US brokers and asset managers / investment-bank advisory market Report Interpretation

Overview

UBS’s annual investment-bank tour indicates that advisory demand remains constructive and the M&A cycle has further room to run, but the recovery is expected to unfold progressively. The report highlights strategic activity, eventual sponsor conversion and restructuring as the principal drivers, while emphasizing valuation gaps, software weakness and macro uncertainty.

Core views

UBS characterizes the current environment as “good, not great.” Strategic buyers can remain active and sponsor activity has room to accelerate, but the post-Labor Day M&A rally faces a shifting macro backdrop and still-high Street expectations. UBS believes the M&A cycle is far from over, yet expects a more meaningful sentiment improvement only after sell-side estimates reset and earnings season offers greater clarity. The group’s average one-year-forward P/E has declined from roughly 20x at the beginning of the year to about 13x, near Liberation Day lows, which UBS views as a more attractive valuation starting point after considerable optimism was removed from the stocks. The central industry thesis is a multi-year M&A upcycle driven by proactive strategic acquirers responding to AI disruption, aging sponsor backlogs and greater boardroom willingness to consider transformative transactions. Global announced deal volume as a percentage of market capitalization remains near historic lows, although UBS notes that the measure may be distorted by the Mag 7. Recent strategic mega-cap activity has slowed, while $1–5 billion deals have gained share. Sponsor M&A announcements showed signs of inflection in 3Q after a soft first half of 2026, but sponsor conversion remains the key condition for a stronger acceleration. Buyers and sellers, particularly in software, remain separated by elevated sponsor valuation marks and uncertainty, so management teams generally expect a gradual ramp rather than a sharp rebound. UBS reports that a 25–50 basis-point Federal Reserve hike is broadly viewed as neutral to deal activity: in this context, higher rates would signal economic strength and should not materially impair sponsor financing or corporate appetite while capital markets remain healthy. The US election cycle is increasingly part of client discussions and may affect transaction timing and execution, but underlying interest in M&A remains robust. Software is a particular bottleneck: announced sponsor software M&A value remains depressed, as price volatility and leverage relative to lower valuations restrain activity despite emerging interest in strategic combinations and potential take-private transactions. Restructuring is presented as a separate, significant multi-year growth driver. UBS expects elevated liability-management exercise activity to continue, with a 5% handle on the 10-year Treasury adding stress and extending the restructuring runway. LMEs are not replacing Chapter 11, which remains the last resort; rather, sponsors are engaging earlier, allowing LMEs to progress faster. Houlihan Lokey expects very strong restructuring activity in 2027–28, citing software and a potentially substantial European opportunity as LMEs remain relatively early in their development there. Smaller sponsors may begin LME discussions roughly 18 months before actual capital-structure stress emerges. Private-credit situations are also becoming a growing opportunity but require deeper lender relationships than traditional broadly syndicated loan workouts. Company discussions broadly support this industry framing. PJT sees healthy advisory demand, megadeal strength and improving European activity, but remains relatively cautious on sponsor conversion and calls the recovery a “dimmer switch.” Evercore believes 2027 is unlikely to be the cycle peak; it cites AI-driven transformation as a potential 8–10-year M&A theme and expects a return of middle-market sponsor activity to be a material tailwind. Houlihan Lokey sees sequentially improving backlog conversion, though activity remains concentrated in “A-level assets,” with broader transaction activity in lower-level assets needed to confirm a fuller recovery. Lazard sees strategic M&A as the principal recovery driver and says investments in sponsors, restructuring, PCA and industry teams are building advisory pipeline and backlog over the next 6–12 months. Firm-specific operating themes also matter. Evercore expects AI implementation across the firm but does not expect productivity gains for another 2–4 years; it continues to focus on improving its compensation ratio despite elevated fixed technology and travel-and-entertainment costs. Lincoln International cited roughly 30% coverage of the US LBO-market portfolio-company universe in its valuation data and reported mid-single-digit EBITDA growth, with software slightly higher. Lazard expects its prior hiring investments to create a revenue J-curve, while growth investment and fixed compensation initially pressure margins; hiring-related amortization is expected to roll off in 2027–28, potentially creating greater operating leverage thereafter.

Analysis framework

UBS combines management commentary from meetings with PJT, Evercore, Houlihan Lokey, Lincoln International and Lazard with M&A volume, fee-mix and liability-management-exercise data. It assesses deal-cycle direction through strategic and sponsor activity, conversion constraints, deal-size mix, restructuring conditions, company pipelines and compensation economics, then applies its stated valuation frameworks for covered brokers and asset managers.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  P/E multiple on 2027 estimated EPS

  UBS states that it determines price targets for brokers and traditional asset managers using a P/E multiple applied to its 2027E EPS estimates.

