As the equity research business continues to face revenue headwinds, more firms could look to merge with pure-play advisory shops.

Only a few of those deals have occurred, with the likes of Evercore Inc./ISI and Perella Weinberg Partners LP/Tudor Pickering Holt agreeing to merge. But investment banks face profitability challenges across virtually every business line, and that pressure is unlikely to subside since many compliance costs are fixed, George Kuznetsov, head of research and analytics at Coalition, said on the latest Street Talk podcast.

In the episode, Kuznetsov said the major U.S. investment banks have gained market share in recent years as their European counterparts weathered problems at home and are now looking downstream to the middle-market business to grow revenues further. Kuznetsov, whose firm provides analytical research on corporate and investment banks and is part of CRISIL under the S&P Global umbrella, also discussed the continued evolution of the equity research business, where profitability pressures have grown in recent years due to the EU regulation Markets in Financial Instruments Directive, or MiFID II, which requires buyside clients to separate payments for research from trade commissions.

Kuznetsov said cuts in the equity research business have not been as great as many would have expected in a post-MiFId II world because institutions recognize that the operation offers them a competitive advantage in their equity capital markets and investment banking franchises.

"If you talk to any of the bankers and ask them if they need equity research, the answer is going to be no," Kuznetsov said on the episode. He noted that investment bankers recognize that too many cuts in their given vertical, however, could make them less competitive. "More and more banks think about cash equities less as a stand-alone business and much more as execution to support other business lines."

He said more boutique research firms could look to merge with pure-play advisory shops to achieve the same synergies and mitigate fixed compliance costs.

Even if mergers do not occur, Kuznetsov sees changes in equity research offerings. He said some market watchers argue that only five to six brokers globally can build a profitable equity sales and trading operation and the numbers do suggest that.

He expects the approach of offering wide, universal coverage to fade away but noted that cuts will be dependent on where a given firm is successful in other investment banking businesses. Kuznetsov expects the large U.S. banks to have far wider coverage than the rest of the Street in the future but said other sizable investment banks could trim their operations, which could benefit independent boutiques that weather the challenging environment.