Finance

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Boutique investment bank PJT Partners was having a rough enough week. Then it got worse. 

On Monday, the advisory firm's stock tumbled as much as 24.4 percent after one of its managing directors, Andrew Caspersen, was arrested and charged with scheming to defraud investors of more than $95 million. The firm quickly tried to mitigate the damage, issuing a statement stating it was "stunned and outraged" upon discovering a breach of its compliance policies and ethics standards and raised the matter with the U.S. Attorney's Office.

Open to The Public
PJT Partners has shed roughly 17 percent since its initial public offering.
Source: Bloomberg

With its reputation tarnished, PJT reiterated a commitment to integrity, honesty and transparency. So there's no doubt that behind closed doors, it's amplifying compliance controls to avoid any future hiccups and doing what it can to reassure concerned clients. 

Late Thursday, however, it faced a different kind of setback. PJT had been advising a group led by China's Anbang Insurance Group on a bidding war for hotel operator Starwood Hotels that abruptly pulled its $14 billion offer. Not only does that mean PJT missing out on millions in potential fees, but it raises questions about client selection at a time when the staying power of some Chinese buyers is in doubt.  After all, one of PJT's catchphrases is "Your results are our reputation." 

Losing bidding wars can be costly for a firm like PJT, which posted 2015 annual revenue of $406 million (compare that with Goldman Sachs, which generated $3.5 billion in financial advisory revenue). But because investors expect misses from time to time and are familiar with the lumpy revenue model of boutiques, they're not overly spooked. PJT's stock fell slightly Friday, leaving the company with a current market value of $874 million. That implies a valuation of roughly 2.2 times forecast 2016 revenue , which is in line with rivals.  

In With the Pack
PJT Partners seems fairly valued when compared to its peers.
Source: Bloomberg

It helps that PJT had been winning its fair share of advisory roles, especially in restructuring where payment is guaranteed (unlike competitive M&A situations if it's acting on the buy-side). Just this week, Latin American low-cost airline GOL hired PJT to evaluate debt options, following the footsteps of Brazilian telephone operator Oi earlier in March. Plus, the firm is advising on live transactions like Viacom's stake sale in Paramount Pictures and Yahoo's exploration of strategic options.  

PJT's eponymous chief executive Paul J. Taubman told Bloomberg in March that it had become easier to win such mandates and recruit talent since the firm's split from Blackstone. His claim was backed up last month when the firm lured away media and chemicals bankers from rival banks like Credit Suisse (which is facing problems of its own) and Jefferies (which recently posted its worst quarterly loss since 2008).

The Caspersen debacle may or may not lead to a broader fallout, and PJT may have better luck than it had with the Anbang-led group on future deals. But a pile-up of setbacks would hit PJT harder than a bulge-bracket bank, encouraging an even chillier reception from shareholders. 

 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Assumes 2016 revenue growth of 1 percent, in line with 2015's pace. 

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net