Whether it's GCA Altium, Herter & Co., or Acxit: Numerous German midsize M&A and corporate finance boutiques have recently come under the umbrella of larger and more international brands. On the other hand, Zumera, Atares, or TCG are taking the opposite path, breaking away from existing firms. The German boutique scene is currently undergoing a reorganization. New players like Dealcircle or Leverest are also positioning themselves, aiming to disrupt the market and the approach to M&A and financial advisory with their technological and platform-based approaches.

For the recent acquisitions, there are very different reasons: On one hand, the attempt by large investment bank boutiques to establish a presence in the midsize consulting business (Mid Cap), especially against the backdrop that this market has not declined as strongly as the large customer business (Large Cap) since the beginning of interest rate hikes. On the other hand, there are midsize and German-influenced boutiques that are slowly reaching their limits in terms of growth—or, on the contrary, finding themselves in a position of weakness because they lack international connections.

"Unquestionably, there is a wave of consolidation happening. Often, this is glossed over or euphemized," says Sebastian Freitag, founder of the investment banking boutique Freitag & Co, with more than 20 years of experience in the industry. He has recently advised the German file-sharing company Owncloud on its sale to the California-based data protection specialist Kiteworks, as well as the largest German wind turbine manufacturer Enercon on the sale of the "problem child" WEC Turmbau. Additionally, he assisted the U.S. financial investor Cerberus in the acquisition of HSH Nordbank and Freenet in the purchase of a 28% stake in Sunrise.

Freitag compares the consequences of the current deal drought for his industry with its origins: "Boutiques were created to avoid conflicts of interest. Older and highly experienced dealmakers like Bruce Wasserstein left one of the major investment banks such as First Boston, took their clients with them, founded their own small firm like Wasserstein Perella, and only had to distribute the fees among a small number of even better-paid individuals. They monetized painstakingly built trust relationships. CEO clients received the highest attention at a high price.'"

Today, it's very different with boutiques, many of which rely only on fast and data-driven internet relationships: "They don't reach for the stars. Corporate finance advisors are being commoditized in the mergers. The new wannabe boutiques often only work for the M&A department of the companies and never get to see the CEO themselves," says Freitag.

An recent example of boutiques being integrated into larger companies is Herter & Co. The corporate finance boutique was founded in 2012 by Marcel Herter, the former Head of Debt Advisory and Financial Restructuring Germany at the investment bank boutique Lazard. Under its own flag, the longtime Leverage Finance Chief of Dresdner Kleinwort positioned Herter & Co. as one of the financing and restructuring advisory firms in Germany. Herter was recently involved in the restructuring of the automotive supplier Leoni. This year, Herter sold his company to the significantly larger U.S. strategy consulting firm Teneo, which is owned by the financial investor CVC.

"I will stay with the company indefinitely and continue to develop the financial advisory business," said Herter to the Börsen-Zeitung. He competes against more significant rivals such as Rothschild, Houlihan Lokey, and PJT (in restructuring consulting), which also acquired the corporate governance consultant Camberview in 2018.

Corporate clients of boutique consultants see the supposed growth stories in a more sober light: "There is increasing pressure for consolidation in the consulting landscape and the need to build international connections," cites Goetz Hertz-Eichenrode, CEO of the financial investor Hannover Finanz, as reasons for the restructuring.

In the past year, the U.S. investment bank Stifel acquired the German M&A consultancy Acxit. A year earlier, the U.S. investment bank Houlihan Lokey had already taken over GCA Altium—a direct competitor of Herter, which is active not only in financing consulting but also prominently in M&A consulting. M&A has always played a role in its own growth story, as the boutique emerged in 2016 from the merger of the German-influenced Altium and GCA Savvian.

M&A also plays a role in the history of Alantra. The Spanish investment bank entered the German market in 2013 under the name "N+1". Under the leadership of Wolfram Schmerl and Robert von Finckenstein, Alantra evolved into one of the most active midsize M&A and debt advisors in the country. However, Alantra is also aiming for higher ambitions and plans to engage in larger deals in the future. Schmerl and Finckenstein reportedly stepped down for this reason earlier this year. The new head of Germany is Jan Caspar Hoffmann, a former investment banker from the large-cap boutique Moelis.

With the acquisitions of German boutiques, notably many U.S. large-cap firms entered the German mid-cap market in recent years. "At the same time, we already observe that these firms, in their new structures, are undertaking significantly larger transactions than before, as larger deals yield higher fees," says Felix Engelhardt from the M&A advisory firm Zumera. For small- and mid-cap advisors like him, this is, of course, an opportunity, even though the competitive intensity is increasing.

Zumera itself separated from the midsize corporate finance consultancy Saxenhammer this year. This was done, among other reasons, to distance itself from the restructuring image associated with the Saxenhammer brand in the German market. "We also believe that the M&A advisory business will undergo structural changes," says Engelhardt. In his opinion, in the future, only those M&A boutiques with incentive structures that promote collaboration will be successful.

"Traditionally, it looks like this: a partner has to generate a certain amount of revenue annually and is consequently only interested in their own deals," says Engelhardt. In an increasingly competitive M&A business, Zumera, on the other hand, focuses on team success and utilizes technology to connect its advisors and make knowledge accessible to everyone. "For this, we have invested a seven-figure amount in our technological infrastructure over six years," says Engelhardt. This includes project management tools, CRM software, and the like. Smaller M&A firms may find it challenging to make such investments on their own, which is why Engelhardt sees further consolidation in the midsize consulting scene as quite possible.

Other teams this year severed ties with the mothership to sharpen their profile as tech M&A advisors. An example is the M&A advisor Proventis, whose approximately 20-member tech team led by Jan Pörschmann and Rainer Wieser became independent with Atares at the beginning of November. A day later, Proventis announced the opening of a new office in Frankfurt. In September, Harald Mährle and Monika Nickl founded TCG Corporate Finance, an M&A advisor specializing in "digital champions." Both had previously worked for Mummert & Company, which was acquired by the U.S. investment bank Raymond James in 2016.

In general, M&A advisor Engelhardt still sees room for new boutiques handling smaller deals. "We estimate that currently around two-thirds of all Small-Cap transactions in Germany are still carried out without an M&A advisor," says Engelhardt. For this reason, Kai Hesselmann also perceives a lot of dynamism in this market segment—companies with an Ebitda of 0.5 to 5 million euros. According to the co-founder of Dealcircle, while these transactions may not offer the large fees sought by GCA or Alantra lately, they do present opportunities.

The charm for M&A advisors lies more in the numerous small transactions that are expected to continue in this segment, even in the currently challenging market environment. Hesselmann observes new advisors entering with the aim of professionalizing the Small-Cap M&A market. For example, Benchmark International started in Germany last year. Former Raymond James advisor Tobias Ramminger founded LSJ Advisory, Succession Office separated through a management buyout from Sonntag Corporate Finance, and the financing advisor Cubus Partners joined forces with MCF Corporate Finance.

The German corporate finance advisory market has become more mature and transparent, with an increasing contribution from database and technology providers. In the M&A business, Dealcircle plays a role, bringing together M&A advisors and companies by leveraging a database. In the financing advisory sector, the startup Leverest is dedicated to this goal, collaborating with, among others, Alantra.