Not so long ago, the landscape of players advising on M&A transactions on French soil was quite clear. There were the investment banks who integrated into the large traditional banking groups and then a few pure players, also known as “boutique banks”, notably Rothschild & Co and Lazard.
The integrated investment banks rely on the group’s vast client base, built from their well-established geographical coverage and large workforce, as well as their multiservice “one-stop shop” approach for their clientele remaining as an unquestionable boon in their quest to gain market share.
Shareholders wishing to buy or sell companies are promised discretion during the transaction process, when advised by boutiques. But they run the risk of conflict of interest when using an integrated investment bank as one’s advisor.
Shareholders are concerned about the fact that traditional banks use their own balance sheets for their financing and capital markets activities. This is the very essence of their business model to which are added the fees obtained during advisory mandates, of which mergers & acquisitions are part. While the non-disclosure of information is governed by the virtual “Chinese Wall”, doubts can persist as to the objectivity of the M&A advice offered when a bank is also involved in the financing of the same transaction.
The rise of French boutiques
The international banking crisis in 2008 did not help matters. The tightening of regulations – the transition from Basel II to Basel III at the end of 2010, forced banks to limit their financing in certain risky asset classes to improve their solvency ratios (notably the CET1 ratio).
This phenomenon has encouraged many star bankers from integrated investment banks to join, or even create their own independent investment banks or commonly known, ‘’boutiques”. In addition to attracting clients looking for discretion and independence, choosing an entrepreneurial journey brings several personal advantages for these maverick bankers: implementing their own culture internally, gaining flexibility with faster decision-making but also looking forward to getting higher bonuses when results are good.
Before the financial crisis, the boutiques accounted for less than a third of the M&A advisory market in Europe. By the end of 2017, they had almost caught up with integrated investment banks (Les Echos, 23 October 2017, according to Thomson Reuters statistics).
Today, the increase in numbers of these boutiques has added to the arrival of numerous American entities (either boutiques or integrated investment banks) in France, which has placed the French M&A market under high competitive pressure, forcing the boutiques to differentiate themselves through their specialization.
How the specialised nature of certain M&A boutiques given them a commercial edge during the COVID-19 pandemic?
There are many ways to specialise, stand-out, and gain market share: by deal size, by sector or through a diversification of transaction-related services. In addition, the boutiques also develop their own deal-making and internal culture. Each boutique therefore develops its own DNA while they all often have one thing in common: their ability to be flexible. Something that may have been very useful for some players during Covid-19.
This was the case for Alantra, which was able to rely on its great adaptability during the pandemic, conveyed by its internal culture and taking advantage of its multi-product approach. Their international culture is well established since all the international offices belong to the listed holding company and therefore work for the same profit and loss account. As a result, the performance is calculated globally and not by country. “This encourages and rewards interaction between banker’s through the different international offices” says David Kieffer, Alantra M&A Vice President. The French team has led ten cross-border transactions closings this year, supported by its other international offices.
David explains that in Alantra, the spirit of new ideas is rewarded “a member of the team suggested to develop an interest in the world of video games (one sector that hasn’t suffered during the last year). We gave him the resources and autonomy to originate deals. It was a success, and he was very quickly joined by senior staff to develop this type of project”. In this respect, Alantra recently advised the two American founders of Saber Interactive, a leading independent developer of video games for computer, consoles, and smartphones, in the sale of the Group to the Embracer Group, a Swedish company, for $525 million. Another cross-border operation jointly led by Alantra’s Paris and San Francisco’s offices.
While Alantra’s Paris office has been flexible in focusing on the performing sectors – six closings within the healthcare sector and seven within the new technologies sector this year – it has also been able to be nimble with the types of services it can offer to clients. “When many deals were put on hold during the first lockdown, we didn’t let our clients down, whether it was by helping them with their finance needs or introducing them to tender offers. The stock market does not stop during the crisis”. It can’t be denied, the fall in prices has whetted the appetite of certain investment funds, previously unaccustomed to investing in listed assets.
Poised for growth in a post-COVID world
Bryan Garnier’s Paris office has confirmed its role as an expert in the healthcare space, which was particularly active throughout the last year. The European boutique, which generates most of its business within health and new technologies areas, fully assumes its sector specialization. This year, the French office notably advised Société Générale in the acquisition of Shine (a neobank dedicated to entrepreneurs) and INNOTHERA (an independent pharmaceutical group) in the acquisition of Gibaud (medical devices).
“We are recruiting passionate and expert profiles in these fields. For example, it’s not uncommon to have pharmacists and doctors converted into investment bankers within our team dedicated to healthcare. When you meet with neurologists or patients to discuss highly specialized medical topics, it can be very useful to perfectly understand the challenges faced” says Romain Ellul, investment banking Director within the healthcare team in Paris.
By focusing on this sector expertise while supported by its Equity Research division, Bryan Garnier is seen as a perfectly legitimate advisor to meet the different needs of its loyal customers. “Over several years, we are able to accompany a client throughout its history by advising it on its Series A financing, then covering its IPO and finally organising its delisting or an M&A transaction.” says Romain.
The Paris offices of Bryan Garnier and Alantra have both achieved strong results this year, despite the pandemic but they’re not alone. Over the last ten years, competition between M&A advisory players in Paris has increased. This means that to succeed, boutique firms need to develop their own DNA to differentiate themselves. Those that don’t keep up with the pace of change, risk being obsolete.