives over deals into all-round consiglieri roles, advising on anything from M&A to picking the best debt provider or how to face a geopolitical crisis.

The goal is to make themselves essential to clients, who during hard times might be inclined to reward larger Wall Street firms for extending much-needed financing through the crisis. Most

Except that it’s not a client bonding opportunity in one respect, which is that you can’t actually go see the clients:

Peter Weinberg, head of Perella Weinberg Partners, said the firm had won new clients since the coronavirus outbreak without meeting clients in person — “but it’s hard”, he added.

Blair Effron, co-founder of Centerview, one of the fastest-growing boutiques, said that there was still an “opportunity to continue to expand and invest” during the crisis. The firm was “selectively trying to figure out” where it could add clients in a world where forging bonds was “harder”