Piper Sandler Companies

NYSE:PIPR

Earnings Call Transcript 2021-Q4

[Operator]

Good morning and welcome to the Piper Sandler Company's Conference Call to discuss the financial results for the Fourth Quarter and the Full Year of 2021. During the question-and-answer session security industry professionals may ask questions of management.

The company has asked that I remind you that the statements on this call that are not historical or current facts, including statements about beliefs and expectations are forward-looking statements that involve inherent risks and uncertainties. Factors that would cause actual results to differ materially from those anticipated are identified in the company's earnings release and reports on file with the SEC, which are available on the company's website at www.pipersandler.com. And on the SEC website at www.sec.gov.

This call will also include statements regarding certain non-GAAP financial measures. The non-GAAP measures should be considered in addition to and not a substitute for measure of financial performance prepared in accordance with GAAP. Please refer to the company's earnings release issued today for reconciliation of these non-GAAP financial measures to the most direct comparable GAAP measure.

The earnings release is available on the Investor Relations page of the company's website and at the SEC website. As a reminder, this call is being recorded.

And now I would like to turn the call over to Mr. Chad Abraham. Mr. Abraham, you may begin your call.

[Chad Abraham, Chairman and Chief Executive Officer]

Thank you. Good morning, everyone. I am here with Deb Schoneman, our President and Tim Carter, our CFO. We will go through our prepared remarks and then open up the call for questions. Piper Sandler delivered a record quarter and another record year of revenues and earnings during 2021. We entered the year with strong momentum as the global economy began to reopen. We grew our business over 60% in 2021 and performance was strong across each of our business lines, including exceptional growth in some of our recently acquired businesses. Clearly, the firm's performance exceeded the expectations we had for 2021 and I'd like to thank my employee partners for their continued hard work and dedication.

During the fourth quarter, the firm generated $634 million of adjusted net revenues, 29% higher than our previous quarterly record. Operating margin was 30.7% and adjusted EPS for the quarter was $7.84 also quarterly records. On a full year basis, the firm generated 2 billion of adjusted net revenues, a 27.8% operating margin and adjusted EPS of $21.92, again, all records.

I'd like to review a few of the highlights from 2021. First, we generated nearly 1.4 billion in corporate investment banking revenues, significantly exceeding the long-term target of 1 billion, we set last year. We generated advisory revenues of over $1 billion driven by record levels of activity, strong execution and market share gains. We underwrote a record number of financings, raising 106 billion for our corporate clients. We finished the year strong in public finance, with record fourth quarter and full year revenues and the highest economic market share in our history. We generated record institutional brokerage results and grew revenues despite lower volatility and volumes in the market compared to last year.

We strengthened diversity of our Board and hired a Director of Diversity and Inclusion, to further advance our strategic priority of becoming a more diverse and inclusive firm. We successfully added talent across the firm growing our headcount on an organic basis by 9% from 2020. And last, we grew investment banking Managing Director headcount on a net basis for the ninth consecutive quarter, finishing the year with 148 MDs up 7% over last year.

As I reflect on the transformation in our business over the last two years, we have significantly increased the sustainable earnings power of our platform. During the last two years, the firm more than doubled its revenues. We've grown our investment banking, MD headcount by 80%, creating a platform that is significantly larger and more diversified. We more than doubled the size of our brokerage businesses, with a considerably broader client base and product capabilities. We generated significantly higher operating margins, profitability, and cash flow from our enhanced scale.

And we've grown our total firm headcount by 33% and exceeded 1 million in revenue per employee, an 80% increase in productivity. Beyond the record performance over the last two years, we continue to execute on a number of strategic initiatives to drive growth during 2022 and beyond. We added Cornerstone Macro, an independent research firm that offers best-in-class macro research and equity derivatives trading. We strengthened our advisory business with the announced acquisition of Stanford Partners, a highly complementary specialist M&A Boutique focused on European food and beverage companies.

We remain focused on filling white spaces within investment banking, including technology, healthcare services, renewable energy and further European expansion. We continue to drive market share growth in our institutional brokerage businesses by taking advantage of our expanded product depth to identify synergies. And we continue to strengthen our public finance specialty sectors. Our success, culture and momentum resonate in the marketplace and we remain a destination of choice for top tier talent.

