Are the boutiques a buy?

|By:, SA News Editor

Investment banks like Greenhill (GHL +0.4%), Evercore (EVR -0.3%), and newly public Moelis (MC -0.4%) like to point out that they aren't big banks. We're selling our smarts and experience and nothing else, they tell clients. For investors, there's a lot less opacity. Greenhill's latest 10-K is 45 pages long - JPMorgan's is 362.

The model works beautifully,” says Greenhill CEO Scott Bok. “When we went public [in 2004], there was a question as to whether boutiques would work. Now, I don’t even think the jury is still out.” Judging by valuations - Greenhill and Evercore both trade for more than 30x earnings, more than double that of Goldman Sachs - even after big falls in prices this year, investors wanting a pure-play exposure to a rebound in M&A agree.

But what if M&A doesn't rebound, writes Francesco Guerrara? Boutiques haven't really been taking market share, so must depend on an expanding pie. Then there's costs. They're easy to cut in a slowdown, but can they keep them in check when revenue expands? The third issue is "Rolodex risk." The boutiques' rely on a relatively small number of rainmakers who leave the premises every night.