Piper Sandler's Q3 2025: Contradictions Emerge on Bank M&A Timing, Government Shutdown Impact, and Non-M&A Advisory Growth

Date of Call: None provided

Financials Results

• Revenue: $455M net revenues, up 29% YOY and up 12% sequentially
• EPS: $3.82 diluted EPS ($69M net income), higher vs prior year
• Operating Margin: 21.2% operating margin, higher vs prior year (YTD operating margin 19.2%)

Guidance:

• Advisory revenues for Q4 2025 expected to be similar to Q4 2024.
• Corporate financing revenues expected to moderate from the particularly strong Q3 2025.
• Public finance (municipal) Q4 revenues expected to be similar to Q3 2025.
• Refundings and muni refinancing activity likely to pick up more meaningfully in 2026 as rates normalize.
• Rate cuts and yield-curve normalization expected to drive increased fixed-income and balance-sheet repositioning activity.

Business Commentary:

• Strong Financial Performance:
• Piper Sandler Companies reported adjustede net revenues of $455 million, with a 21.2% operating margin and adjusted EPS of $3.82, all higher compared to the same period last year.

• The growth was driven by improved market conditions, including record high equity markets, lower volatility, and a calmer outlook on trade tensions.

• Investment Banking Growth:

• The company generated $292 million in corporate investment banking revenues, reflecting significant growth over the prior year, driven by strong performance in financial services and healthcare franchises.

• This growth is attributed to advising on significant transactions and expanding industry teams with additional subsector capabilities.

• Bank M&A Activity:

• Piper Sandler served as an advisor on six of the ten largest bank mergers that closed during the third quarter, ranking as the top advisor to banks based on announced U.S. M&A transactions.

• The increase in bank M&A activity is driven by the relaxed regulatory environment and an improved economic outlook.

• Equity Financing Strength:

• The company generated $80 million in corporate financing revenues, the strongest quarterly results since 2021, with 38 financings raising $14 billion for corporate clients.
• The robust performance was driven by strong markets and an active capital raising environment for biotech clients, particularly in healthcare.

Sentiment Analysis:

Overall Tone: Positive

• "We performed well with quarterly adjusted net revenues of $455 million, a 21.2% operating margin, and adjusted EPS of $3.82, all higher compared to the same period last year." Eight consecutive quarters of YOY growth and a "robust" advisory pipeline underline constructive momentum.

Q&A:

• Question from Brendan O'Brien (Wolfe Research): How would you frame the size of the bank M&A opportunity over the next few years and what risks could derail momentum?
  Response: Expect accelerating bank M&A activity to continue and to drive related balance-sheet work; primary risk is depressed depository stock valuations which could impede transaction starts.

• Question from Brendan O'Brien (Wolfe Research): Given recent cost discipline and current tailwinds, how should we think about margin potential (20%+ target) as activity normalizes or accelerates?
  Response: 20%+ was an initial target but not a ceiling; management will pursue discipline and leverage and accelerate margin improvement where clear opportunities arise.

• Question from James Yaro (Goldman Sachs): How is the government shutdown creating risks for corporate finance revenues and could there be lasting impacts if it persists?
  Response: Limited material impact so far, but a prolonged shutdown over coming weeks would likely impair financing and M&A revenues depending on transaction review requirements.

• Question from James Yaro (Goldman Sachs): Where are you in the build-out of the technology investment banking franchise and what are the aspirations?
  Response: About halfway to the long-term build-out; continued hires and targeted acquisitions aim to grow tech toward the scale of financials and healthcare, remaining a top priority.

• Question from Devin Ryan (Citizens): Can you walk through the cadence of M&A advisory activity, recent trends post-Labor Day, and sector drivers outside depositories?
  Response: Activity has steadily built through spring/summer with a notable post-Labor Day pickup; key drivers include depository M&A, renewed healthcare (esp. medtech), and sponsor-driven transactions across sectors.

• Question from Devin Ryan (Citizens): How should we think about normalization of the fixed-income business as rates fall and what are municipal demand trends?
  Response: Lower rates and yield-curve normalization should increase client engagement and balance-sheet repositioning; municipal fund flows recovered in Q3 and refundings are expected to pick up into 2026.

• Question from Devin Ryan (Citizens): Are bank M&A-driven balance-sheet restructurings primarily tied to deals you advise or can you win mandates when not advising the M&A?
  Response: Both — restructurings occur as part of M&A and as standalone engagements; the firm is seeing standalone mandate opportunities based on its recognized expertise.

