Instead of competing for top M&A talent in the midst of surging dealflow, it is easier to acquire a middle-market investment bank with an established team. This is the case with B. Riley’s pending $175 million purchase of FocalPoint Securities, which was announced this week.
B. Riley has little to no presence in mid-market M&A. Hiring a top dealmaker and building out a team underneath them takes at least a couple of years, and a cultural fit is not guaranteed. On other hand, acquiring a proven investment bank is a quicker and cheaper process. With FocalPoint, B. Riley is gaining 50 investment bankers.
“Hiring a banker means giving them a big guarantee to bring them over and it takes them six to 12 months to put up a pipeline,” says Gagan Sawhney a managing director in Houlihan Lokey’s financial institutions group who worked on the the deal. “So before they start producing revenue, you’re in 24 months. So think about it, you make an investment today and after 24 months you figure out if it’s going to work out or not. On the other hand, acquiring a firm means you get a well-established pipeline and a well-established team.”
Another deal driver among mid-market investment banks is international buyers looking to expand their U.S. presence, especially with firms that have a specific sector expertise. In December, Vancouver-based Canaccord Genuity said it is buying consumer-focused Sawaya Partners.
If you are looking to dip your toe in the dealmaking game, buying an investment bank is the way to go.