Is Recent Blackstone Spinoff PJT Partners A Bargain? WSJ Says Maybe

We failed to note it at the time, but on October 1, Blackstone(BX) completed the spinoff of several advisory businesses which combined with PJT Capital to form PJT Partners(PJT).  Blackstone unit holders received one PJT share for every forty units of Blackstone held. The spinoff was structured to be tax free to unit holders.

PJT Partners begins operations today as a global independent financial advisory firm. With a veteran team of professionals, including 46 partners, the firm is poised to deliver a wide array of strategic advisory, restructuring and reorganization and funds advisory services to corporations, financial sponsors, institutional investors and governments.

Stephen A. Schwarzman, Chairman, CEO and Co-Founder of Blackstone, said, “30 years ago, Blackstone was founded as an advisory firm. We have every confidence that under Paul’s leadership, PJT Partners will quickly build upon its strong track record to further strengthen its position as one of the preeminent strategic financial advisory firms in the world. We look forward to working with them as clients and continuing the relationships that we have had as colleagues.”

Added Paul J. Taubman, Chairman and CEO of PJT Partners, “Today marks the culmination of this past year’s hard work and thoughtful planning, and I am extremely excited about the future of PJT Partners as a stand-alone public company. Combining the 30-year legacy of an established firm with the entrepreneurial culture of a start-up, PJT Partners brings together three best-in-class businesses—Advisory, Restructuring and Park Hill. As a next-generation, advisory-focused investment bank that is free of constraints, we are committed to providing our clients with unparalleled, strategic advice while creating long-term value for our shareholders.”

By its first day of regular way trading, PJT had dropped from its when-issued high of 28 to 21. Though it has since rebounded to 22.85 as of Friday, an October 1 Wall Street Journal article explains how PJT might still be a bargain.

With spin-offs, it’s often hard to gauge sentiment. Many investors are forced by their particular fund mandates to sell their new holding. So it’s not clear if the price would have been much lower if PJT Partners hadn’t done a roadshow to pitch the offering to investors.

Now that it’s found its initial level, however, its fortunes may be poised to change.

The spin-out of PJT was based on a projected valuation of $1.5 billion, but investors lowered the market cap closer to $850 million. At $1.5 billion PJT was at over 3 times projected 2015 revenue, and at the new price it’s worth about 2 times.

That multiple is more in line with its five peers: Lazard, Moelis & Co.,Evercore Partners Inc, Greenhill & Co., and Houlihan Lokey Inc. Each of these boutiques trade in a range of 1.8 to 2.7 times expected 2015 revenue.

That suggests at the new price, shares of PJT may have more upside than downside. That’s seem especially likely given where it is in its life-cycle relative to the other firms. Mr. Taubman plans to hire a lot more M&A bankers to ratchet up growth.

Beyond its trading multiple, MoneyBeat took a look at how PJT’s IPO and its business stacks up to its competitors using Dealogic’s data.

Ranking among advisors on U.S. M&A transactions in 2015:
PJT Partners = 26 (3 deals valued at $37.4 billion)
Moelis = 20 (61 deals valued at $59 billion)
Evercore = 13 (76 deals valued at $148 billion)
Greenhill = 17 (24 deals valued at $92 billion)
Houlihan Lokey = 22 (105 deals valued at $42.8 billion)
Lazard = 9 (87 deals valued at $289 billion)

Number of deals valued at over $1 billion in 2015:
PJT Partners = 3
Moelis = 12
Evercore =17
Greenhill =11
Houlihan Lokey = 7
Lazard = 24

Over $5 billion:
PJT Partners = 3
Moelis = 5
Evercore = 6
Greenhill = 4
Houlihan Lokey = 4
Lazard = 11

First-day IPO returns:
PJT Partners: negative 13%
Moelis = 5% (2014)
Evercore = 18% (2006)
Greenhill = 17% (2004)
Houlihan Lokey = 7% (2015)
Lazard = negative 4% (2005)

IPO Proceeds:
PJT Partners =  N/A
Moelis = $187 million
Evercore = $93 million
Greenhill = $101 million
Houlihan Lokey = $254 million
Lazard = $855 million

Market cap:
PJT Partners = $823 million
Moelis = $1.4 billion
Evercore = $2.0 billion
Greenhill = $827 million
Houlihan Lokey = $1.5 billion
Lazard = $5.6 billion

The WSJ numbers place PJT at the low end of its valuation range. If the company can achieve the growth that management aims for, it might prove to be quite a bargain for patient investors. PJT recently commented that “total revenues for the third quarter of 2015 are expected to be significantly higher than the third quarter of 2014. Total revenues for the fourth quarter of 2015 are expected to be significantly lower than the fourth quarter of 2014 and as a whole, PJT Partners anticipates a slight increase in total revenues for the year ending December 31, 2015 compared to the year ended December 31, 2014.”  It remains to be seen if, operating independently, the company can dramatically accelerate its growth.

Disclosure: The author holds no position in any stock mentioned