Brendan O'Brien

Brendan O'Brien asked about the divergence between M&A deal value and deal count, specifically the lack of breadth in activity and potential drivers for improvement. He also sought clarification on the Park Hill business, noting that Park Hill revenues were down while Private Capital Solutions (PCS) revenues were up, and the 'placement' line was also up, inquiring about the previously expected acceleration in PCS fees.

Answer

Paul Taubman, Chairman and Chief Executive Officer, attributed the skew towards larger M&A transactions to a more favorable regulatory environment and suggested that a reset in sponsor activity would drive an increase in transaction count. He clarified that the expected acceleration in PCS fees did occur and is primarily booked under advisory revenue. Helen Meates, Chief Financial Officer, added that the 'placement' line includes both Park Hill placement and other corporate placement fees, explaining the overall increase. Mr. Taubman suggested that the advisory/placement designations might not fully capture the business's nature.

Brendan O'Brien of Wolfe Research asked about the divergence between M&A deal value and deal count, seeking drivers for the lack of breadth in activity and potential improvements. He also requested clarification on the Park Hill business, specifically regarding non-Park Hill fees in the placement line and an update on the expected acceleration of Private Capital Solutions (PCS) fees.

Answer

Chairman and CEO Paul Taubman attributed the M&A divergence to a more favorable regulatory environment favoring larger transactions and the need for a reset in sponsor activity to boost deal count. Regarding Park Hill, Mr. Taubman clarified that PCS strength is booked under advisory, and CFO Helen Meates added that the placement line includes both Park Hill and other corporate placement fees, suggesting a need to re-evaluate these designations for clarity.

Brendan O'Brien of Wolfe Research sought an update on the regulatory environment, asking if C-suites are more willing to pursue large-scale M&A under the current administration. He also asked for views on the potential trajectory of the M&A recovery, given pent-up demand and remaining macro uncertainties.

Answer

Paul Taubman, Founder, Chairman & CEO, described the current regulatory environment as more conducive to M&A than the prior administration, with a greater willingness to negotiate remedies. However, he cautioned that heightened sensitivity remains in consumer-facing sectors and that elongated closing timelines still pose a risk. He characterized the M&A recovery as a 'gradual plus,' expecting a slow, steady improvement as uncertainties lift, with the potential for accelerated activity in certain industries due to competitive responses to bold strategic moves.

Brendan O'Brien questioned the M&A regulatory environment under the current administration and asked if the softer deal market has improved the recruiting environment, potentially causing PJT to accelerate hiring.

Answer

Chairman and CEO Paul Taubman described the regulatory climate as a 'mixed bag' that is likely more favorable than the last administration but still lacks clarity, curtailing some large M&A. On recruiting, he affirmed PJT's demand for talent is 'unwavering' and that lower market activity reduces friction costs for candidates, leading to more interest and potentially higher hiring yields for the firm.

Brendan O'Brien questioned the disconnect between optimistic M&A outlooks and the slow start to announced volumes year-to-date. He also asked about the velocity of the Strategic Advisory backlog, noting that 2024's record result was achieved despite starting with a depressed backlog.

Answer

Chairman and CEO Paul Taubman emphasized that PJT is a 'micro story' that can grow regardless of the macro environment. He believes the M&A market is heading toward normalization and views current headwinds as 'the storm before the calm.' Regarding the backlog, he clarified that while the announced backlog was low entering 2024, the pre-announced pipeline was robust, leading to many deals closing within the year. He added that the current backlog contains more large transactions expected to close.

Brendan O'Brien asked about PJT's confidence in returning to its prior, lower compensation ratio target given industry-wide inflation, and inquired about the firm's current inclination towards acquisitions versus capital returns.

Answer

Chairman and CEO Paul Taubman expressed confidence in the firm's ability to return to its previous ~64% comp ratio, stating, 'I don't see any reason sitting here today that we can't do that.' On capital allocation, he emphasized that the firm's stock is 'incredibly undervalued' and the focus remains on buybacks, viewing large-scale M&A as rare and risky, with PJT having only done two modest deals in its nine-year history.

Brendan O'Brien asked about the M&A trends in Europe relative to the U.S. and how those pools might track, and also questioned if Houlihan Lokey is seeing a shift in restructuring deal flow towards traditional Chapter 11 over liability management activity.

