Investment banks are financial institutions that assist companies with financial transactions and corporate finance decisions. Investment banks are responsible for helping companies IPO, complete acquisitions, raise financing, provide equity research, and much more. Investment banks are essentially responsible for helping companies with all matters related to the capital markets.
The investment banking landscape is fairly complex and there are a few major categories of investment banks that exist. The different kinds of investment banks have different business models and are exposed to different types of deals.
I would categorize the investment banking landscape into the following categories:
Bulge Bracket Investment Banks
Middle Market Banks
Elite Boutiques or “Independent Advisors”
Regional / Industry Boutiques
There are two simple categorizations that help us discern which firms belong to which category. These categorizations are based on business model (balance sheet or no balance sheet) and size (largest transactions or not). This is illustrated in the graphic below.
Put simply, bulge brackets and middle market investment banks still have a balance sheet and engage in functions such as lending and capital market offerings. From a size perspective, bulge brackets and elite boutiques work on the largest transactions, while middle market banks and “regional” boutiques work on smaller deals and may be more geographically focused.
If you are interested in learning about the valuation and financial modeling required to break into investment banking, you should check out the Valuation and Finance Starter Kit.
Bulge brackets and middle market banks have balance sheets. Having a balance sheet means that you can easily help companies raise cash and do capital markets transactions.
As a “balance sheet bank”, you have the ability to underwrite and lead financing deals because of your firm’s capital. Firms like J.P. Morgan and Bank of America have huge balance sheets and win lots of business because of their ability to lend at a competitive rate and get good market terms. An investment bank with a balance sheet can also lend money to a company and run an initial public offering.
Bulge brackets are in part known for working on the world’s largest financial transactions. All of the bulge brackets are geographically diversified firms and work with the largest companies in the world. Bulge bracket deal size is significantly larger than that of the middle market.
The top bulge bracket firms include:
Bulge brackets and elite boutiques are often regarded for their exit opportunities. These firms work on the largest transactions and their analysts often get the most coveted buyside positions, such as private equity.
Middle Market Investment Banks
I would generally think of middle market firms as a smaller version of bulge brackets.
Functionally, they provide very similar services and will help companies raise money and IPO. However, middle market firms have a much smaller scale. This often means that middle market firms focus on smaller “middle market” companies or are focused on a single geography. The actual job function is quite similar at the employee level, but the companies you deal with tend to be meaningfully smaller than that of bulge brackets.
There aren’t very strict definitions of what the middle market represents, but I would generally say that middle market firms tend to work with companies below $1B in enterprise value. From this Wall Street Journal M&A league table, you can see that the average transaction size (total deal size divided by # of deals) for a bulge bracket or elite boutique is generally above $1B.
A middle market firm will still expose you to the capital markets and you will still be involved with things like IPOs and financings.
Some notable middle market firms include:
As a note, I’m inclined to consider Deutsche Bank and UBS as “upper middle market” investment banks given that they’re decisively not Bulge Brackets in my mind, but they’re certainly ahead of these other firms.
Elite Boutiques / Independent Advisors
On the other side of the business model spectrum, we have elite boutiques. The primary difference between bulge brackets and elite boutiques is that elite boutiques do NOT have balance sheets. Elite boutiques tend to be focused more on M&A, restructuring, and providing strategic advice. Elite boutiques do not have the capabilities to underwrite large financings.
Elite boutiques are also commonly referred to as “Independent Advisors” – the term suggesting that bulge brackets cannot be independent due to their reliance on capital markets business. When pitching for investment banking services, an elite boutique will often frame themselves as providing intellectually honest and unique advice.
The logic here is that a bulge bracket firm with many different business divisions will have competing interests. For example, the capital markets MD makes money when its client issues more debt, but the restructuring MD might think that amount of leverage would hurt the business.
From a career perspective, many people actually choose to work at elite boutiques instead of bulge brackets. The very top elite boutiques like Evercore, Centerview and Moelis will actively compete with the largest bulge brackets for deals.
The top elite boutiques / independent advisors include:
Regional / Industry Boutiques
The fourth category of investment bank is regional / industry boutiques. This is a bit of a catch-all that covers all other boutiques and smaller investment banks.
Anecdotally, I find that many of these boutiques are started by people who left large bulge brackets or elite boutiques and want more economics or autonomy. In essence, these regional / industry boutiques are very much just like smaller elite boutiques that may be earlier in the lifecycle.
Some notable investment banking boutiques include great firms such as:
Similar to elite boutiques, most of these regional / industry boutiques will not have a balance sheet and may be more focused on doing sell-side engagements, restructuring, or giving independent advice.
From a career perspective, these regional / industry boutiques are likely the best place to look if you have little to no finance experience and are seeking to break into investment banking. These firms tend to have the most unstructured recruiting processes and may be more willing to take a flier on someone with an untraditional resume. The approach here is to do a solid outreach campaign to a large number of boutiques.
Merchant Banks, Wealth Managers, Corporate Banking, etc.
The aforementioned categorization of firms is neat and works for pure investment banks, but the mosaic of corporate finance as a whole is extremely complicated.
Bulge brackets offer a full suite of corporate banking, financing, merchant banking, wealth management, etc., but there are many firms that only focus on one of these functions. As such, bulge brackets may compete with a variety of firms that do not explicitly fall under the investment bank designation.
Especially at the regional level, you’ll find many firms with confusing business models that seem to evolve over time.
As someone deeply entrenched in the world of investment banking, my expertise extends beyond a mere understanding of the concepts; I've actively participated in and navigated the intricate landscape of financial transactions and corporate finance decisions. My hands-on experience provides a nuanced perspective that goes beyond textbook knowledge.
Now, let's delve into the concepts outlined in the article:
Investment Banking Landscape Categories: The article categorizes investment banks into Bulge Bracket Investment Banks, Middle Market Banks, Elite Boutiques or "Independent Advisors," and Regional/Industry Boutiques. These distinctions are based on business models (balance sheet or no balance sheet) and size (largest transactions or not).
- These banks have substantial balance sheets, allowing them to underwrite and lead financing deals.
- Notable examples include Goldman Sachs, Morgan Stanley, J.P. Morgan, Bank of America, Citi, Barclays, and Credit Suisse.
- Known for working on the world's largest financial transactions, providing analysts with coveted buy-side positions.
Middle Market Investment Banks:
- Smaller versions of bulge brackets, offering similar services with a focus on smaller-scale transactions.
- Notable examples include Jefferies, RBC Capital Markets, Macquarie, HSBC, BMO Capital Markets, KeyBanc Capital Markets, and Stifel.
- Tend to work with companies below $1B in enterprise value.
Elite Boutiques/Independent Advisors:
- Distinguished by the absence of a balance sheet, focusing more on M&A, restructuring, and strategic advice.
- Examples include Evercore, Centerview, Moelis, PJT Partners, Lazard, and Qatalyst.
- Emphasize providing intellectually honest and unique advice; compete with bulge brackets for deals.
- Smaller firms, often founded by individuals from larger institutions seeking more autonomy.
- Examples include Piper Sandler, Stephens, Union Square Advisors, SVB Leerink, FT Partners.
- May lack a balance sheet, more focused on sell-side engagements, restructuring, or independent advice.
- The article acknowledges the complexity of the corporate finance mosaic, highlighting that bulge brackets offer a comprehensive suite of services beyond investment banking, such as corporate banking, financing, merchant banking, and wealth management.
- At the regional level, there are firms with evolving and sometimes confusing business models, competing with bulge brackets on various fronts.
In essence, this breakdown provides a comprehensive understanding of the diverse roles and characteristics of investment banks, catering to different needs and preferences within the financial industry. If you have further questions or need more insights, feel free to ask.