Executive Summary / Key Takeaways

• Piper Sandler has strategically evolved through targeted acquisitions and organic growth, building a diversified investment banking and institutional brokerage platform focused on the resilient middle market and private equity clients.
• The firm demonstrated solid financial performance in Q1 2025, with adjusted net revenues up 14.8% year-over-year and adjusted EPS rising significantly to $4.09, driven primarily by strong advisory services and institutional brokerage activity.
• While near-term market volatility and geopolitical factors present headwinds, particularly impacting M&A deal cycles and equity financing, Piper Sandler's broad sector coverage and product capabilities (including growing debt advisory and private capital advisory) are expected to provide resilience and capitalize on future market normalization.
• The company maintains a robust liquidity position and actively manages capital through dividends (including a recent special dividend) and share repurchases, while prioritizing strategic acquisitions to further enhance capabilities and market share.
• Key factors to watch include the timing and impact of market stabilization on deal flow, particularly with financial sponsors, the execution of strategic talent acquisitions and integration of recent deals like Aviditi, and the management of operating expenses amidst inflationary pressures and relocation costs.

The Foundation: Building a Resilient Middle-Market Powerhouse

Piper Sandler Companies, tracing its roots back to 1895, has transformed into a diversified investment bank and institutional securities firm. This evolution has been marked by a deliberate strategy of targeted acquisitions and consistent organic growth, fundamentally reshaping its capabilities and market focus. Key transactions, such as the integration of Sandler O'Neill Partners in 2020, The Valence Group, and DBO Partners in 2022, significantly expanded its reach, particularly in financial services, technology, and sector-specific M&A. The recent acquisition of Aviditi Capital Advisors in August 2024 further bolstered its offerings by adding private capital advisory services, providing full lifecycle support to financial sponsors and limited partners.

This history of strategic expansion has culminated in a platform designed to serve corporations, private equity groups, public entities, non-profit organizations, and institutional investors across the U.S. and internationally. The core business operates through a single reporting segment, leveraging integrated expertise across investment banking (advisory and financing) and institutional brokerage (sales, trading, and research). A key strategic emphasis has been on the middle market, an area management believes demonstrates greater resilience through market cycles, and on deepening relationships with private equity clients, who now contribute significantly to advisory revenues.

In the competitive landscape, Piper Sandler positions itself as a leading middle-market advisor, consistently ranking among the top three in U.S. M&A deals under $1 billion. While it competes with bulge bracket firms like Goldman Sachs (GS) and Morgan Stanley (MS) on certain transactions, its strength lies in specialized sector expertise (e.g., municipal finance, healthcare, energy, technology) and a client-centric approach that differentiates it from larger, more generalized institutions. Compared to peers like Jefferies Financial Group (JEF) and Evercore (EVR), Piper Sandler's platform offers a blend of deep advisory capabilities and institutional brokerage services, seeking to capture market share through both breadth and niche specialization. While larger competitors may possess more extensive global networks and significantly greater technological R&D budgets, potentially leading to advantages in areas like high-frequency trading or AI-driven analytics, Piper Sandler's technology supports its core model through quality trade execution, market-leading research distribution, and analytical tools for clients, particularly in fixed income. Investments continue in areas like electronic trading platforms and expanding research distribution geographically, aiming to enhance efficiency and reach within its targeted markets.

Performance Under Pressure: Navigating Volatility with Diversification

The financial services industry is inherently sensitive to macroeconomic conditions, market volatility, and geopolitical events. The first quarter of 2025 provided a clear illustration of this, with heightened volatility and increased uncertainty stemming from U.S. trade policy announcements and geopolitical tensions. Despite this challenging backdrop, Piper Sandler demonstrated the benefits of its diversified platform.

For the three months ended March 31, 2025, U.S. GAAP net revenues increased 4.1% year-over-year to $357.3 million. On an adjusted basis, excluding items like investment income/loss related to noncontrolling interests, adjusted net revenues rose a more robust 14.8% to $383.3 million compared to the prior-year period. This growth translated into adjusted operating income of $68.5 million, up 22.5% year-over-year, and an adjusted operating margin of 17.9%, an improvement from 16.8% in Q1 2024. Adjusted diluted earnings per share saw a significant jump of 46.6% to $4.09.

Breaking down the revenue performance reveals the underlying drivers. Investment banking revenues increased 21.0% year-over-year to $278.9 million. This was primarily fueled by a strong 37.9% increase in advisory services revenue, reaching $216.8 million. Management attributed this growth to a higher average fee and broad-based performance, with five of the seven industry groups delivering year-over-year growth. This highlights the value of the firm's expanded sector coverage. Corporate financing, however, saw a 32.0% decline to $35.7 million, impacted by fewer completed equity transactions and lower average fees as higher volatility and declining valuations led investors to adopt a more risk-off stance. Municipal financing revenues were a bright spot, increasing 27.2% to $26.4 million, outpacing the market due to increased negotiated issuance activity driven by more accommodative market conditions.

Institutional brokerage revenues also contributed positively, increasing 8.5% year-over-year to $99.3 million. Equity brokerage revenues rose 9.6% to $54.3 million, benefiting from increased client activity during the period of higher market volatility. Fixed income services revenues grew 7.3% to $45.0 million, driven by increased activity across client verticals in more accommodative markets. Interest income increased to $10.0 million, primarily from installment fee receivables. A notable impact on the GAAP results was an investment loss of $29.6 million in Q1 2025, compared to income of $14.2 million in Q1 2024, primarily due to lower public company equity valuations affecting the alternative asset management funds.

