L.A. is the land of the boutique not only in clothes, but in brokerage firms and investment houses.
Whether it’s the weather or the entrepreneurial climate, Los Angeles has proven to be fertile ground for small firms that specialize in specific sectors, often catering to Southern California businesses.
“L.A. attracts entrepreneurial people, given the business climate, the weather and the universities,” explained D. Michael Van Konynenburg, president of Secured Capital Corp., a West L.A. real estate investment boutique. “Quality of life is a big factor, especially given how many boutique founders came from major Wall Street firms.”
Once a few respected people make the quality-of-life move to Southern California, others follow, he adds. “People like that,” he says, “like being around other smart, entrepreneurial people.”
And they bring with them the expertise gained at the bigger investment houses, adds Stephen A. Koffler, president of Koffler & Co., a boutique brokerage firm in West L.A.
“It’s one thing to come up the ladder as a single guy knocking out deals,” says the former Merrill Lynch broker, “and another to get the experience in capital markets and mergers and acquisitions that you get at the larger firms. They provide a great deal of experience that you probably can’t get on your own.”
Once that national-firm training has been gained, Wall Street veterans often migrate to Southern California because there’s less prejudice against newer firms here than on the East Coast, said Russell Belinski, managing director at Chanin & Co., a West L.A.-based boutique.
“There’s less of a focus on history here,” he explains. “There are more people who will accept a younger firm, one that doesn’t have a nameplate saying it’s been around for 150 years.”
In general, boutique investment banks are regional in nature, dealing with local companies with whom contacts have been established. Usually, boutiques have fewer than 20 bankers, and often five or less. Many are one-person shops.
Boutiques usually handle smaller deals than national or big regional firms.
Whereas a Donaldson, Lufkin & Jenrette Securities Corp. might shun any deal under $200 million, boutiques, generally speaking, don’t handle deals of more than $100 million, and often stick to deals of less than $50 million.
There are as many different sizes and types of boutique investment firm as there are executives starting them up. But many, according to Van Konynenburg, are headed by veteran pros who have left large national firms.
The boutiques tend to concentrate on offering a higher level of personal service. Clients typically find themselves being serviced more directly by fewer, more-senior brokers who manage all aspects of the client’s business. Large national firms often assign more, but lower-level, staffers to a client.
Belinski of Chanin & Co. agrees that personalized service is most boutiques’ stock in trade.
“You hire Merrill Lynch and they’ll do a fine job,” he says. “But if you’re a mid-market company, one with annual sales of $500 million or less, you’ll get a first-year associate doing your case. You’d be unlikely to see a managing director.”
Hiring a boutique firm gives mid-market companies access to “senior-level people committed to the transaction,” Belinski says. “Everyone here is a former senior-level executive at one of the major firms. By hiring a boutique, you get the same talent you would at the larger firms, but you’re the focal point.”
Bankers at the major firms take issue with that view.
“The full-service firm is made up of individuals, and (a client company chief executive) can develop a one-on-one relationship with them,” said Ken Moelis, executive vice president and head of corporate finance nationwide at Donaldson Lufkin & Jenrette. “Plus, we have the muscle, we can distribute (sell debt or equity) in a deal.”
At DLJ, every professional is “first-rate,” according to Moelis, and senior proessionals pay close attention to every deal. “This is a client-driven business,” he said.
In general, major investment banks charge fees that are a certain percent of the deal’s value, such as 2 or 3 percent of a high-yield bond offering. Boutique firms, by contrast, often work on deals which are too small for that form of compensation to be economically feasible. Often, a boutique firm will take equity in a company, sometimes in the form of warrants or options, in addition to percentage fees.
While boutiques indeed sometimes manage enormous transactions, they’re not all aspiring to become the Smith Barneys of tomorrow. “Boutiques stay boutiques because that’s how they like to do business,” says Van Konynenburg. “They feel they have a competitive edge, and the people who work there appreciate the autonomy and the entrepreneurial spirit.”