Lazard Puts Future in M&A with New CEO

November 17, 2009

By Bob Blandeburgo, Associate Editor, Money Morning

In a signal of confidence for the future of mergers-and-acquisitions (M&A), Lazard Ltd. (NYSE: LAZ) appointed Kenneth Jacobs as its chairman and chief executive officer following the unexpected death of famed dealmaker Bruce Wasserstein.

Jacobs, a 21-year company veteran, was most recently CEO of Lazard North America and has a history of leading M&A advisory teams.

“Jacobs is clearly qualified for the position because he has run the North American operations of the company,” Dick Bove, vice president and equity research analyst at Rochdale Securities LLC told Bloomberg Television. “It should be positive for Lazard.”

The worst financial crisis since the 1930s has resulted in a dramatic slowdown for the M&A market in 2009, taking huge chunks of revenue from the income statements of companies that depend on deals.

For Lazard, the downturn was evident: Third quarter revenue at its M&A and strategic advisory business – once its No. 1 source of sales – fell to $124.6 million from $230.8 million in the same period last year, a drop of 46%. That drop was easily offset by growth in its restructuring business, where revenue rose to $119.1 million from $23.9 million a year ago, a gain of 397%.

When the Lazard's board set out to find a replacement for Wasserstein, it could have appointed a new chief executive to take the company in a different direction – such as shifting more resources to its asset management business.

Instead, the company chose Jacobs, who has led Lazard teams on a number of high-profile deals. Most recently, he advised GlaxoSmithKline PLC (NYSE ADR: GSK) on its purchase of Stiefel Laboratories  Inc. and the Rohm Family Trusts, which played a part in the sale of Rohm and Haas to The Dow Chemical Co. (NYSE: DOW).

Lazard, which got 62% of its third-quarter revenue from its financial advisory business, is optimistic on the long-term future of M&A.

“The economy is beginning to stabilize and CEO confidence is returning,” then-interim CEO Steven J. Golub said last month. “We are still planning for a gradual increase in traditional M&A activity, reaching the prior period highs in about four years.”

M&A activity so far this month has reached a total value of $236.1 billion, up 44% from $163.7 billion in all of October, Financial News Online reported, citing data from Dealogic. Still, the total of $2 trillion in M&A deals so far this year are far behind 2008's pace. (Deal values had reached $2 trillion in July of that year.)

Analysts at Deutsche Bank AG (NYSE: DB) said in October the market is ripe for a significant rebound in M&A over the next 12 months as newly capitalized companies look for acquisitions to spur growth in difficult markets. A prime example of this was when Hewlett-Packard (NYSE: HPQ) last week said it would acquire 3Com Corp. (Nasdaq: COMS), giving H-P a shot in the arm in the networking business as well as a presence in China.

Jacobs has seen his share of turbulent times at the company, including 2005 when Wasserstein took the company public against the wishes of Michel David-Weill, a descendant of the firm's founders.

“Jacobs has always been there for Lazard through all the upheavals the firm has had during the last ten years," William Cohan, author of Lazard history “The Last Tycoons” told Reuters. “He has always been the guy behind the scenes holding the firm together.”

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