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The Resurgence of Boutique Investment Banks

November 27, 2013 -- Palm Springs, CA

Since the financial crisis of 2008, the investment banking industry has seen plenty of changes, including increased regulatory scrutiny, the acquisition of numerous middle market firms, and changes to the dynamic of providing bundled services to clients. Each of these factors has contributed to the resurgent presence of boutique investment banking firms relying on pure advisory services to clients.

These boutiques are often founded as one-person or two-person firms, started by veteran investment bankers with a depth of experience serving companies in particular industries or areas of the country. The core value proposition provided by a boutique is based on forging strong relationships with clients and the ability to give advice absent the appearance or existence of conflicts of interest, a problem that often faces larger firms which are attempting to broadly serve all companies in a given industry.

This trend has taken hold not only in the traditionally large investment banking markets of San Francisco and New York, but throughout the country including smaller markets such as Charlotte, Denver and Austin. With the emphasis of this model on providing exceptional, senior-level service to client executives, there is an advantage to proximity and local market knowledge. In Austin, one of America’s most rapidly growing markets, Whitehawk Advisory provides an excellent example of this trend.

Whitehawk Advisory is lead by veteran technology investment banker Alex Klingelberger, who started the firm in 2009 to focus on serving technology companies both in Texas and in other underserved markets. Klingelberger states, “The element of providing unbiased advice to CEO’s and company owners was the basis for this business when it first became a recognized part of the financial services industry 40 years ago. The need for that type of advice is as great now as it has ever been in the past.”

Advantages of boutique model

Aided by technology platforms and tools that are enabling boutique investment bankers such as him to provide analytics and M&A process efficiency on par with some of the largest firms, Alex Klingelberger describes the flexibility and advantages of operating more independently. “It enables you to focus to a greater extent on specific transactions and remaining committed throughout the process. You see many firms feel pressure to accept a large volume of engagements simply to support their infrastructure costs using retainer income – that kind of pressure doesn’t exist for a boutique so it’s possible to concentrate on a limited number of high quality clients.”

One of his recently closed transactions, in which Klingelberger advised leading construction software company On Center Software on its majority equity investment by Accel-KKR last month, demonstrates that boutiques are capable of completing transactions with some of the largest private equity investment firms and strategic buyers in the country.

Advisory success based on attention to relationships

The basis for success of these firms ultimately derives from the personality and skill of the individual investment banker. As Alex Klingelberger states, “The ability of any firm to add significant value for a client almost always comes down to one individual – the banker leading a deal team. Large firms understandably sell services based on their brand and the number of professionals they have, but the personalized nature of service to clients makes it very difficult to extend most value creation beyond the relationships established between an individual advisor, the client, and the buyer.”

While the ability to effect complicated transactions for businesses in this range, typically valued at $10 million to $100 million, clearly depends on a combination of financial acumen as well as process discipline, Klingelberger claims that the differences between advisors which succeed to different degrees derive from more basic skills such as listening as well as the ability to empathize with and resolve problems presented by different constituents such as ownership, management and counterparties.

Having completed nearly 25 transactions with an average value of over $20 million during his career, Alex Klingelberger has certainly experienced the validation of maintaining this client-focused philosophy. We should expect to see him and other high quality boutique advisory firms continue to experience success as the focus on companies operating in the lower middle market continues to expand.

 

This article appeared in the Palm Springs Technology Examiner at http://www.examiner.com/article/investment-banker-alex-klingelberger-discusses-the-resurgence-of-boutiques

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