Corporations hire investment banks to accomplish some of the most significant financial transactions permissible in the markets. Some of these banks are institutions, and others are more niche-focused boutique investment banks. The boutique firms are smaller than the banking institutions but earn business based on the quality of the individual investment bankers. As a result, small boutique investment banks can be chosen by a company over a large banking institution strictly based on an executive relationship.
There are different reasons for a company to engage an investment bank, whether it is a large banking institution or a boutique firm. Some of those criteria include selling shares of equity or stock in the public markets for the first time and for subsequent times, raising equity or debt in the public markets in order to complete a major company event, such as an organic expansion or merging with another corporation. All of these endeavors require the skill of an investment bank, and many boutique investment banks have the muscle to complete all of these things.
The largest of investment banks typically are headquartered in major cities, but boutique investment banks often are located in smaller cities. For companies interested in doing business with a local boutique firm, this characteristic comes into play. There also are some boutique firms that have an industry specialization, such as energy. These firms will hire banking experts in the energy industry who have knowledge of deals and the way that an industry works. This differs from a large banking institution, which most likely does not specialize in any given sector but instead has a hand in multiple industry groups, although it might have divisions dedicated to each sector.
The fee structure associated with boutique investment banks is probably lower than the cost of hiring a larger firm. This might be a deciding factor when a company hires an investment bank. There are multiple cases, however, when a corporation will engage more than one investment bank. For instance, there could be a large investment bank and several boutique investment banks hired for a large transaction, such as a large-scale initial public offering or blockbuster merger. In this case, the bankers work together on behalf of the company to complete a deal.
Boutique investment banks are often an off-shoot of a larger banking firm. For instance, a successful banker at a large bank might decide that he or she wants to earn a greater share of profits on deals, or he or she might simply have an entrepreneurial spirit. In this case, the banker might leave the large institution and launch his or her own boutique firm, in which case the banker often will try to retain as many clients as possible from his or her previous employer.