Turning to our corporate investment banking business. We generated total corporate investment banking revenues of 476 million for the fourth quarter of 2021, up 62% sequentially and 85% from the fourth quarter of last year. Revenues of 1.4 billion for 2021 were up 88% from 2020, driven by tremendous performance across our platform. Sector performance was broad-based with financial services, healthcare, diversified industrials and services, consumer, chemicals and technology, all registering record years.

During 2021, M&A and restructuring activity generated 60% of revenues, equity financings contributed 24% and debt advisory and underwriting engagements produced 16% of total corporate investment banking revenues. Specific to advisory services, we generated 410 million of revenues during the fourth quarter, up 65% from our previous quarterly record in the second quarter of 2021.

For the year, we generated over 1 billion of advisory revenues for the first time in our history, driven by strong absolute and relative performance. For context, global completed M&A volumes in the market increased more than 40% compared to last year. Our advisory deal count was up 54% with our advisory revenues increasing 131% with a core focus on taking longer strides rather than taking more, the trend of advising on larger transactions and generating larger average fees continues to be a key driver to our advisory growth.

During 2021, we closed or announced 285 deals with over 109 billion in aggregate transaction value, including 26 deals over 1 billion in value. Our advisory work with private equity firms continues to be market leading and a growth driver for us. During 2021, our sponsor driven revenues were up 300% compared to 2020. PE clients and portfolio companies generated 50% of our overall advisory revenues during 2021 and were clients or counterparties on roughly two thirds of our advisory revenues.

During the year we were engaged 220 times by over 160 PE firms highlighting the scale of our PE business and the increased relevance of our platform to a broader universe of financial sponsors. We expect PE activity will continue to be a driver of secular growth in the M&A market. Private equity firms continue to engage in high levels of deal activity to deploy record amounts of capital.

We witness portfolio company exit multiples rival public company valuations contributing to a decrease in hold periods and more deal velocity. With one of the largest middle market PE advisory businesses on the street, our M&A and capital advisory businesses are well positioned to benefit from the secular growth in PE deal activity.

Looking forward, we expect M&A activity to remain strong in 2022, we do anticipate advisory revenues to decline meaningfully during the first half of 2022 relative to the second half of 2021, given the high close rate on our fourth quarter pipeline and typical seasonality. However, we expect economic growth, CEO confidence and capital availability to continue to support a high level of deal activity. As a result, if market conditions remain supportive, we believe our first half 2022 advisory revenues will be at similar levels to the first half of 2021.

Turning to corporate financing, issuance volumes moderated during the fourth quarter, but remained solid as we generated 65 million of revenues. For the full year, we had record 363 million of revenues, up 23% from 2020s record results. Investor demand and healthy valuations, combined with relatively stable rising markets drove record setting equity issuance volumes in 2021. The U.S. equity issuance fee pool surpassed $20 billion for the first time and was more than double the last 10 year average. Against this favorable backdrop, we completed 214 equity financings during 2021, raising 90 billion of capital, with notable contributions from our healthcare, financial services, technology and consumer teams.

For the second consecutive year, our healthcare team had a standout year in corporate financings. The team completed 97 transactions, of which 92 were book run, raising over 20 billion in capital for our clients. We ranked the top three investment bank based on number of book run IPOs and follow ons for healthcare companies with less than 5 billion of market cap.

Innovation, investor demand and significant capital requirements have led healthcare companies to raise record amounts of money. We believe there is a structural change in the size of the healthcare financing market that will support higher levels of activity relative to historical averages. The beef pool for sub $5 billion market cap companies and healthcare has consistently grown over the last decade, finishing 2021 at 3.6 billion nearly doubled the last 10-year average.

The strength of our market leading healthcare team should benefit us on this long-term secular growth trend. Another key driver of our growth in 2021 was our performance in the technology and consumer sectors, where we priced at 84 equity financings, of which 37 were book run, raising 58 billion in capital for clients.

Our financial services group was also very active in the capital markets during the year. The team completed 53 debt and preferred stock offerings, raising 16 billion of capital for banks and other financial services companies. Our portfolio of clients was more diverse than last year. In addition to our established presence in depositories, we leveraged our market leadership and differentiated distribution to assist several non-bank clients to raise capital during 2021. That said, we expect the 2022 issuance market to decline substantially from the record levels of the last two years.

