The short answer is: they got bought up by massive banks. The rapid consolidation of the investment banking industry is one of the most dramatic developments amidst the recent financial turmoil. The independence of the old IB firms has vanished, consumed by monolithic multi-function institutions like Bank of America.
The real question is, what does it mean for M&A?
Think of what happened as the accounting industry consolidated, gradually condensing to the Big Four that survive today. Operating on the scale they do, these institutions fix their sites on the largest possible accounts. They become almost exclusively oriented to major public corporations. For mid-market companies, they tend to provide an off-hand service, highly priced and staffed by their lowest tier consultants. We’ve seen a similar trend in the consolidation of the big law firms.
Now look for the same effect in the investment banking industry. They will continue to pay lip service to the mid-market, but the energy will shift to the corporations that are a closer match to their own scale.
For the mid-market, this will trigger a classic “creative-destructive” cycle. It will open the way for specialist third-party advisors who are not investment bankers in the old mold. They won’t provide securities offerings or lead IPOs. They may not be so exclusively focused on the sell-side as investment bankers have tended to be. In fact, this new breed of mid-market M&A advisors will do more than fill the gap left by the investment bankers. They will provide broader strategic consulting, helping their clients
manage external growth programs that include acquisitions and other pathways of opportunity.
Full disclosure here: this is the model that my firm Capstone has been pioneering for several years.