Investment banks are commonly divided into three categories: boutique banks, middle market banks, and boutique bracket banks. Boutique banks are often further divided into regional boutiques and elite boutique banks.
Investment banks serve corporations and governments by facilitating complex financial transactions such as mergers and acquisitions (M&A). The classification of investment banks is primarily based on size. However, “size” can be a relative term; it can refer to the size of the bank in terms of number of employees or offices, or to the average size of mergers and acquisitions that the bank processes.
Boutique investment banks can be divided into regional boutiques and elite boutiques. Elite boutique banks sometimes have more in common with boutique banks than with regional boutiques.
Regional boutique banks
The smallest of the investment banks, both in terms of firm size and typical deal size, are what are known as regional boutique banks. Regional boutiques typically have no more than a handful to a few dozen employees.
Due to the small size of most regional boutiques, they typically do not offer all the services provided by the bump investment banks that are the largest investment banks. Regional boutiques may simply specialize in one area, such as handling mergers and acquisitions in a certain market sector.
Regional boutique investment banks typically handle smaller M&A transactions ranging from $100 million to $50 million or less.
As the classification implies, regional boutique banks have offices or operations that are limited or at least concentrated in a certain region of the country. Bank offices may even be limited to one city.
For example, a Texas-based investment bank with a single office and fewer than 20 employees that deals exclusively in mergers and acquisitions for oil and gas industry company, would be a regional boutique investment bank.
Regional boutiques may have clients that include large corporations based in their area of operation, but more often serve smaller businesses and organizations. These banks are unlikely to be involved in working with governments other than on a local or state basis.
Elite boutique banks
Elite boutique investment banks are usually quite different from regional boutiques. Elite boutiques are more like bulging group banks in terms of the dollar value of the trades they manage, which can exceed $1 billion, although they may also process some smaller trades.
They are also similar to bulge bracket banks in that they typically have a significant national and international presence, operating dozens of offices in different countries. But they typically lack the global presence of a major investment bank like JPMorgan Chase & Co. (JPM)
Elite boutiques are like regional boutiques in that they typically do not provide a full range of investment banking services and may limit their operations to dealing with M&A issues. They are more likely than regional to offer restructuring or asset management services.
Most elite boutique banks start out as regional boutiques and then gradually work their way up to elite status by handling a series of larger and larger deals for more prestigious clients. Some elite boutiques, such as Qatalyst Partners, are making rapid progress in their positions thanks to the reputation of the company’s founders in investment banking. Examples of well-known elite boutique investment banks are Lazard LLC, Evercore Group LLC, and Moelis & Company.
Middle market banks
It occupies a middle ground between smaller regional investment banking firms and massive investment banks middle market investment banks. Middle market banks typically work on deals that start at the regional level and rise near the bulge bracket, typically ranging from about $50 million to about $500 million or more.
Middle markets are also typically in the middle in terms of geographic reach, having a significantly larger presence than regional boutiques, but falling short of the multinational scale of bulging group banks.
Unlike boutique banks, middle market firms typically provide the same full range of investment banking services as boutique banks, including equity capital market and debt capital market services, a complete set of services in the field of financing and asset management, mergers and acquisitions and restructuring.
Some of the middle market banks are similar to regional boutiques in that they specialize in serving a particular industry or sector. For example, one of the more recognized mid-market investment banks is KBW, an investment bank that specializes in working with companies in the financial services sector.
Some of the best known middle market companies are Piper Sandler Companies, Cowen Group and Houlihan Lokey.
The bulging bracket banks are major international investment banking companies. Bulge companies are the largest in terms of number of offices and employees, as well as handling the largest deals and largest corporate clients.
The vast majority of clients are Fortune 500, if not Fortune 100, companies. Bullet bracket investment banks regularly handle multi-billion dollar mergers and acquisitions, although depending on the overall state of the economy or a particular client, a bulle bracket bank may sometimes handle deals in the low hundreds of millions.
Each of the bulge bracket banks operates internationally and has a large global and domestic presence. Major investment banks provide their clients with a full range of investment banking services, including trading, of all types financingasset management services, equity research and issuance and investment banking bread and butter, M&A services.
Most banks with bulging groups also have commercial and retail banking divisions and generate additional income cross selling financial products.
One notable post-financial crisis shift in the investment banking market is the number of high net worth and Fortune 500 clients choosing to retain elite services. boutiques vs companies.
Work at Investment Banks
Since different types of investment banks provide different types of services, the jobs available at each type also vary. If you are interested in working in an investment bank, think specifically about the type of work you want to do before you decide to apply to a particular bank.
Keep in mind that boutique banks do not offer all the services of mid-sized and bulging firms. So, for example, if you are primarily interested in working in the sales department, this opportunity is likely to be offered only by larger companies. However, if you are interested in handling M&A deals, smaller banks usually provide a faster career path to directly managing such deals.
Investment banking compensation may not differ much between working for one of the largest banks compared to a smaller elite boutique bank. While larger banks routinely process larger trades, these trades are few and far between for smaller trades.
Also, smaller investment banking companies do not have massive over head the cost of bulge bracket banks and therefore usually manage larger profit margins from which to reward employees. When looking at future career opportunities, experience at one of the major bulging bracket banks generally looks best on a resume, simply because of name recognition.
What is investment banking?
Investment banking provides management and advisory services for large, complex financial transactions involving corporations, organizations or governments.
The primary activities of investment banks include underwriting debt financing and issuing equity securities, as v an initial public offering (IPOs) and advising and facilitating mergers and acquisitions (M&As) for companies, including leveraged buyouts.
In addition, investment banks provide assistance in the sale of securities and the placement of shares, together with the handling of investment and brokerage transactions for corporate clients, sovereign entities, or high net worth individuals (HNWIs). Investment banks are also the main advisors, planners and managers for company restructuring or reorganization, such as dealing with divestitures.
What are the best investment banks?
Among the largest and best-known investment banks are those with easily recognizable names such as Goldman Sachs, Deutsche Bank, Credit Suisse Group AG, Morgan Stanley and Bank of America. These banks have extensive global operations, process billion-dollar transactions and provide a wide range of financial services.
What are the main divisions of investment banks?
Typical divisions within investment banks include industry coverage groups and financial product groups.
Industry coverage groups within the bank each have extensive expertise in specific industries or market sectors, such as technology or healthcare. These groups develop client relationships with companies in various industries to bring financing, share issues or mergers and acquisitions to the bank.
Investment bank product groups focus on specific investment banking financial products such as IPO, M&A, corporate restructuringand various types of financing. There may be separate product groups that specialize in asset financing, leasing, leveraged financing and public financing. Product groups can be further organized according to their main activities or products.
Thus, an investment bank may have product groups labeled as equity markets, debt capital, mergers and acquisitions, sales and trading, asset management, and equity research.
The main types of investment banks include regional and elite boutiques, middle market banks and bulge bracket banks. Boutique firms typically have a smaller client base, while bulge bracket banks handle large corporate clients and mid-market banks are in between.
Knowing the difference between the different types of investment banks will help you choose the right bank for your career, business or portfolio.