Answer

Scott Adelson, CEO, noted that while the U.S. remains the largest market, EMEA and Asia-Pacific are gaining importance with significant year-over-year growth. Lindsey Alley, CFO, added that EMEA and Asia-Pacific have outperformed U.S. corporate finance year-to-date, and the long-term goal is for Europe's fee pool to match the U.S. Regarding restructuring, Scott Adelson stated they still see considerable liability management and it's too early to confirm a definitive trend away from it towards traditional Chapter 11.

Brendan O'Brien inquired about the M&A activity trends in Europe relative to the U.S. and their expected trajectory, as well as whether restructuring deal flow is shifting more towards traditional Chapter 11 cases over liability management activity.

Answer

Scott Adelson, CEO, noted that while the U.S. is the largest market, EMEA and Asia-Pacific are gaining importance with significant year-over-year activity increases. Lindsey Alley, CFO, added that EMEA and Asia have outperformed U.S. corporate finance year-to-date, and the European fee pool could eventually match the U.S. Scott Adelson stated it's too early to confirm a definitive shift from liability management to traditional Chapter 11 in restructuring.

Brendan O'Brien of Wolfe Research followed up on Corporate Finance, asking about the breadth of deal activity and the quality of assets being sold. He also sought clarification on the full-year guidance for non-compensation expense growth.

Answer

CEO Scott Adelson reiterated that the environment is improving and indicated a potential pickup in deal volume after Labor Day. CFO J. Lindsey Alley clarified that the 21% growth is strong, just off a higher base from last year. He also confirmed the full-year non-comp expense growth guidance remains in the high single-digits, with Q1 being higher due to a major conference.

Brendan O'Brien inquired about near-term revenue trends given market volatility and whether there is a noticeable split in M&A activity between sectors more or less impacted by tariffs, particularly within the industrials space.

Answer

CEO Scott Adelson stated it was too early to provide a meaningful forecast but confirmed that pitch activity and deal processes are moving at a normal rate, with improvements seen quarter-by-quarter. He emphasized that the impact of tariffs is highly specific to sectors and geographies and cannot be applied broadly, even within the industrials segment.

Brendan O'Brien of Wolfe Research, LLC inquired about rising competition in the private capital solutions space from bulge-bracket banks and asked about the expected mix between traditional restructuring and liability management.

Answer

CEO Scott Adelson acknowledged that competition exists in all business lines. CFO J. Alley elaborated that they view competition in capital solutions as similar to M&A, where they primarily compete with other mid-cap firms, not bulge-bracket banks targeting larger deals. On restructuring, Adelson stated that while liability management deals can lead to future bankruptcies, the primary driver of activity is the high number of 'sick balance sheets' from sustained high interest rates.

Brendan O'Brien asked about Houlihan Lokey's capital allocation strategy, questioning if the recent pace of acquisitions would slow and how it affects the view on share buybacks. He also inquired if the financial stress seen in sponsor-backed portfolio companies is creating a headwind for overall sponsor M&A activity.

Answer

CEO Scott Adelson stated that the M&A strategy remains active and that deal timing is inherently lumpy, with the pipeline remaining robust. CFO J. Alley confirmed the capital allocation priorities are dividend, then acquisitions, then maintaining share count, noting they prefer balance sheet flexibility for deals over open-market buybacks. Regarding sponsor stress, Adelson explained that it's not a significant headwind, as private equity firms manage large portfolios and don't halt all activity due to issues with a single company.

Brendan O’Brien inquired about M&A trends in Europe relative to the U.S., notable divergences, and how the two fee pools are expected to track over the near to intermediate term.

Answer

Peter Orszag, Lazard's CEO and Chairman, observed a slight tilt towards Europe in revenue mix for the quarter, attributing European activity to strong global companies despite local macro/political challenges. He emphasized that the next stage of the M&A cycle involves the return of private equity, which will increasingly play out in 2026 in Europe, benefiting Lazard's expanded private capital connectivity.

Brendan O’Brien inquired about M&A activity trends in Europe relative to the U.S., noting any divergences, and how Lazard expects these two fee pools to track over the near to intermediate term.

Answer

Peter Orszag, Lazard's CEO and Chairman, noted a slight tilt towards Europe in revenue mix for the quarter, benefiting from Lazard's strong franchise in both regions. He emphasized that strong European companies drive activity despite macroeconomic and political challenges, as many are global. He expects the return of private equity in M&A to be increasingly relevant in Europe in 2026, with Lazard's expanded private capital connectivity paying off.

