The rise of boutique investment banks recently was highlighted by Fortune, which discussed one of the top players in the space: Centerview Partners. Centerview has provided advisory services on mergers & acquisitions for companies like PepsiCo (NYSE:PEP), Pfizer (NYSE:PFE) and Kraft (NASDAQ:KFT).
But will the boutique move in on the IPO market?
Boutiques certainly have some advantages, perhaps the most important of which is independence. It definitely helps to not have conflicts with the trading department (hey, the traders may have a short position in the client’s stock!)
And naturally, sound, unbiased advice can be a huge help for an IPO. Just look at the case of Facebook (NASDAQ:FB) and its clutzy offering. In light of FB’s plunge, it looks like its lead banker, Morgan Stanley (NYSE:MS), failed miserably at valuing the company. The same looks to be true with other IPOs like Groupon (NASDAQ:GRPN) and Zynga (NASDAQ:ZNGA).
Still, major Wall Street bankers likely will maintain their hold of public market deals.
The fact remains the big-time firms have access to extensive networks of investors spanning the globe. And their trading departments still are sources of demand — even if all of the trades won’t always be bullish.
You also shouldn’t discount the brand power wielded by names like Morgan Stanley and Goldman Sachs (NYSE:GS) in financial services. Naming these titans as your underwriters certainly seems more impressive — perhaps more worthy of “Street cred” — than an obscure firm.
Specialized boutique firms still serve a purpose, especially when it comes to M&A, which requires brilliant negotiating strategies and reaching out to the right suitors. But IPOs are a much tougher nut to crack. Wall Street firms need scale to raise hundreds of millions of dollars for deals, which usually means having a global footprint and extensive operations — something most boutiques just can’t provide.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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