Piper Jaffray buys Sandler O'Neill, banking-deal specialist, for $485 million

Piper Jaffray Cos. will buy Sandler O'Neill and Partners — the New York boutique investment bank that recovered and thrived after losing co-founders and dozens of staffers in the 9/11 attack — in a partnership that sharpens its ability to help other firms make deals.

Piper Jaffray will pay $485 million in cash and stock for Sandler. It will remain based in Minneapolis, have annual revenue of $1.1 billion and a new name: Piper Sandler Cos., the financial-services firm said Tuesday.

Though Sandler is a younger and smaller company than Piper Jaffray, the addition of its name is a sign of its stature in the investment banking industry. Executives from both firms emphasized that Sandler's bankers, including its leader Jimmy Dunne, will remain with the combined firm for years to come.

"Transactions in investment banking are always about the people," Chad Abraham, Piper Jaffray's chief executive, said on a call with investors and analysts. "We have a long history with Sandler and have admired the people and quality of the franchise they have built."

Dunne and his colleagues, Abraham said, will "do what they do best and that's be on the front line with their clients."

"I am completely in, completely excited," Dunne, who is 63, said on the call.

Piper Jaffray, whose history stretches back to a Minneapolis brokerage firm that opened in 1895, has in recent years gradually made deal advising across industries a greater source of business. With Sandler, it picks up the investment bank that has put together more deals in the financial-services industry than any other during the last seven years.

For Sandler, the deal brings its closely held business into the view and pressure of more outside investors. The bank is a highly regarded niche player that Dunne helped start in 1988 and has led since the 2001 terror attack.

On Wall Street, Sandler O'Neill's financial success is as well known as its resilience after 9/11. Sixty-seven staffers, including co-founder Herman Sandler, died in the company's office on the 104th floor of the World Trade Center's south tower after the building was struck by a jetliner that day.

The loss represented 40% of the bank's workforce at the time. Sandler O'Neill's partners and employees remained committed to the families of its 9/11 victims, paying the college tuition of all of their children, the youngest of who was born six months after the attack.

Sandler O'Neill currently has 300 employees and grew from $243 million in 2012 revenue to $343 million last year, chiefly by doubling the size of its deal-advising practice.

"We are selling. From a partnership and outside investor perspective, that's true," Dunne said. "But the truth is we're really merging the two businesses, which is evidenced by the fact that Piper thinks enough of Sandler to put the Sandler name, which is very important to us both emotionally and commercially, to stand next to Piper."

Piper Jaffray will pay $350 million in cash to Sandler O'Neill's shareholders and another $135 million in restricted payments, chiefly in the form of Piper Jaffray shares to partners at Sandler O'Neill.

The firms put together another $115 million package to hang on to Sandler O'Neill partners and employees. When complete, Sandler O'Neill employees will own 16% of Piper Sandler.

"There's over 100 people at Sandler O'Neill that have extensive retention packages. We've got five- to seven-year agreements," said Jonathan Doyle, Sandler O'Neill's No. 2 executive. "We're staying right where we are doing right what we do with the clients."

With Sandler O'Neill, Piper Jaffray will pick up about $300 million in new revenue and see an immediate gain to its operating margin. The deal is expected to close early next year.

Dunne will become vice chairman, and Doyle will join the board of the combined firm. In a 2013 profile, the New York Times called Dunne "an old-school trader whose values include shunning debt."

Asked about future growth, Dunne expressed caution about setting expectations.

"We're really excited, and we're nervous," Dunne said. "That's the way we operate. We're going to go out and get whatever's there."

For Piper Jaffray, the deal is the latest aimed at focusing the firm on mergers and acquisition advising. At the moment, its largest mergers-and-acquisition advising unit serves health care firms. Helped by the 2016 acquisition of Simmons & Co., Piper Jaffray also has a sizable unit advising energy firms.

In addition to having a bigger footprint in financial-industry deal making, Piper Jaffray by purchasing Sandler O'Neill will expand its stock research, sales and trading business and add a differentiated fixed-income business.

Piper Jaffray recently moved to exit the asset-management business with the sale of a subsidiary in two transactions announced in May.

Evan Ramstad • 612-673-4241