Brendan O'Brien of Wolfe Research asked for a comparison of the advisory business mix (M&A vs. non-M&A) today versus last year and how contributions from non-M&A businesses have evolved. He also inquired about the expected trajectory for the restructuring and liability management business.

Answer

Peter Orszag, CEO & Chairman, clarified that the advisory mix is roughly 60% M&A and 40% non-M&A, with the non-M&A share having ticked up slightly from last year. He highlighted significant growth within non-M&A from liability management and a record first half for the PCA (fundraising) business. Regarding restructuring, he explained that even in a constructive market, opportunities exist, and the business has successfully diversified into liability management and achieved a better balance between debtor and creditor assignments.

Brendan O'Brien of Wolfe Research asked for a comparison of M&A conversations in Europe versus the U.S., the outlook for cross-border activity amid protectionism, and current credit availability, including the role of private credit.

Answer

CEO Peter Orszag confirmed the backlog in Europe is expanding faster than in the U.S., highlighting the benefit of Lazard's deep local roots. He noted cross-border activity could involve relocating production to lower-tariff countries, not just into the U.S., and also an increase in Europe-Europe deals. He added that Lazard's Capital Solutions group is very active in helping clients find financing as traditional debt markets face challenges.

Brendan O'Brien asked about the rising compensation ratio within the Asset Management segment and whether management fee growth is necessary to reduce it. He also inquired about the pickup in M&A activity and the level of dialogue with sponsors versus strategics.

Answer

CEO Peter Orszag stated that significant changes in the asset business are not needed to achieve the firm's overall comp ratio targets. CFO Mary Ann Betsch clarified that the biggest driver of the AM comp ratio increase was a decrease in deferral rates, and the underlying ratio is relatively flat. On M&A, Orszag noted that both strategics and sponsors are now quite active, with private equity coming back onto the playing field, creating a constructive environment across the board.

Brendan O'Brien followed up on the compensation ratio, highlighting its increase in the Asset Management segment over the last few years and asking if fee growth in that business is required to lower it. He also inquired about the recent pickup in M&A dialogue and any differences between sponsor and strategic activity.

Answer

CEO Peter Orszag stated that significant changes in the Asset Management business are not necessary to achieve the firm's overall compensation ratio goals. CFO Mary Ann Betsch clarified that the recent increase in the Asset Management comp ratio was primarily driven by a firm-wide reduction in deferral rates, a change that was more pronounced in that segment. On M&A, Mr. Orszag noted that both strategic and sponsor clients are now highly active, with private equity re-engaging significantly since late 2024.

Brendan O'Brien of Wolfe Research asked for more detail on Lazard's commentary regarding its compensation ratio, specifically questioning the revenue growth assumptions required to reach the sub-60% target in 2025.

Answer

CEO Peter Orszag explained that achieving a sub-60% comp ratio is contingent on two key factors: continued M&A market recovery, particularly with increasing private equity activity, and maintaining the firm's planned hiring rate of 10-15 net managing directors annually. Orszag emphasized that the firm would seize exceptional hiring opportunities even if it meant the comp ratio declined less than anticipated in the short term, viewing it as a long-term benefit for shareholders.

Brendan O'Brien from Wolfe Research asked about the revenue outlook for the remainder of the year, the firm's confidence in exceeding record 2024 revenues, the current recruiting pipeline, and how the firm is balancing hiring ambitions with managing the compensation ratio.

Answer

CEO Andrew Bednar declined to give specific revenue guidance but expressed pleasure with the broadening of the business, making it less reliant on single large fee events. He highlighted positive leading indicators like client engagement and the immediate impact expected from the Devon Park acquisition. On recruiting, Bednar noted the firm's best hiring year on record creates embedded future growth. He stated it is too early in the year to adjust the compensation margin, which is currently being accrued at the same level as Q1, with a final decision to be made in Q4 based on full-year performance.

Brendan O'Brien asked for an update on M&A activity trends in Europe relative to the U.S. He also inquired about the recruiting environment, questioning if the current market volatility is creating more favorable hiring opportunities for the firm.

Answer

CEO Andrew Bednar stated that Europe is showing more unity and a more accommodative regulatory backdrop, though it is also experiencing a temporary pause similar to the U.S. He confirmed that the slower M&A announcement cadence creates a better environment for recruiting, aligning with the firm's goal to accelerate hiring in 2025.

