It’s the end of the beginning for Blackstone. The merger advisory business that Stephen Schwarzman and Peter G. Peterson used as a cornerstone to build their buyout firm three decades ago is being spun off.
Merging it with a fledgling shop run by the former Morgan Stanley investment banking chief Paul J. Taubman potentially heralds the start of something else. The rise in global mergers could spawn a super-boutique or even entice a big bank to buy an independent firm.
The conflicts-of-interest problem at Blackstone has become more of a hindrance. As assets under management swelled to nearly $300 billion, the firm’s growing investments in real estate, credit and so-called tactical opportunities like mortgages and oil tankers prevented Blackstone’s advisers from providing counsel to outsiders on many deals and restructurings.
The company will spin off the business to its unit holders and combine it with Mr. Taubman’s PJT Partners, which counts Comcast and Verizon as clients. If the business generates roughly the same 16 percent net profit margin as its rivals Evercore, Greenhill and Lazard and fetches their blended valuation multiple of about 17 times next year’s estimated earnings, the new Blackstone/Taubman operation should be worth at least $1 billion.
The deal could give other merger practitioners some ideas. After all, there is a sheeplike mentality when it comes to mergers and acquisitions, as illustrated most recently by inversions. And the Blackstone boutique led by Mr. Taubman will arguably be a stronger competitor for both advisory mandates and in the hiring market.
The proliferation of postcrisis advisory firms — think Robey Warshaw, Zaoui & Company and the like — has helped the independent share of the global deal fee pool rise to more than a quarter from about 10 percent a decade ago, Thomson Reuters data show. Putting some of them together might create the scale needed to survive for the longer term.
A foreign bank from Brazil, Canada or Japan might get the urge to enter or expand its presence dispensing advice as, say, the investment bank Dresdner Kleinwort did with Wasserstein Perella more than a decade ago. Larger American institutions also get the bug sometimes, as when Chase Manhattan Bank, the predecessor of JPMorgan Chase, bought the investment bank Hambrecht & Quist. Blackstone stoked a trend by going public in 2007. Don’t be surprised if it kicks off another.
Jeffrey Goldfarb is United States editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.