Expense management showed mixed results. U.S. GAAP compensation and benefits increased 11.7% to $248.5 million, reflecting higher revenues, but the GAAP compensation ratio rose due to the impact of the investment loss. The adjusted compensation ratio, however, saw a slight improvement to 62.5%. Non-compensation expenses increased 16.4% year-over-year on a GAAP basis. Specific drivers included a 13.7% increase in occupancy and equipment costs, primarily due to the relocation of the Minneapolis headquarters, a 11.7% rise in communications costs (higher market data services), and a 25.2% jump in marketing and business development expenses (higher travel). Other operating expenses also increased significantly, although the prior year included a $3.5 million reversal of a litigation accrual.

Liquidity remains a critical focus. Piper Sandler maintains a strategy centered on diversifying funding sources and managing its balance sheet. The majority of its tangible assets are liquid. Funding is sourced from operating cash flows and clearing arrangements with Pershing and CIBC (CM), collateralized by securities inventory. The firm also utilizes unsecured ($120M facility with U.S. Bank N.A.) and secured ($30M facility with Cadence Bank (CADE)) revolving credit facilities, with $10 million and $5 million outstanding respectively at March 31, 2025. The company was in compliance with all associated covenants, including minimum regulatory net capital requirements ($225.6 million net capital vs. $1 million minimum required, $120 million minimum required by credit facilities). The adjusted leverage ratio decreased slightly in Q1 2025, primarily due to the payment of annual incentive compensation impacting cash balances. Capital allocation prioritizes returning value to shareholders through dividends ($70.3 million paid in Q1 2025, including a special dividend)

and share repurchases ($80.6 million for employee tax obligations in Q1 2025), while also reserving capacity for strategic acquisitions ($150 million repurchase authorization effective Feb 2025).

Outlook and Strategic Trajectory

The outlook for the remainder of 2025 is colored by the persistent uncertainty in the macroeconomic and geopolitical environment. Management anticipates that heightened volatility will continue to impact the conversion of the M&A pipeline, leading to an expected decline in advisory services revenues in the second quarter of 2025 compared to the first quarter. Equity financing activity is also expected to remain slow until volatility subsides and valuations stabilize.

However, the strategic investments in diversification are expected to provide resilience. Certain areas of the M&A market, particularly service-based business models and those less impacted by trade barriers, are expected to remain active. The firm is well-positioned to capitalize on a potential rebound in activity, especially with financial sponsors, given their aging portfolios and need to transact, and Piper Sandler's strong incumbent position with companies previously sold to PE.

In institutional brokerage, equity activity is expected to remain elevated as long as volatility persists, as clients rely on the firm's trade execution and research capabilities to navigate the market. The fixed income outlook remains cautious in the near term due to rate volatility, but management sees potential for increased investor confidence if the Federal Reserve cuts rates, the yield curve steepens, and day-to-day volatility decreases. Municipal financing, despite a robust pipeline, faces near-term challenges from rate volatility impacting pricing and causing transaction postponements, making the outlook dependent on market stabilization.

Strategically, Piper Sandler continues to focus on expanding its capabilities and market share. Recent talent acquisitions in technology (Jim Roney), healthcare (Christian Draisbach in biopharma), and infrastructure investment banking highlight the commitment to deepening sector expertise. Expansion of research distribution in Europe (Zurich office) and strengthening the fixed income team (Mary Stone in structured finance) demonstrate efforts to grow product and geographic reach. The integration of Aviditi Advisors is expected to enhance the private capital advisory offering and increase wallet share with private equity clients, although the full financial impact will unfold over time. Future acquisition-related compensation expenses totaling $65.7 million through 2029 reflect the ongoing integration costs of recent deals.

Operating expenses are expected to see continued pressure from the Minneapolis headquarters relocation costs throughout 2025, as well as inflationary increases in areas like market data services and travel. The effective tax rate is expected to be around 30% for the full year, excluding the impact of stock vesting benefits, reflecting the impact of non-deductible expenses.

Conclusion

Piper Sandler's journey from its historical roots to its current position as a diversified investment bank underscores a strategic adaptability that is crucial in the dynamic financial services landscape. By focusing on the middle market and cultivating deep relationships, particularly with private equity clients, the firm has built a platform capable of delivering solid results even amidst challenging market conditions, as evidenced by its Q1 2025 performance.

While near-term headwinds from volatility and uncertainty are expected to temper some areas like M&A advisory and corporate financing, the breadth of Piper Sandler's sector coverage and product offerings, including growing areas like debt advisory and private capital advisory, provides a degree of resilience. The firm's commitment to strategic talent acquisition and operational efficiency, alongside a disciplined approach to capital management and shareholder returns, positions it to capitalize when market conditions inevitably normalize. Investors should monitor the pace of M&A recovery, particularly within the private equity segment, the successful integration and revenue contribution from recent acquisitions like Aviditi, and the firm's ability to manage expenses and drive operating leverage in the current environment. Piper Sandler's strategic foundation and diversified capabilities suggest it is well-equipped to navigate the current uncertainty and pursue its growth objectives.