Brendan O'Brien of Wolfe Research asked about the dynamics of cross-border M&A given currency and valuation gaps, and requested an update on the firm's recruiting pipeline and its potential impact on the compensation ratio.

Answer

CEO Andrew Bednar acknowledged the historic valuation gap could drive U.S. companies to acquire in Europe. Regarding recruiting, he confirmed the pipeline is strong at both partner and MD levels and emphasized the focus is on hiring productive, accretive talent to improve conversion rates, rather than on hitting a specific headcount that would directly impact the comp ratio.

Brendan O'Brien inquired about the potential tailwind for M&A from a potentially easier antitrust regime, asking for a sense of how impactful the tougher backdrop has been. He also asked about the current recruiting environment and the outlook for partner growth, noting that hiring has been below target for the last couple of years.

Answer

Andrew Bednar, Chief Executive Officer, explained that the primary negative impact of the tough antitrust environment was the 'chilling impact' from longer deal closing timelines, and that a lighter touch would be an 'accelerant' for M&A. Regarding recruiting, he acknowledged being 'a little bit below trend,' attributing the slowdown to a longer vetting and transition process for busy candidates, but noted the firm is picking up the pace for 2025.

Brendan O'Brien of Wolfe Research asked about the current tenor of conversations with private equity sponsor clients and the firm's confidence in achieving its long-term $2 billion investment banking revenue target now that a market recovery seems to be underway.

Answer

Chairman & CEO Chad Abraham confirmed that sponsor conversations are very active with many transactions launched, expecting a pickup in the second half of the year. Regarding the revenue target, he reiterated confidence in the firm's 'brick by brick' strategy of investing in growth areas like technology and services, and stated he expects to see increased productivity from managing directors to help achieve that goal.

Brendan O'Brien followed up on the bifurcated M&A market, asking for details on activity in key industry verticals beyond consumer and services and the revenue contribution from sectors less exposed to tariff risk. He also requested more clarity on the potential magnitude of the quarter-over-quarter decline expected for advisory revenues in Q2.

Answer

Chairman and CEO Chad Abraham provided a team-by-team breakdown, noting an expected improvement in the largely domestic healthcare market, a potentially down year for energy after a record 2024, and challenges in consumer soft goods. Regarding the Q2 advisory outlook, he clarified that while a decline is expected due to deal timing, it is not anticipated to be a 'major decline' because of offsetting activity in other areas. He described the situation as a 'short-term bump' with many deals ready to launch once market clarity improves.

Brendan O'Brien inquired about the development of M&A dialogues in the Financial Services and Healthcare sectors, and also asked for an update on deal cycle elongation and valuation disparities in the advisory business.

Answer

Chairman and CEO Chad Abraham responded that conditions have improved in both sectors. He noted that while healthcare M&A is already showing signs of improvement, depository M&A conversations are getting better with an expected pickup in 2025. Regarding the advisory business, Abraham described a 'slow, steady improvement' across all sectors, stating that while processes are not 'frothy,' deals are consistently getting done, which could lead to a longer, more normal cycle.

Brendan O'Brien from Wolfe Research inquired about Piper Sandler's capital allocation strategy, specifically the preference for M&A versus shareholder returns. He also asked how the recent Fed rate cut has impacted financial sponsor willingness to transact and the timeline for their return to the market.

Answer

CEO Chad Abraham stated that acquisitions remain a top priority for capital allocation due to a strong track record of returns, and the deal pipeline is active. Regarding sponsors, he noted that activity is improving slowly and gradually, not snapping back, but recent pitching has been strong, suggesting continued improvement into 2025.

Brendan O'Brien of Wolfe Research posed a two-part question on expenses, asking about potential cost synergies from the Roby Warshaw deal and management's confidence in lowering the compensation ratio to sub-60% levels in the future.

Answer

CFO Tim LaLonde addressed expense management broadly, stating the firm is focused on balancing investment in talent with cost discipline. He noted the current compensation ratio reflects their outlook and, while he aims to lower it, he did not commit to a near-term timeline. On non-comp expenses, he explained increases were driven by strategic investments in occupancy for expansion and in technology, but on a per-head basis, costs have risen only modestly over several years.

Brendan O'Brien of Wolfe Research questioned how the M&A environment in Europe compares to the U.S. and whether Europe could experience a faster recovery.

