Many Blackstone M&A Bankers Expected to Depart Ahead of Spin Off to Taubman

Mar 19 2015 | 10:00pm ET

(Reuters) - More than half of the 17 senior managing directors working in Blackstone Group's mergers and acquisitions advisory arm may leave as the business is combined with the advisory firm headed by star Wall Street investment banker Paul Taubman, according to people familiar with the matter.

Some of the bankers have decided to move elsewhere or retire, while others have lost out to people doing similar jobs at Taubman's PJT Capital LP, the sources said.

Blackstone agreed last October to spin off its advisory operations in the second half of this year into a new publicly traded company that will be run by Taubman, 54. The operations of the business being spun off include M&A, restructuring and private fund advisory. PJT currently focuses on M&A advisory.

The likely exodus of senior M&A bankers shows that, even though Blackstone shareholders, including its co-founder Stephen Schwarzman, are expected to own 65 percent of the combined business, Taubman has the biggest role in shaping it. He will be CEO of the combined firm.

Since he left a senior role at Morgan Stanley in 2012 to strike out on his own, Taubman has advised on deals with a value of almost $240 billion, and he ranked 12th in the global M&A advisory league tables in 2013 and 23rd in 2014, according to Thomson Reuters data. By contrast, Blackstone ranked 50th in 2013 and 68th last year.

Former Blackstone executives are expected to have a bigger presence in the restructuring and fund advisory areas, with the vast majority of the 22 Blackstone partners in those operations expected to stay, including the heads of these businesses, the sources said.

On the M&A side, though, 12 of the 17 senior managing directors at Blackstone, including investment banking veterans such as Mary Anne Citrino, Anthony Steains, James Schaefer and Greg Hewett, currently do not yet have agreements to join PJT, the sources said.

The sources requested anonymity because they were not authorized to publicly discuss the matter.

Spokesmen for Blackstone and PJT declined to comment on behalf of the firms and the people involved.

SOME OFFICES WILL CLOSE

Talks are ongoing and PJT expects as many as nine Blackstone senior MDs to join its M&A business by the time of the spinoff, the sources said. Among those who already have agreed to work at PJT are Blackstone senior managing directors Ivan Brockman and Karl Knapp, the sources added.

Some of the Blackstone bankers are not joining PJT because they do not want to make the multi-year commitment to back what is, in many ways, a new venture, the sources said. New advisory firms can take several years to ramp up.

There are also departures related to PJT's plans to close some of Blackstone's 15 advisory offices around the world, the sources said. The Frankfurt office, for example, will close because PJT's clients can be better served for now by more well staffed offices, such as London, the sources added.

To be sure, most of the 15 Blackstone M&A bankers who are the next tier down – at managing director level – are expected to join PJT. Most of them are younger and keen to be part of a new venture, according to the sources.

John Studzinski, who runs the Blackstone M&A advisory business, will not move over. He will stay with Blackstone to work on fundraising initiatives.

Martin Alderson Smith, another M&A senior managing director, is also staying with Blackstone to advise the firm on its investments.

PJT has poached several high-profile bankers from major Wall Street rivals in recent months, including, most recently, Jessica Kearns, head of JPMorgan Chase & Co's JPM.N technology, media and telecommunications syndicated and leveraged finance group, according to some of the sources.

Other high-profile hires by Taubman in recent months include Johannes Groeller, co-head of Europe, the Middle East and Africa M&A at Morgan Stanley, as well as Don Cornwell, a top sports banker from Morgan Stanley, and John Trousdale, vice chairman of global mergers and acquisitions at Credit Suisse Group AG.

FREE OF CONFLICTS

In January, Blackstone said it had extended the vesting period for shares given to employees, a move partly aimed at making it more difficult for bankers to be poached from PJT by competitors.

PJT's revenue is a small fraction of the revenue at New York-based Blackstone, the world's largest alternative asset manager. PJT had pro-forma revenue of $401.1 million in 2014. Blackstone, with its giant private equity, real estate, credit and hedge fund arms, by contrast, had revenue of $7.5 billion.

Yet the spin off is a bet that Blackstone's advisory business is worth more on its own. Once it is spun off, it will be able to pursue private equity firms as clients free from conflict of interest concerns over Blackstone's ownership. Companies may be more inclined to hire the new firm if they aren’t worried that Blackstone could be a buyer of their assets.

Shares in other publicly traded investment banking boutiques, Evercore Partners Inc., Moelis & Co., Greenhill & Co Inc. and Lazard Ltd., currently trade at an average 50 percent premium to Blackstone based on projected 2016 earnings. Blackstone's hope is that an independent, conflict-free PJT will be valued close to those levels, or even better.

"We continue to estimate the tax-free spin would improve the value that the public markets were attributing to Blackstone's advisory business," Credit Suisse analysts wrote in a note last week.


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