A new report by JMP Securities looked at the current merger and acquisition environment and what it means for independent advisory firms (IAFs). Analysts believe that a recent rebound in M&A activity is a positive for the space.
Slow Start
After a slow start to 2015, analysts note that M&A activity seems to be accelerating. According to the report, advisory volumes climbed an impressive 40 percent in March compared to January and February levels.
Analysts see Evercore Partners Inc. EVR 0.67%, Greenhill & Co., Inc. GHL 0.05%, Lazard Ltd LAZ 1.02%, Moelis & Co MC 0.24% as well-positioned to capitalize on growing M&A activity.
Analysts predict that Q1 will likely be the toughest quarter of the year for the group due to the timing of deal closings.
Overall, they are calling for an increase in 2015 revenue compared to 2014, but the biggest jump in revenue will come later in the year.
Getting Back To Normal
More than six years removed from the worst of the Financial Crisis, analysts believe that M&A activity is still in the process of recovering to normalized levels. According to the report, analysts do not feel that the potential for further upside in M&A activity is priced into IAF stocks.
“Given our view that there is still upside potential to normalized earnings for the group, and multiples are generally reasonable to attractive after contracting in 2014 (and further into 2015), we see room for the advisory firms to move higher,” analysts explained.
Stock Picks
JMP has a Market Outperform rating on Evercore, Lazard and Moelis and a Market Perform rating on Greenhill. The report lists Lazard as JMP’s top pick in the space.
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