Lazard Profit Beats Estimates as Merger Advisory Fees Double

May 01, 2014 9:11 am ET

(Updates with Evercore, Greenhill in 12th paragraph)

May 1 (Bloomberg) -- Lazard Ltd., the largest independent financial-advisory firm, reported a surge in first-quarter profit that beat analysts’ estimates as revenue from advising on mergers doubled.

Net income jumped to $80.8 million, or 61 cents a share, from $15.4 million, or 12 cents, a year earlier, the Hamilton, Bermuda-based company said today in a statement. Profit exceeded the 54-cent average estimate of 13 analysts surveyed by Bloomberg.

Chief Executive Officer Kenneth Jacobs, 55, said in February the U.S. economy was improving, giving companies more confidence to do deals. The value of takeovers announced in 2014 hit $1 trillion this week, reaching that level at the fastest pace in seven years after more than $300 billion in deals were announced in April. The $1 trillion threshold wasn’t crossed until June last year.

“We’re starting to see those signs of sentiment improving,” Devin Ryan, an analyst at JMP Securities LLC, said in an interview before earnings were released. “The animal spirits of companies are coming back to the market to pull the trigger on deals.”

Financial-advisory revenue climbed 64 percent to $275.5 million from a year earlier, as fees from advising on mergers doubled to $239.1 million, a record for the first quarter. That contributed to a 31 percent increase in operating revenue, which climbed to $540.2 million.

CEO Confidence

“We and a lot of others became more constructive on the macroeconomic environment in the middle of last year, early last year,” Jacobs said in an interview. “I think we’re starting to see the impact of that on CEO confidence and sentiment in a positive way.”

Lazard said in the statement that the jump in merger revenue was also partly the result of “a relatively low level of completions” in the first three months of 2013.

In asset management, Lazard posted a 9 percent revenue increase to $262.3 million, a record for the first quarter. Last year the firm generated more revenue from asset management than it did from advising on deals for the first time.

Assets under management climbed to a record average of $186 billion, up 9 percent from a year earlier and 1 percent more than in the fourth quarter of 2013.

Lazard set aside $317.8 million for compensation in the quarter, or 59 percent of revenue, compared with $248.2 million, or 60 percent, a year earlier.

Lazard slipped 0.4 percent to $47.05 yesterday in New York. The shares climbed 3.8 percent this year, outpacing the 1.9 percent gain for the Russell 1000 Index.

Merger-advisory firms Evercore Partners Inc. and Greenhill & Co. reported profits that missed analysts’ estimates last week, saying transactions weren’t finished in time to yield fees in the first quarter.