Turning to investment banking Managing Director headcount, we finished the year at 148 Managing Directors up 10 as we bolstered capabilities across the platform. We added TRS advisors to significantly strengthen our restructuring practice. We built our European healthcare team adding coverage in healthcare and pharma services. We added MDs to our energy and power franchise in renewables and clean energy and energy services. We added capabilities to our technology platform in industrial software and Internet technology. Broadened our diversified industrials and services coverage by adding talent in automotive aftermarket. We added expertise to our consumer team in the retail and direct-to-consumer space and continued to grow our sponsor business with the addition of a senior officer to cover European PE firms.

Over the past decade, we have executed on our strategic vision and delivered strong growth and shareholder returns. We have built a diverse platform with significant scale, margin and cash flow. In 2015, our investment banking business was dependent on four industry sectors, health care, consumer, diversified industrials and services and technology. Since then, we have expanded from four to seven industry verticals, grown the number of Managing Directors from 65 to 148 and more than quadrupled revenues.

Our investment banking business now covers most of the economy. We are more relevant, provide more deal flow and offer more product capabilities to a larger, more diversed client base. This added breadth to our business has resulted in more stability. The enhanced scale and capabilities of our investment banking platform also provide meaningful opportunity for growth.

I'd like to close my comments by sharing a new firm long-term target. Looking ahead to the next five years, we see a path to grow annual corporate investment banking revenues to $2 billion. With that, I will turn the call over to Deb to discuss our public finance and brokerage businesses.

[Deb Schoneman, President]

Thanks, Chad.

Let me begin with an update on our equity brokerage business. Equity markets in the fourth quarter saw elevated volatility and volumes driving equity brokerage revenues of 42 million for the quarter up 23% sequentially, and 6% from the prior year. For the full year, equity brokerage generated revenues of 154 million down 5% from the strong prior year, which benefited from extreme pandemic-related volatility and volumes early in the year.

In addition to our trading capabilities, the quality of our research and specialist equity salesforce are key differentiators for us in supporting our record equity financing activity. For context, we are ranked number one based on the number of both small cap and mid cap companies under coverage. And in total, we have over 1000 stocks under coverage.

Our equity salesforce helped distribute the 214 equity underwriting deals, of which 141 were book run, totaling 90 billion in value. As we look forward to 2022, we're excited to have the Cornerstone Macro research team on our platform. The acquisition closed on February 4. We believe that high-quality macro, somatic and quantitative research products will be complementary to our company's specific research and offer a wide range of cross-selling opportunities.

Additionally, we believe there are opportunities for market share gains as we integrate cornerstone and continue demonstrating the full capabilities of our platform, and the buy side continues to consolidate towards high-quality firms with scale. After the full integration of Cornerstone, we believe we will have an equity brokerage platform that can generate close to 200 million in annual revenues.

Turning to municipal financing, our public finance business finished the year extremely strong, with 59 million of financing revenues for the fourth quarter of 2021 up 39% from a strong third quarter and 47% from the fourth quarter of last year. As we highlighted last quarter, we have been building our high-yield specialty sector client base, which drove our record setting performance during the quarter. Demands for higher yielding municipal securities was robust and through strong execution, we assisted specialty sector clients to construct new housing, built senior living facilities, construct charter schools and improve transportation among other things.

Municipal issuance in the governmental space remained healthy as clients took advantage of low rates. For the full year of 2021, we generated 164 million of municipal financing revenues, a firm record and up 37% from last year. We underwrote 933 municipal negotiated transactions, raising over 18 billion of par value for our clients. Municipal issuance for the total market during 2021 was 475 billion driven by low interest rates and strong investor appetite for municipal bonds, and nearly reached the 2020 record of 485 billion.

With our revenues up 37% year-over-year, relative to a market that was essentially flat, we have significantly grown our economic market share. We have built one of the largest public finance franchises on the street, ranking number eight based on par value and number two based on the number of deals in the municipal negotiated market.

The strength of our franchise resonates externally and we are a premier destination for talent and see continued opportunity to extend our geographic reach in both our governmental business as well as specialty sector coverage. With the investments we've made expanding our specialty sectors, combined with our historically strong governmental business. We believe we are on the path to building a 200 million public finance franchise over the next several years. As we look ahead to 2022, we expect a continuation of the trend experienced in 2021. Absent a dramatic turn in economic conditions, we expect overall market issuance levels to be consistent with the last two years as new money continues increasing and refunding opportunities are declining.

