Why Investment Banks are Typically Industry Agnostic
While some investment banks specialize in certain industry niches, most middle market boutique investment banking firms are industry agnostic. There’s a practical reason for this.
Middle market investment banks earn most of their income from the success fees they charge upon closing transactions. The bank must therefore optimize the probability of closing deals. More closings equate to more revenue, offset by a known fixed cost structure to run the firm. Consequently, more revenue translates to more profit for the firm.
With an industry agnostic approach, investment banks can provide their services to a wider array of end customers in different industries. A specific focus on a narrow industry sector reduces the number of potential clients a bank can serve and thereby reduces the probability of closing more deals.
As middle market investment banks scale up in size (by adding deal makers to the team), they often start catering to specific industry verticals, where they have prior experience and expertise. This works well at scale, when banks can specialize in a number of industry verticals and is in fact a strategic advantage when pitching against investment banks without the same industry-specific knowledge. However, for smaller middle market firms with fewer deal makers, a single-industry focus can be a risky strategy and is often avoided in favor of an industry agnostic approach.