• Question from Mike Grondahl (Northland Securities): Anything else to call out on momentum entering 4Q and how are you thinking about fixed income/municipal for 2026 after expected Fed cuts?
  Response: Q3 strength was led by equity financing (notably healthcare) and strong execution; looking into 2026, rate cuts and yield-curve normalization should restore certainty and drive increased issuance and refinancing activity.

• Question from James Yaro (Goldman Sachs): Can you comment on momentum in non-M&A advisory and how much it contributed this quarter?
  Response: Non-M&A advisory is growing faster than M&A (no % disclosed); larger agented debt raises (now often $400–$600M), restructuring, and private capital advisory are driving the expansion.

Contradiction Point 1

Bank M&A Opportunities and Timing

It involves differing perspectives on the timing and impact of bank M&A opportunities, which are crucial for revenue expectations and strategic planning.

What is the potential size of the bank M&A opportunity over the next few years, and what key risks could hinder this momentum? - Brendan O’Brien(Wolfe Research)

2025Q3: The pace of bank M&A transactions is expected to continue to accelerate. The size of the opportunity in bank M&A is significant, given that depositories are half of the financial sector group. - Chad Abraham(CEO)

What is the potential impact of a normalized bank consolidation market on Piper's revenue? When will this impact occur? - Devin Patrick Ryan(Citizens JMP Securities, LLC, Research Division)

2025Q2: The conditions for depository M&A have continued to improve, with quicker regulatory approvals and good credit conditions. Some transactions are expected to close later in the year, but the main impact is anticipated for next year. - Chad R. Abraham(CEO)

Contradiction Point 2

Impact of Government Shutdown on Business

It highlights potential differences in the perceived impact of a government shutdown on the company's operations and revenue.

What are the risks to the corporate financing business from a government shutdown, whether temporary or permanent? - James Yaro(Goldman Sachs)

2025Q3: The shutdown is not expected to impact revenue significantly yet, but the next few weeks could be more challenging. The impact will depend on transaction types and whether reviews need to be conducted. - Chad Abraham(CEO)

How does the weaker fixed income trading performance reconcile with the improving bank M&A environment, and what is the outlook for bank equity and debt underwriting? - James Edwin Yaro(Goldman Sachs Group, Inc., Research Division)

2025Q2: The government shutdown was not material to our financial results during the second quarter, but we are monitoring the situation closely and are prepared to adjust our plans as needed. - Debbra Lynn Schoneman(CFO)

Contradiction Point 3

M&A Activity and Outlook

It involves differing opinions on the outlook for M&A activity and the drivers behind it, which could impact the financial performance and strategic direction of the company.

Can you discuss the M&A advisory outlook, activity cadence, and factors driving increased market engagement? - Devin Ryan (Citizens)

2025Q3: The pace of M&A activity has been steady and is expected to continue. Key drivers include healthcare and private equity transactions. - Chad Abraham(CEO)

Are sponsor clients facing a sell-side issue stemming from market instability or economic uncertainty affecting businesses? - Devin Ryan (Citizens)

2025Q1: Challenges are in consumer sectors like personal care and consumer products with supply chain uncertainties. Traditional services businesses with domestic operations have stronger interest. - Chad Abraham(CEO)

Contradiction Point 4

Impact of Rate Changes on Fixed Income Trading

It highlights differing perspectives on how changes in interest rates and market volatility affect fixed income trading activity, which is a significant revenue source for the company.

Are there other highlights to note about the positive momentum heading into Q4? - Mike Grondahl (Northland Securities)

2025Q3: As rates come down, we expect increased client engagement, especially with depository clients. - Chad Abraham(CEO)

Can you discuss the impact of recent rate falls on fixed income trading activity? - James Yaro (Goldman Sachs)

2025Q1: Volatility creates too much uncertainty for many clients. Activity is seen with depositories on M&A-related balance sheet restructurings. - Deb Schoneman(President)

Contradiction Point 5

Non-M&A Advisory Business Growth and Market Backdrop

This contradiction pertains to the growth trajectory and market conditions for the non-M&A advisory business, which impacts the company's revenue diversification and strategic focus.

How has non-M&A advisory business growth contributed to the quarter's results? - James Yaro (Goldman Sachs)

2025Q3: The non-M&A advisory business has seen significant growth over the last three years. Key contributors include the agented debt business, restructuring, and private capital advisory. The market backdrop is favorable for growth in these areas. - Chad Abraham(CEO)

Can you update us on the advisory business, focusing on deal elongation and valuation disparities? - Brendan O'Brien (Wolfe Research)

2024Q4: Advisory business shows slow but steady improvement. Valuation disparities remain, but not extreme. Thin buyer pools in private equity, but deals are getting done steadily. - Chad Abraham(CEO)