Lastly, turning to our fixed income business. For the fourth quarter, we generated fixed income revenues of 50 million down 10% on a sequential basis and 5% compared to the fourth quarter of last year. Client activity was a bit more muted during the fourth quarter as clients were more cautious as they digested the changing interest rate outlook and uncertain governmental fiscal policies. Despite some softness in the market, our performance has been solid with the fourth quarter of 2021, representing the sixth consecutive quarter with over 50 million in revenues, highlighting the breadth and scale of our platform.

For the full year of 2021, we produced 234 million of revenues, a firm record and up 19% from last year. In 2021, we saw a surge in client volumes during the first quarter resulting from rising interest rates, followed by gradually decreasing client activity as yield flatten, and then an uptick in activity late in the fourth quarter as clients began positioning for higher rates. Activity during the year was strongest within our financial institution client base as they put excess liquidity to work in mortgage backed securities and loan products. Our deep expertise in banks has enabled us to advise clients on repositioning their balance sheets and investing in a changing rate environment.

Our trading, underwriting and distribution is a key differentiator for us within fixed income. And our salesforce was very active during 2021 distributing over 1000 new issue deals in both public finance and debt capital markets, raising over 40 billion for clients. We continue to invest in our platform, and I've made several targeted sales and trading hires in 2021 that will increase the depth in both product and client vertical knowledge and specialization.

From an outlook perspective, in 2022, we expect to repeat the strong performance of the last two years as we assist clients in navigating a changing interest rate environment. In the near term, we think client volumes increased in reaction to rising interest rates. Inflation and changes in federal reserve interest rate posturing has increased uncertainty [interest] [ph] rates, which may inject a bit more volatility in revenue generation as clients react to an everchanging rate environment.

Now, I will turn the call over to Tim to review our financial results and provide an update on capital use.

[Tim Carter, Chief Financial Officer]

Thanks, Deb. As a reminder, my comments will be focused on our adjusted non-GAAP financial results. We generated net revenues of 634 million for the fourth quarter of 2021, an increase of 44% from the third quarter and 59% from the fourth quarter of last year. As Chad noted, the exceptional finish to the year was driven by record activity from advisory services and municipal financing, as well as solid activity from corporate financing in both brokerage businesses.

Net revenues for 2021 totaled 2 billion an increase of 60% over the prior year. performance was broad based with corporate investment banking, municipal financing and fixed income, all generating record revenues, and equity brokerage, registering its second strongest year on record. The investments we have made to transform our business by adding scale and diversification have elevated our platform on a sustained basis. This combined with strong demand for our services drove the strongest four quarters on record during 2021.

Turning to operating expenses and margin. Our compensation ratio was 58.4% for the fourth quarter of 2021, down from 60.2% for the third quarter of this year, resulting from our strong performance to finish the year. For the year, our compensation ratio was 60% reflecting the leverage in our business at these robust revenue levels.

Our philosophy to managing compensation levels continues to be a balance of business performance, revenue mix, investment considerations and employee retention. Looking ahead to 2022, we expect our compensation ratio to be near 62% on a full year basis, as we remain focused on investing for growth.

Non-compensation expenses excluding reimbursed deal expenses were 58 million for the fourth quarter of 2021 up 20% compared to the third quarter. The increase was driven by higher travel costs, increased legal and professional fees associated with business expansion, as well as variable costs related to higher revenues and profitability. On a full year basis, excluding deal expenses non-compensation costs totaled 199 million, an increase of 9% over 2020. This compares to a 60% increase in revenues year-over-year, demonstrating the significant leverage in our business. We continue to be disciplined in managing costs while adapting to the environment and market conditions.

In 2022, we expect higher non-compensation expenses stemming from increased travel, business and office expansion and the additions of Cornerstone and Stanford. Given these factors, we expect our non-compensation costs excluding deal expenses to range from 55 million to 57 million per quarter. For the fourth quarter of 2021, we generated operating income of 195 million and an operating margin of 30.7%, both quarterly records. For 2021, we generated operating income of 550 million, an increase of 120% over the prior year.

Our margin for the year was 27.8%, a meaningful expansion from 20.3% in 2020. The increased scale of our platform is expanding our margins and increasing the profitability of our platform. For some additional context, during the period 2018 and 2019, our margin averaged 16% and during 2020 and 2021, our margin averaged 24%.

Our adjusted tax rate for the fourth quarter and full year of 2021 was 26.3%. Looking forward, we continue to expect our full year adjusted tax rate will be within our targeted range of 26% to 28%, excluding any tax impact from stock vestings.

