Arma Partners’ founder Paul-Noël Guély tells Danielle Myles how the success of his tech-focused boutique reflects the new wave of firms offering high-quality specialist and impartial advice.

Paul Guely, Arma Partners

When the dot-com bubble burst in the early 2000s, many major investment banks slashed the numbers in their tech coverage teams. Paul-Noël Guély, on the other hand, decided to launch a tech-focused boutique. He left his role as head of software and services investment banking at Goldman Sachs and opened Arma Partners’ doors in 2003.

“It was absolutely the right time to launch,” says Mr Guély. “If you are a nimble, commercially aggressive firm, market disruption is a source of opportunity to gain market share. If everyone else is getting out, so long as you believe the sector will come back, get in and ride the next wave of growth.”

Fourteen years later, he has been proven right. Arma Partners has offices in London, Palo Alto, New York and Munich, has experienced uninterrupted profits, and has expanded from four bankers to more than 50. As a group, it is Europe’s biggest mergers and acquisitions (M&A) advisory team dedicated to communications, media and technology (CMT, an expanded version of TMT that includes the full suite of emerging telco-related businesses).

Gap in the market

The prospect of a captive market, thanks to bulge-bracket firms redeploying tech bankers to other divisions, was not the only thing enticing Mr Guély to go it alone. For some time he had felt the tech sector was badly covered by banks.

“When we set up 14 years ago the choice for tech companies wasn’t great,” he says. “As a fast-growing, mid-market company, you could go to a bulge bracket – which only really cared about companies with valuations of at least $1bn to $2bn, and if they took you on, they gave you a team of pretty inexperienced juniors – or a very small boutique whose knowledge and standards of execution just weren’t good enough.”

Admittedly, this dilemma could have faced a mid-market firm in any sector. But it was particularly problematic for tech companies, and the industry’s development more generally, because it is dominated by nascent businesses. “The bulk of them – and I’d argue the most interesting ones – are set up by a bunch of Cambridge or MIT-educated engineers, are four or so years old, and worth between $200m and $500m,” says Mr Guély. “They are the ones that are shaping the world of tomorrow.” He had spotted an opportunity for a quality player to serve the businesses that were falling through the cracks.

Another motivating factor is that CMT is perfectly suited to boutique banking, which involves complex, constantly evolving and domain-specific issues that, in a deal scenario, cannot be adequately understood by a handful of bankers with broad-brush tech experience. Arma Partners, however, has a critical mass of advisers with sub-sector knowledge, many with a technical background.

The significance of this is exemplified by one of the firm’s recent deals. In late 2016 it advised IPDiA, a French semi-conductor materials manufacturer, on its sale to Japanese conglomerate Murata. While the price tag was small, it was significant compared with IPDiA’s turnover. “The real value of the business was the people and its intellectual property,” says Mr Guély. “Only if you really understood the sector and could identify the most logical buyers could you articulate the equity story in a way that led to a high price. Only we could pull that off.”

The firm has advised high-profile clients including AOL, Motorola, Thomson Reuters, Sky and India’s incumbent telecom provider Bharti Airtel on the sale of its west African operations to Orange last year. But deals such as IPDiA/Murata reveal the distinct, competitive advantage of a tech boutique. 

Rise of the boutique

Arma Partners’ success is part of the broader rise of boutique banking. The number of independent firms has proliferated in recent years, and they are taking a bigger market share from the bulge brackets. According to Mergermarket, in 2016 non-bulge brackets accounted for 84.2% of M&A activity (by deal number), up from 83.5% in 2015 and 82.8% in 2014.

Their characteristics are changing, too. A decade or so ago, these firms could be broadly divided into two categories. There were the well-established family houses such as Rothschild and Lazard, which even then were too big to warrant the ‘boutique’ label and were more accurately described as ‘independents’; and the very small outfits set up by a couple of ex-investment bankers in their 50s who wanted to work a few more years, at their own pace, before retiring.

Arma Partners is part of the new breed of boutiques that specialise in particular sectors, or self-contained and particularly challenging jurisdictions such as China. Mr Guély says: “A big part of boutiques’ value proposition is to give very high quality, value-added, impartial advice. Logically, that should result in those boutiques becoming increasingly focused and sharp on the areas they decide to cover.”

Being picky

Investment banks’ balance sheets, range of financial products and pedigree of advisers ensures they will always be relevant. But Mr Guély expects M&A boutiques' share of the investment banking wallet to continue to increase. For those starting out, he stresses the importance of high standards on deal execution, deciding which clients to take on (paying particular attention to their reputability and the origin of their funds) and hiring staff. This has been key to Arma’s overall success, and particularly the quality of its people, he adds.

“Today we are a sizeable firm so can afford to be picky, but in the early days, when it was just four guys and the firm was self-funded, it could have been tempting to occasionally cut corners,” says Mr Guély. “Hiring someone, for example, who wasn't that good but was cheap and available when we badly needed people [could have been a temptation]. I’ve always been absolutely ruthless about never cutting corners. My partners have regularly been frustrated with me for this, but it’s served us very well.”

They are also well served by the two decades Mr Guély spent working within different investment banking models before opening Arma. This includes time at the traditional high-end adviser Morgan Grenfell & Co, as well as market leaders Goldman Sachs and Lehman Brothers (which was then smaller and something of an underdog in Europe compared with the other US investment banks).

“It taught me the value of being commercially aggressive and hustling to win business,” says Mr Guély, reflecting on his time at Lehman. “You needed to prove yourself, be a little bit smarter, work a little bit harder and come up with lateral ideas.”

Cutting across sectors

Mr Guély is bullish on Arma’s deal flow going forward. It has been a bumper few years for global M&A with volumes of $3622bn, $4769bn and $384bn announced in 2014, 2015 and 2016, respectively. In the five years prior, they hovered between $2299bn and $2787bn.

What is more, technology’s transformation of myriad industries means many companies must buy tech competencies they cannot develop organically, to help them evolve and remain competitive. It is a fundamental difference between tech and other sectors, and one that expands Arma’s deal pipeline. "Fifteen years ago, tech was a vertical market alongside oil and gas, retail and financial institutions group. These days it cuts across everything. It’s relevant to just about everybody, which broadens the range of counterparties we speak with.”

An example of such a deal is human resources consultancy Mercer’s acquisition of Thomsons Online Benefits in December 2016. The target, which Arma advised, sells software that enables companies to manage their employee benefit programmes via a single locally tailored platform. The service is potentially of great use to Mercer’s multi-national clients.

With developments such as this expanding tech M&A deal flow, Arma should be able to grow without having to compromise on its CMT focus. In Mr Guély’s mind, this is crucial: the day it becomes big, bloated and less specialist is the day it loses its competitive advantage. It would also risk losing touch with the mid-market clients which, as he says, are going to shape the world of tomorrow.

After all, the biggest and most influential tech companies did not exist 20 years ago. “As we speak, the Facebook of tomorrow is being set up somewhere,” he muses. “We don’t know its name yet, but in two to three years’ time, everyone will.”

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter