Introduction

On November 14, 2016, Perella Weinberg Partners LP announced it was acquiring Tudor Pickering Holt & Company LLC. As a result of the transaction, Tudor will become a subsidiary of Perella but its energy business – the real heart of the deal, adding 2 billion to Perella Weinberg’s Asset Management division – will keep Tudor Pickering Holt’s name.

The result of the combination between this two highly complementary firms will be a well-positioned investment banking and asset management leading company, with enhanced expertise, scale, and geographic reach.

About Perella Weinberg Partners LP

Perella Weinberg Partners is an American investment banking firm, organized as a Private Limited Partnership. Founded in 2006, it is now recognized as a leading player in the boutiques’ universe, providing financial services to corporations, institutions, and governments globally. With 450 employees worldwide, Perella Weinberg Partners is headquartered in New York and maintains offices in London, Abu Dhabi, Denver, Dubai, and San Francisco.

The company is focused on two main areas: Asset Management and Financial Advisory. The first one includes hedge fund strategies and private investment funds as well as outsourced investment solutions, with capital commitments and managed assets of approximately $10.2bn (a 20% increase since last year – $8.6bn in Dec. 2015). The advisory business focuses on M&A, financial restructuring, private capital raising and capital structure advisory. Specifically, Perella was recently involved in shaping AT&T’s $85.4bn pending takeover of Time Warner.

As independent advisory firms are experiencing significant competitive pressure coming from different competitors, Perella Weinberg is currently focused on expanding its offer of financial services – mainly via targeted external growth.

About Tudor, Pickering, Holt & Co. LLC

Tudor Pickering Holt & Co is an investment and merchant bank, founded in 2004 and headquartered in Houston (Texas) with offices in London, New York, Calgary, and Denver. With about 200 employees worldwide, it is highly specialized to serve the energy industry and it provides a wide range of financial services organized in four main areas: research coverage, investment banking, sales & trading and investment management.

Tudor holds $1.9bn assets under management in the energy sector and it is currently focusing on developing its leading Energy Asset Management business, while pursuing market share in the M&A Advisory segment as well.

Industry Overview – The Rise of Boutique Investment Banks

A significant portion of the Investment Banking business can be easily carried out without putting any capital at work. No balance sheet is required to advise on an M&A transaction or the restructuring of a firm’s debt. As a consequence, the financial services industry has been recently invaded by a myriad of small and medium investment banking firms, called boutiques, with a pure focus on corporate finance advisory services and, in some cases, asset and wealth management. These firms usually employ little or no capital and generally have a partnership structure similar to law firms.

However, boutiques are not all the same. In the difficult attempt to classify them, we could identify two major categories: (i) regional boutiques and (ii) elite investment banks. Regional boutiques usually advise on relatively small deals (usually below 100m or even 50m), have competences limited to one city or region and focus mainly on M&A with exceptional forays in Restructuring. These firms do not represent a threat to bulge bracket banks, since they usually advise on deals too small for them. On the other hand, elite boutiques usually compete with bulge bracket for multibillion deals (but they are also active on mid-market transactions) and have an international presence. However, because of their capital-light corporate infrastructure, they remain very much focused on M&A and Restructuring. These firms were usually founded by former senior bankers at bulge brackets and also massively recruit from there. Among these we list: Perella Weinberg Partners, Lazard, Greenhill, Moelis & Company, Qatalyst and Centerview. These elite boutiques represent a major threat to the big banks, since they employ people with first-class banking expertise and solid client relationship and, thanks to their light cost and capital structure, they can bid more aggressively in terms of fees.

Moreover, in many cases boutiques investment banks praises themselves to have no conflicts of interests since they have no Sales and Trading division. On the other hand, boutiques cannot offer all the complementary products (e.g financing and hedging solutions) that major banks do.

According to Dealogic, boutiques increased their share in the US M&A market from 8% in 2008 to 16% in 2014.

Deal structure

The financial terms of the transaction have not been announced, nonetheless the combined company will operate under the Perella Weinberg Partners’ name, except Tudor Pickering Holt’s energy business, which will continue under its current name. According to Bloomberg, Tudor Pickering Holt’s executives did not cash out their stake in the company, but rather reinvested it in the combined company. Moreover, some of Perella Weinberg’s outside investors, including an investment arm of Qatar, helped finance the transactions.

The new company will be led by Chairman Joseph R. Perella, and Robert K. Steel will continue to serve as its CEO. Tudor Pickering Holt’s chairman and CEO Robert B. Tudor III will remain chairman. The asset management division will be led jointly by Aaron Hood, Perella Weinberg’s CFO, and Tarek Abdel-Meguid, a partner at Perella Weinberg. Alexandra Pruner will be Perella Weinberg’s CFO, the same post she occupied at Tudor Pickering Holt.

In order to make an educated guess on the potential multiple paid by Perella it might be interesting to look at the recent deal between TIAA and Nuveen Investments in the asset management industry. It should be noted that, with a price tag of $6.25bn, such deal is considerably larger than the one under discussion. Nonetheless, the 13x EV over adjusted EBITDA multiple paid by TIAA could be used as a benchmark.

Deal rationale

In recent years, the boutique investment bank industry has grown considerably as highly qualified bankers have left large investment banks to establish their own firms. The sector has also been experiencing a trend of consolidation. Indeed, scale is very important when competing with larger banks.

According to Tudor Pickering Holt’s press release, clients of both firms will benefit from a differentiated M&A franchise offering expanded expertise in its services and sector coverage. The combined advisory business will have deep expertise in key industry that are among the most important and strategically active sectors of the global economy — energy, healthcare, consumer/retail, TMT, industrials and financial institutions.

Tudor Pickering Holt’s expertise in the energy sector will extend Perella Weinberg’s operations into a sector that has been rife with demand for advisory services (restructurings in particular). Alongside, the combined company will have a broader geographic presence, including a stronger foothold in the Middle East, Europe and US.

Furthermore, the transaction will add Tudor Pickering Holt’s c. $2bn AUM to Perella Weinberg’s $10bn without overly diluting control over the partnership.

Finally, a culture clash deriving from the merger does not seem very likely. Indeed, several senior managers of both companies are Goldman Sachs alumni, or otherwise hailing from similar institutions.

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