By Anjuli Davies and Pamela Barbaglia
LONDON, Aug 14 (Reuters) - Boutique advisory firms nowreceive nearly half of all mergers and acquisition fees inEurope, stealing market share and top dealmakers from globalinvestment banks hamstrung by a renewed focus on cost-cuttingand regulations on how much they can pay.
Founded largely by veterans fleeing bureaucracy andshrinking paychecks at the large banks, these low-profile smallfirms are proving popular among companies who value their nicheexpertise and independent advice as opposed to mega-banks whotend to cross-sell other services like financing.
Advisory boutiques have captured 44 percent or $1.7 billionof total completed M&A deals fees in Europe, Thomson Reutersdata collected up to August 10 shows. Boutiques based in Europecaptured 24.9 percent, or $964 million, and other boutiques tookthe other 19 percent, or $728 million.
That compares with 42.8 percent for the whole of 2015, 30.5percent at the height of the last M&A boom in 2007 and 20.1percent in 2000, when Thomson Reuters began recording the data.
The data excludes some of the massive deals of 2015 thathave not yet been completed, including Anheuser-Busch InBev's $100 billion-plus merger with SABMiller.
"We are not trying to sell multiple products. Our sole focusis on high-value-add advisory business, and as such we have noconflicts," Pieter-Jan Bouten, managing director at Greenhill,one of the early U.S.-based boutiques to set up in Europe, toldReuters.
Boutiques are defined as firms earning greater than 85percent of their fees from M&A and equity capital marketsactivity (ECM), with M&A accounting for at least 70 percent ofthat wallet.
"With the number of boutique firms occupying M&A leaguetables at its highest since the 1980s, we can expect theattractiveness of independent advisories (for job seekers) onlyto increase," said Alex Howard-Keyes, Head of WholesaleFinancial Services at Alderbrooke, the executive search firm.
CROSSING THE ATLANTIC
Boutiques have made more progress in stealing business frominvestment banks in Europe than in the United States, where theyaccounted for 27.5 percent or $2 billion of total completed M&Adeals fees so far this year.
As a result, more American bankers are crossing the Atlanticto set up shops in Europe and poaching top dealmakers.
In July, U.S. boutique bank LionTree, founded by former UBSbankers Aryeh Bourkoff and Ehren Stenzler in 2012, hired JakeDonavan from JPMorgan in London to be president ofLionTree Europe to grow its business in the region.
In 2015, PJT Partners, an independent financial advisoryfirm led by Paul J. Taubman, the former senior Morgan Stanley dealmaker in New York, hired a raft of bankers to buildout his European arm.
Last year former senior Goldman Sachs investment bankerGordon Dyal launched his own boutique Dyal Co, which thenemerged as the lead advisor to Switzerland's Syngenta on its sale to ChemChina.
"Looking ahead, Donavan's move could be the tip of theiceberg when it comes to sell-side switches if we see a furtherproliferation of M&A boutiques," Howard-Keyes said.
Boutiques range from established firms like Lazard andRothschild to "micro" outfits such as Zaoui & Co, an advisoryfirm set up by brothers Michael and Yoel, and Robey Warshaw, setup by Simon Robey and Simon Warshaw, former Morgan Stanley andUBS bankers, both based in London.
Bankers who leave for these boutiques stand to earnpotentially more money if they make a success of it, free from acap imposed by the European Union after the financial crisisthat stipulates that bank bonuses can no longer exceed 100percent of fixed salaries, or twice that with shareholderapproval.
Robey Warshaw, which worked on the BG Group and Shellmerger, has earned $42 million in fees on completed deals in theyear to date, ranking it fifteenth in the league tables inEurope, above HSBC, Societe Generale andMediobanca.
The figures do not include fees it expects to reap for itswork advising SABMiller and most recently having advised Japan'sSoftBank on its acquisition of ARM.
"Boutique expansion is a direct consequence of bulgebrackets paying less, adding layers of bureaucracy and adminwork for senior people," said one New York-based boutiquebanker, using a colloquial expression for the top banks. "In anutshell working for a bulge bracket is no longer fun."
FINANCE MUSCLE
Large banks tout their financing muscle as well as theirprowess in areas ranging from currency hedging to treasurymanagement to win big M&A assignments.
But for many M&A bankers this just means having to fend offother departments and deal with more bureaucracy.
"A coverage banker at a bulge-bracket is essentially aglorified salesman," said a second boutique banker.
To be sure, some of Wall Street's biggest M&A banks stillmaintain a dominant share of fees in Europe, with Goldman Sachs, JPMorgan and Morgan Stanley in the topfive in terms of fees earned so far this year.
Advisory revenues across European investment banks CreditSuisse, Deutsche Bank and UBS fell21 percent in the second quarter versus a year ago, however, andnone are in the top 10 for fees earned on deals completed so farthis year.
"Amid reduced advisory revenue at our competitor group, thetrend towards independent M&A advisers remains intact," saidGreenhill's Bouten.
"Year-to-date advisory revenue at Greenhill is up 16percent, whereas advisory revenue at the big five U.S. banks isdown slightly and the big European banks are down more."
Boutiques on both sides of the Atlantic may struggle toreplicate 2015's phenomenal growth in worldwide M&A as activityslows, however.
Megadeals drove global volumes up 41 percent to $4.6trillion in 2015, but European volumes were up a meagre 6percent to $880 billion from a year earlier and have sunk 20percent to $409 billion so far this year, Thomson Reuters datashowed. (Editing by Sinead Cruise and Sonya Hepinstall)
