Title: Lazard’s Struggles and the Case for Private Ownership in the Investment Banking Industry
Introduction:
The investment banking industry is known for its fierce competition and constant pursuit of growth. However, renowned investment bank Lazard is facing difficulties in its 176th year of existence. This article delves into the challenges Lazard is currently navigating, the benefits of private ownership in the industry, and explores potential solutions for the bank’s woes.
I. Lazard’s Struggles in a Challenging Market
1. Lazard’s preliminary purchase talks with ADQ and the need for reestablishment
– Lazard’s attempts to combat deal drought and increased competition
– Gulf money inflows to Western financial and sports institutions as a factor
2. The Evolution of Lazard as a Public Company
– Lazard’s two-decade status as a public company
– Introduction of non-management public shareholders as a recent experiment
3. Manifestation of Flaws in Lazard’s Plight
– Lazard’s current share price compared to its 2005 listing price
– Erratic deal fees and the need for steady, predictable earnings
II. The Case for Private Ownership in Investment Banking
1. Lazard’s Asset Management Business as a Hedge
– Examination of Lazard Asset Management’s size and assets under management (AUM)
– The potential benefits of private ownership in asset management
2. Financial Stability and Dividend Payments
– Lazard’s strong cash flow and history of healthy dividends
– Current dividend yield and advantages of a single long-term shareholder
3. Overcoming the Hurdles of Public Shareholders
– The need to buy out public shareholders at a price above intrinsic value
– Maintaining Lazard’s unique independence through strategic actions
III. The Irony of Lazard’s Initial Public Offering
1. The History and Purpose of Lazard’s IPO
– How Lazard’s IPO aimed to finance the buyout of old line shareholders
– The missed opportunity of finding financing from parties like ADQ
2. Lackluster Performance and Limited Options
– Challenges faced by Lazard as a public company
– Exploring alternative paths and the continuation of Lazard as an independent public entity
Engaging Additional Piece:
The investment banking landscape is ever-evolving, and Lazard’s struggles prompt us to reflect on the merits of private ownership in the industry. While public ownership has its advantages, such as access to capital markets, the drawbacks can be equally significant. Lazard finds itself in a precarious position as it grapples with fluctuating earnings and a stagnant share price.
Private ownership offers unique benefits that can contribute to Lazard’s long-term success. As a private entity, Lazard can prioritize sustainable growth over expansion driven solely by market pressures. The company’s strong cash flow and consistent dividend payments are indicative of its stability and potential to thrive under private ownership.
However, the path to private ownership is not without obstacles. Lazard must navigate the task of buying out public shareholders at a price that reflects the company’s intrinsic value, ensuring a fair transaction that aligns with the interests of all stakeholders. Balancing the need for a single long-term shareholder with Lazard’s unique independence remains a challenge.
Moreover, the irony of Lazard’s IPO adds another layer to its current predicament. The decision to go public was initially driven by the need to buy out old line shareholders. In hindsight, finding external financing for this purpose would have allowed Lazard to maintain its majority owner structure and potentially thrive as a private company.
In conclusion, Lazard’s struggles serve as a catalyst for examining the merits of private ownership in the investment banking industry. While public ownership provides its benefits, private ownership may be the key to unlocking sustainable growth and stability for Lazard. The path to private ownership requires careful consideration and strategic actions, but it offers the potential to rejuvenate Lazard’s position in the market.
Summary:
Lazard, a venerable investment bank enjoying its 175th anniversary, faces challenges in its 176th year. Preliminary purchase talks with ADQ, an Abu Dhabi sovereign wealth fund, highlight Lazard’s efforts to reestablish itself amidst a deal drought and increased competition. However, public shareholders pose obstacles to Lazard’s growth and stability, prompting the consideration of private ownership.
Lazard’s struggles manifest in its stagnant share price and erratic deal fees. While its asset management business was intended to be a hedge, it remains relatively small compared to its assets under management. Private ownership offers the potential for sustainable growth, prioritizing stability over expansion for the sake of growth.
The irony of Lazard’s IPO becomes apparent when examining its history and purpose. The decision to go public aimed to finance the buyout of old line shareholders, but alternative financing from parties like ADQ could have prevented lackluster performance as a public entity.
In conclusion, private ownership may present a more viable path for Lazard to overcome its challenges and restore its position in the investment banking industry. Finding a balance between the interests of public and private stakeholders is crucial for Lazard’s success.
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Lazard is proudly celebrating its 175th anniversary this year. However, the 176th year of the venerable investment bank’s existence is proving difficult.
The Financial Times on Tuesday reported Lazard conducted and finalized preliminary purchase talks with ADQ, an Abu Dhabi sovereign wealth fund. Such conversations should not come as a surprise. Lazard is trying to reestablish itself amid a significant deal drought and increased competition. At the same time, tens of billions in Gulf money are being dumped at Western financial and sports institutions for commercial or soft power reasons.
Lazard has been a public company for nearly two decades. Even after a recent rough patch, he still has an enterprise value of around $4 billion. Historically, most professional services businesses were employee owned and run. The introduction of non-management public shareholders is a relatively recent experiment. His flaws now manifest in Lazard’s plight.
Lazard’s current share price is only marginally higher than its 2005 listing price. It still raised $1.7 billion in deal fees in 2021. But those are erratic and not the ideal basis for the public capital it values. a steady, predictable and smoothly upward trajectory in earnings. The asset management business was meant to be such a hedge. But Lazard Asset Management is a relative minnow with roughly $200 billion in AUM.
Lazard would benefit from being private and not having to expand simply for the sake of growth. The company generates strong cash flow and has paid healthy dividends for years. Its current dividend yield is six percent. A single long-term oriented shareholder might be ideal if it does not undermine the unique independence of the group. But to get to that juncture, public shareholders would have to be bought out at a price well above intrinsic value.
lazardIronically, it went public to raise the funds needed to buy out the old line shareholders. A better option in 2005, when Lazard’s bankers owned a majority of the company, would have been to find a party like ADQ to finance the buyout of those inherited minority owners’ stakes. That would have prevented its largely lackluster performance as a public action. Instead, Lazard finds itself with few options other than to continue as an independent public company.
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https://www.ft.com/content/8a0e8bd1-8df2-445d-9e80-183d89ecbd80
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