Globe & Mail: How to build a successful boutique investment bank

April 4, 2016
TIM KILADZE
Posted with permission from The Globe and Mail
Origin Merchant Partners has grown in a period when many rival dealers closed down

In one of the roughest markets for independent invesment banks in decades, Canada’s boutique dealers are often considered to be collectively screwed. Origin Merchant Partners’ success illustrates the extent to which those fears can be overblown.

Founded five years ago, the small advisory firm has grown to become one of Canada’s largest boutiques, with more than 20 people on staff, and has inked 35 transactions – half of which have closed since May, 2015, a period in which many rival dealers closed down.

The boutique is now also beefing up its advisory board by adding former federal finance minister Joe Oliver as chairman. Members of such boards are often compensated with a percentage of fees they bring in.

Other boutiques have proven to be successful – INFOR Financial Group had a strong first year, and the likes of Morrison Park Advisors have withstood shocks such as the global financial crisis. But Origin’s good fortune in particular offers some valuable lessons for anyone considering starting their own shop – a trend that is catching on in Canada as more successful U.S. bulge bracket bankers branch out on their own.

The first lesson: Spread yourself across sectors. Most struggling boutiques are heavily focused on resources, while Origin has bankers with expertise in a range of industries, particularly diversified. After that, relationship managers must realize they need to win business with their ideas. “We rely on our creativity,” explained managing director Sean McIntyre. “On the bank platform, individual bankers will recycle the same pitch to the same client over and over again,” hoping they will win business by virtue of lending money to the same company.

Origin also quickly realized the risks that come with chasing big fish. “The big mega deals are few and far between,” Mr. McIntyre said. “To spend your entire focus on them isn’t practical.”

“When we first set up our shop, we got involved in a multi-billion-dollar, cross-border M&A deal,” said managing director Jim Osler. Early on it looked promising, but they were working with a potential buyer, and the bid ultimately wasn’t successful. “It sucked the life out of us doing that work.”

Origin still does deals of size, including Westerkirk Capital’s $900-million sale of two regional shopping centres in Quebec, but it is also happy to work with small- to mid-market companies.

Recruiting can also be tricky. Going up against the big banks to hire top students fresh out of business school is tough, because they are attracted to the big brand names. Origin is strategic about when it tries to hire. “The reality is, we have no problem getting second-, third-, fourth-year professionals who are fed up” with the grinding hours and the bureaucracy at a big dealer, Mr. Osler said.

And to keep staff, managing directors try to make life as fun as possible. Whereas events such as offsites have largely been cut by large dealers to reduce costs, Origin holds skiing offsites and has taken employees axe-throwing, for one, to instill a small Silicon Valley vibe.

Boutiques must also learn to embrace an ugly truth: In the war for ideas, clients sometimes hear them out but then hire a bigger bank to execute. After pitching something, “there’s a better than 50-per-cent chance the client calls up the bank and asks what they think,” Mr. Osler said with a rueful chuckle.

Get in contact with us.

Call us or submit an inquiry online.