Evercore, Lazard, Piper Sandler stocks rise as deals recover

US boutique bank stocks are doing well this year as signs show that deal-making is coming back to life. Piper Sandler (PIPR) stock’s total return this year stood at 50.50% on August 15 while Evercore (EVR) and Lazard (LAZ) rose by almost 50%. Moelis (MC), PJT Partners (PJT), and Houlihan Lokey (HLI) have risen by 15%, 19%, and 26%, respectively. 

Investment banking is recovering

The investment banking industry has gone through a period of turmoil in the past few years after booming during the Covid-19 pandemic. 

This sector has primarily been impacted by two key factors: high interest rates and regulations. In the United States, the Federal Reserve has pushed interest rates to the highest point in over two decades.

Higher rates affect the industry by making it expensive for companies to borrow money to acquire other firms. 

American regulators have also been highly critical of big deals. For example, the Federal Trade Commission (FTC) sued to block the JetBlue and Spirit Airlines merger.

Further, the FTC sued to block the merger of Nvidia and Arm Holdings, Lockheed Martin and Aerojet Rocketdyne, and Kroger and Albertson. The approval of Microsoft’s buyout of Activision Blizzard also took longer to execute.

There are also some concerns about the impact of past deals. For example, Teladoc Health acquired Livongo Health for $18 billion, and today, the combined company is valued at less than $2 billion.

Now, with interest rates starting to fall globally, there are signs that M&A activity is picking up, a move that will benefit the top boutique banks. 

In 2023, ExxonMobil acquired Pioneer Natural Resources in a $60 billion deal while Chevron responded by acquiring Hess for $53 billion. 

Just this week, Mars announced that it will acquire Kellanova in a $30 billion deal while Home Depot acquired SRS Distribution for $18.3 billion. Other top deals were Pfizer’s buyout of Seagen, Amgen’s buyout of Horizon Therapeutics, and Broadcom’s acquisition of VMware.

One of the top challenges in the industry is that Initial Public Offering (IPO) has almost dried up. The top companies to IPO this year were Reddit, Viking Holdings, Zeekr, and Waystar.

Lazard, and Piper Sandler are seeing more deals

Recent financial results show that big banks like JPMorgan and Bank of America and boutique ones like Evercore, Piper Sandler, Lazard, PJT, and Moelis are seeing improved performance in their investment banking divisions.

For example, the five biggest players in the industry made investment banking fees of over $8.2 billion in the second quarter, a 40% increase from the same period in 2022. 

Lazard, one of the most prominent US boutique banks, said that its net revenue rose by 7% in the second quarter to $685 million. Its half-year revenue rose by 22% to $1.45 billion. Most of these gains came from its financial advisory business, which houses its services like IPOs and M&A. 

Lazard participated in several deals this year, including the merger of WestRick and Smurfit Kappa in a $33.5 billion deal,  Vertex Pharmaceuticals’ buyout of Alpine Immunosciences, and Volkswagen’s investment in Rivian. 

Piper Sandler, on the other hand, saw its net revenue drop by 1% in the second quarter to $339 million. However, its advisory services revenue rose by 42% in Q2 to $184 million, helped by higher fees and volume. Its investment banking revenue rose to $259 million.

Evercore, PJT, and Houlihan Lokey did well

Evercore also had a strong performance during the quarter as its revenue jumped to $689 million in Q2 from $499.4 million in the same period in 2023. Its half-year revenue rose to $1.28 billion from $1.08 billion. Higher fees also led to more margins as its operating margin rose to 15.7%.

Other boutique banks like PJT Partners and Houlihan Lokey also had a strong performance, showing signs that the industry was recovering. PJT Partners’ revenue rose by 4% to $360 million while its half-year revenue jumped by 26% to $690 million. 

Houlihan Lokey’s revenue rose from $415 million in 2023 to over $513 million in the three months to June. Houlihan has mostly benefited from the improving M&A activity and financial restructuring.

Few people have ever heard about Houlihan Lokey. However, most companies and investment bankers know it because of its expertise in restructurings. Over the years, it has handled bankruptcies of companies like Washington Mutual, Lehman Brothers, Worldcom, Enron, and General Motors. 

Looking forward, most of these companies have published positive outlooks as the industry continues bouncing back. The key catalysts to watch will be Federal Reserve interest rate cuts that will likely lead to more deals.

Also, the companies are watching the American political developments. In theory, most of these firms hope that Donald Trump and Republicans will win in November since they are more supportive of mergers. For example, Trump would change the Federal Trade Commission (FTC) chair for a more corporate-friendly one.