"Insignificant" events can sometimes speak volumes under a little scrutiny. On Monday, M&A specialist Lazard (NYSE:LAZ) announced three new hires in its middle-market activity (which covers companies with less than $500 million in enterprise value), which the company launched in 2007.

"Nothing unusual about an investment bank hiring some investment bankers," you might say, but it illustrates both the strength and the limitations of Lazard's focused business model.

No capital markets business = no mortgage losses
On the one hand, as a boutique company with no capital-markets activity, Lazard hasn't suffered the devastating mortgage-related losses that have pummeled larger, integrated banks such as Lehman Brothers (NYSE:LEH). So while Goldman Sachs (NYSE:GS), Citigroup (NYSE:C), and JPMorgan Chase (NYSE:JPM) are busy thinning their ranks, it's a great time for Lazard to be contrarian and hire people in a buyer's market for talent.

However, with advisory fees representing almost two-thirds of 2007 revenues, Lazard is feeling a knock-on effect of the credit crisis because of lower M&A volume. Worse, the slowdown in M&A has disproportionally affected large deals, Lazard's traditional grazing ground. No wonder it's adding people to cover the middle market, which remains robust.

A choice between growth and profitability?
This new orientation may also illustrate the pressures on Lazard – a public company since May 2005 -- to pursue growth. As a partnership, Lazard would never have gone after the middle market, preferring instead to focus on deals that produce the most bang for the buck (such as advising InBev in its $46.3 billion takeover bid for Anheuser-Busch (NYSE:BUD). A $50 billion deal may require more bankers than one worth $500 million, but it doesn't require 100 times as many.

It looks like Lazard CEO and dealmaker extraordinaire Bruce Wasserstein has his work cut out for him in trying to balance growth and profitability for his shareholders.

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