Last Friday, JMP Group (NYSE:JMP) became the latest boutique investment bank to go public. The company's stock rose 11.8% to $12.30, but the valuation is far from a bargain for investors.
Founded in the heady days of 1999, JMP wanted to be a next-generation powerhouse like Montgomery Securities or Hambrecht & Quist. However, a couple of years later, a wrenching bear market killed off many investment banks.
JMP realized that it needed to build a diversified platform, so the company expanded its sector coverage into business, consumer, and financial services, health care, real estate, and technology. The platform also offers M&A advising, institutional brokerage services, public offerings, and research for middle-market companies, among other features. JMP's broadened approach has worked quite well, and revenue has surged 340% over the last five years to $86.8 million.
With $61 million in IPO proceeds, JMP can now expand its asset management business. It currently has five hedge funds, two funds of hedge funds, and a real estate investment trust. As alternative asset managers like Fortress Investment Group (NYSE:FIG) have demonstrated, these can be highly lucrative businesses.
While this is all great, JMP still trades at a steep multiple of 47 times earnings. Keep in mind that the multiples of other boutiques like Greenhill (NYSE:GHL) and Thomas Weisel Partners (NASDAQ:TWPG) range from 20 to 25 times earnings. Valuations and volatility are typically high for recent IPOs, so despite JMP's diversified business model and a solid team, it's probably best for Foolish investors to wait on this one.
For further Foolishness:
- Lazard's Laser Focus
- Foolish Forum: Are Boutique Banks in Style?
- KBW: An Investment Banking Mint
- Evercore: The M&A Junkie
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Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 1,610 out of 28,402 in CAPS. He is the author of The Complete M&A Handbook. The Fool has a disclosure policy.
