Two small but well-known investment banks have announced a merger agreement, which is expected to enable these firms compete effectively with bigger global names. Piper Jaffray Companies PJC has announced an agreement to acquire Sandler O’Neill + Partners, L.P. for $485 million.
Having advised clients on 498 M&A transactions, Sandler O’Neill will likely further expand Piper Jaffray’s M&A advisory business.
The deal, expected to close in January 2020, is still subject to regulatory approvals and other customary closing conditions. Following the closure of the transaction, the combined entity will be named — Piper Sandler Companies.
Chad Abraham, CEO of Piper Jaffray said, “With Sandler O’Neill, we start with the market leader and could not be positioned better to compete in the financial services sector over time. This transaction strengthens, diversifies and accelerates the growth of the Piper Jaffray investment banking, capital markets and institutional distribution businesses.”
Transaction Details & Benefits
Per the terms of the deal, Piper Jaffray will buy 100% of the equity and partnership interests in Sandler O’Neill. The company will pay $350 million in cash to Sandler O’Neill equity holders at the time of closing, while the remaining $135 million will be paid in form of restricted stock of Piper Jaffray to Sandler O’Neill employee partners.
Moreover, Piper Jaffray is offering $115 million in long-term retention incentives, primarily in restricted stock of Piper Jaffray Companies, to Sandler O’Neill employees. In fact, all Sandler O’Neill partners have entered into employment agreements in connection with the deal.
Notably, once the deal is complete, Sandler O’Neill employees will own nearly 16% of Piper Sandler.
Additionally, the current Piper Jaffray CEO will continue to lead the combined company, while Jimmy Dunne, senior managing principle at Sandler O’Neill, will become Piper Sandler’s vice chairman and senior managing principal of the financial services business.
Further, Jon Doyle, another senior managing principal at Sandler O’Neill, will become a vice chairman, senior managing principal and head of Piper Sandler’s financial services group. Also, he will be joining the Piper Sandler board and the company’s leadership team.
Now coming to the benefits from the transaction, it will result in growth in earnings per share by more than 10% in 2020. Additionally, the deal will add approximately $300 million in annual revenues and expected to nearly double Piper Jaffray’s fixed income business revenues. Furthermore, the company’s operating margin and ROE will improve.
Besides, the deal will expand Piper Jaffray’s equity research business, and sales and trading franchise.
With global M&As increasing, driven by favorable consolidation backdrop, the deal will further improve Piper Jaffray’s market share. The company is restructuring its operations, with primary focus in investment banking. In May, it announced the divestiture of its asset management business.
Shares of this Zacks Rank #3 (Hold) company have rallied 11.3%, year to date, outperforming the industry’s rise of 8%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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