Answer

CEO John Weinberg responded that he does not see Europe's recovery outpacing the U.S., noting both regions face uncertainty. CFO Tim LaLonde added a nuance, pointing out that intra-European trade is not hindered by the same tariffs affecting U.S.-Europe trade, which is a helpful factor for the region.

Brendan O'Brien of Wolfe Research, LLC noted the high percentage of new Senior Managing Directors (SMDs) currently ramping up and asked how this compares to historical levels and if the firm can still achieve its target productivity level of around $20 million per SMD.

Answer

CEO John Weinberg expressed confidence that the new group of SMDs will drive productivity as the market improves, stating that reaching the $20 million productivity level through the cycle is achievable. CFO Timothy LaLonde added that the market is still in the early stages of recovery, which should support continued improvement in productivity ratios.

Brendan O'Brien of Wolfe Research asked about the trajectory of Evercore's compensation ratio and the path to returning to a sub-60% level, questioning what the incremental comp margin should look like during the recovery.

Answer

CFO Timothy LaLonde responded that any improvement in the compensation ratio will be gradual and occur over the near to medium term. He emphasized that the firm is balancing margin improvement with strategic investments in talent to build the firm for an improving market. LaLonde noted that intense competition for bankers and associated hiring costs are significant factors, suggesting a drop to sub-60% levels is not a near-term expectation.

Brendan O'Brien asked about the trend in restructuring activity since the market disruption in April and the outlook for that business. He also questioned the potential for the compensation ratio to flex down as revenues improve, considering the ongoing investments in hiring.

Answer

CEO Kenneth Moelis explained that restructuring activity has trended 'flattish to slightly down' and expects it to continue that way. He noted that in a strong market with available capital, marginal companies that might have restructured are instead getting acquired or refinanced, shifting revenue to M&A or capital markets. On the comp ratio, Moelis stated the firm decided to maintain the current 69% accrual, as one strong quarter was not enough evidence to adjust it, and they will re-evaluate in the second half of the year based on top-line performance.

Brendan O'Brien inquired about the current recruiting environment, particularly for the private capital advisory team, and asked for a framework on the revenue growth needed to maintain a flat compensation ratio.

Answer

Chairman and CEO Kenneth Moelis stated that while it's too soon to see a major shift in recruiting, Moelis & Company's strong, unlevered balance sheet remains a key advantage in attracting talent. He confirmed a strong hiring focus on the private capital advisory business. Regarding the comp ratio, Moelis declined to provide a specific formula due to market volatility and variable hiring pace, but reiterated the firm's goal is to lower the ratio over time while investing in growth.

Brendan O'Brien sought more detail on the pickup in sponsor activity and asked if there was a link between sponsor-related restructuring and the subdued sponsor M&A market. He also followed up on whether the prior revenue target for achieving a low-60s comp ratio still holds.

Answer

CEO Ken Moelis estimated sponsor activity is at a '6 out of 10' with a bias toward more aggression. He believes restructuring is driven more by interest rates than a lack of M&A exits. Regarding the comp ratio, Moelis and CFO Joe Simon indicated that the revenue level needed to reach the low-60s is likely higher now, given the firm's continued significant investments in talent and new business lines.

Brendan O'Brien questioned the drivers behind the significant year-over-year increase in total employee headcount, which occurred despite a slight decrease in Managing Directors. He also asked if the firm's thinking on pursuing acquisitions to accelerate growth has evolved.

Answer

CEO Ken Moelis explained that the headcount increase is partly due to pre-hiring junior talent for incoming senior bankers and also a direct result of longer deal completion times, which requires servicing a larger-than-usual backlog of transactions. CFO Joe Simon clarified the year-to-date headcount growth was closer to 12%. On acquisitions, Ken Moelis reiterated his preference for organic growth and strategic team lift-outs, like the SVB transaction, over large, culturally complex M&A deals.

Brendan O'Brien, on behalf of Stephen Shoback, inquired about Carlyle's capital return strategy, asking if share repurchases would accelerate with expected realization activity and how this is balanced against growth investments.

Answer

CEO Harvey Schwartz confirmed that Carlyle repurchased $550 million in shares in 2024, with $850 million remaining on the authorization. He stated the company will remain active with buybacks in 2025, viewing the stock as attractive, while balancing capital return with aggressive investments to drive long-term growth. He also noted the share count has shrunk for the first time in the firm's public history.