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Blended 50%/50% P/E and sum-of-the-parts framework

  For alternative asset managers, UBS states that it uses an equal blend of a P/E multiple on 2027E EPS and a sum-of-the-parts framework.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• PJT Partners (PJT)

  Covered advisory firm positioned for megadeals, Europe and restructuring activity.

  Strengths

  Megadeal exposure, improving European activity, strategic-M&A optimism and continued investment in geographic, sponsor and industry coverage.

  Weaknesses

  Sponsor valuation gaps and software price volatility constrain deal conversion.

  Comparison

  PJT is more cautious than peers, describing the recovery as a gradual “dimmer switch.”

  Risks

  A finite pool of megadeals and delayed sponsor conversions could limit near-term advisory activity.

• Evercore (EVR)

  Covered advisory firm positioned for a prolonged M&A cycle and eventual middle-market sponsor recovery.

  Strengths

  AI-driven disruption, strategic activity, sponsor capabilities and prior hiring support market-share opportunities.

  Weaknesses

  Fixed technology and travel-and-entertainment costs remain a non-compensation burden; AI productivity gains are not expected for 2–4 years.

  Comparison

  Management argues its middle-market sponsor involvement is comparable with peers and its sponsor capabilities may be underappreciated.

  Risks

  Bid-ask valuation gaps and geopolitical or macro disruptions may interrupt the cycle.

• Houlihan Lokey (HLI)

  Covered advisory and restructuring firm exposed to improving backlog conversion and restructuring demand.

  Strengths

  Multi-year sponsor backlog, sequentially improving conversion, software restructuring and European LME opportunities.

  Weaknesses

  Mid-cap software M&A is expected to take time to recover.

  Comparison

  Activity remains concentrated in “A-level assets”; a broader recovery requires expansion into lower-level assets.

  Risks

  A slower broadening of deal activity could delay the advisory recovery.

• Lincoln International (LCLN)

  Non-covered tour participant with exposure to sponsor advisory, portfolio valuation and restructuring.

  Strengths

  Open markets, private-credit funding, portfolio-company EBITDA growth, geographic expansion and growing restructuring revenue.

  Weaknesses

  Management believes greater market stability is needed for a fuller recovery.

  Comparison

  Management expects compensation-ratio variability to be lower than that of most peers.

  Risks

  The recovery remains dependent on sponsor asset sales and stable market conditions.

• Lazard (LAZ)

  Covered advisory firm whose pipeline is being supported by strategic M&A and investments in sponsors, restructuring and industry teams.

  Strengths

  Growing conflict clearances, cross-border activity, faster pipeline development and improving productivity from new managing-director hires.

  Weaknesses

  Growth investments and fixed compensation pressure operating leverage in the near term.

  Comparison

  A shorter deferral period could make its compensation framework more competitive with peers.

  Risks

  Normalization of hiring-related costs and resulting compensation leverage may take until beyond 2028.

Key data

• Average group valuation~13x 1-year forward P/EDown from roughly 20x at the beginning of the year and near Liberation Day lows.
• Strategic deal-size mix$1–5 billion deals gaining shareStrategic mega-cap M&A activity slowed recently.
• AI productivity timing at Evercore2–4 yearsManagement does not expect firmwide AI productivity gains before this period.
• Houlihan Lokey restructuring outlookCY2027–CY2028Management expects very strong restructuring activity, led by software and Europe.
• Lincoln valuation-data coverage~30% of US LBO-market portfolio companiesIts portfolio-company data indicate mid-single-digit EBITDA growth, with software slightly higher.
• Lincoln medium-term compensation-ratio target62%Management expects less variability than most peers, aided by lower stock-based compensation.
• Potential premium for more frequent marks30–40%Lincoln said moving portfolio valuations from quarterly to monthly marks could command this premium.

Impact & implications

UBS’s findings support a constructive but measured view of advisory demand: strategic transactions, backlog conversion and sponsor re-engagement can extend the cycle, while restructuring provides an additional earnings opportunity. The pace depends on valuation gaps narrowing, sponsor transactions broadening beyond high-quality assets and greater visibility from earnings and market conditions.

Risks

• An economic slowdown could drive higher-than-expected losses.
• Capital-markets activity could slow dramatically.
• Business and consumer spending could rebound less vigorously than UBS anticipates.
• Regulatory reform could create more severe-than-expected revenue headwinds.

What to watch

• Whether sell-side estimates reset and earnings season provides clearer evidence on the M&A outlook.
• Conversion of sponsor pipelines and the return of middle-market sponsor activity.
• Whether deal activity broadens beyond “A-level assets.”
• Software M&A recovery, including strategic combinations and potential take-private activity.
• The pace of liability-management exercises and restructuring activity in software and Europe.