Turning to earnings, for the fourth quarter of 2021, we generated record net income of 142 million and diluted EPS of $7.84. For the year, net income total 399 million and diluted EPS was $21.92. Compared to 2020, we more than doubled our net income and diluted EPS driven by robust market demand and strong execution.

Let me finish with an update on capital. We remain committed to returning capital to our shareholders to drive total returns. With our capital like business model and strong earnings, we continue to build excess cash, which can help drive future growth.

Given our level of earnings and strong capital position, the Board approved a special cash dividend of $4.50 per share related to our 2021 full year results, including the special dividend our total dividend for fiscal year 2021 equals $9.45 per share slightly above the midpoint of our 30% to 50% payout ratio. This represents a three-fold increase over the 2020 dividend and a 7% dividend yield based on our average share price during 2021.

In addition, the Board approved an increase to our quarterly dividend to $0.60 per share. Both the special and quarterly dividend will be paid on March 11 to shareholders of record as of the close of business on March 2. In addition to dividends, we continue to deploy capital towards acquisitions to accelerate growth, as well as repurchase shares to offset any dilution related to our annual grants.

During 2021, we paid an aggregate of 99 million through our quarterly and special dividends. We repurchased approximately 572,000 shares, or $70 million of common stock which more than offset dilution from annual stock grants and we repaid our 50 million of Class A notes upon maturity. We maintain 125 million of long-term debt maturing in October 23.

Lastly, we have repurchased slightly more than 90,000 shares of common stock to-date during the first quarter of 2020. Overall 2021 marked the year of tremendous growth for Piper Sandler. The strategic expansion of our business, combined with strong demand for our services resulted in historic results by every financial metric. We've made great strides during the last two years and we're excited to continue executing our strategic plans of growing our advice driven businesses and diversifying our platform to drive shareholder value.

Thanks and we can now open up the call for questions.

[Operator]

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of James Yaro of Goldman Sachs.

[James Yaro, Goldman Sachs]

Thanks for taking my questions. And congratulations on the quarter. I just wanted to ask first about the equity underwriting pipeline. Everything that we've seen so far in 2022, suggests that, a lot of those deals are on hold. So when you talk to clients, is it more of the deals are being pushed out? Or they're being canceled entirely? And then if it is, indeed, the former, that they're just being pushed out? How much market volatility and for how long does it take to turn those deals that have been put on hold into canceled deals?

[Chad Abraham, Chairman and Chief Executive Officer]

Yes. Thanks, James. Good question. I mean, yes, obviously, everybody can see the deal logic data for ECM and the first five or six weeks of this year has been incredibly slow. In equity, capital markets, I mean, if you go back over four or five years, we've had slow periods. Certainly before, it's not that common that it lasts, over a quarter, I would say, what happens is, you got to get a few clients, relative to the IPO side to sort of be first and test the market and get some good results. But most of those backlogs and clients are out there relative to IPOs. They want to do the transaction, and you just need less volatility and it takes a few weeks after the market stabilizes. And then you then you start to see clients to go. I would say, relative to the follow-on market, and capital raising, which is a little more relevant to healthcare and biotech. Some of that takes a little bit longer because it's related to what's the overall share price of the stock? Where did you think you were going to raise that money? So some of that market may take a little longer to come back.

[James Yaro, Goldman Sachs]

Okay. And then, I guess just one other one, which is we're obviously in the midst of a long-term and somewhat intense investment cycle as well, there's obviously cost inflation occurring. And that's across both comp and technology. So I just be curious to know how you think about your investment priorities today. And whether your guidance for roughly 62% adjusted comp ratio for ‘22 reflects the impact of the competitive hiring environment. And then, when you think longer term, is this pressure on expenses likely to continue beyond 2022? Or is the investment in 2022 more one off?

[Chad Abraham, Chairman and Chief Executive Officer]

Yes, I would say, for us, and the commentary around the 62%, it's really a combination of a few things. First of all, just with the tremendous revenue levels, some leverage on one comp and corporate support, and some of those things, we had some higher investment income, which drives a lower comp ratio. And I also, I do think we're being very focused on kind of to continue to grow. And, obviously, we took advantage of very good revenues to return more cash flow to shareholders. But, we're still very much in growth mode, we think there's people to hire. I wouldn't really say it's necessarily inflationary sort of expenses, but more just making sure we've got the capability to invest in many of the areas, we want to continue to grow.

[James Yaro, Goldman Sachs]

Okay. That makes a lot of sense. Thank you for taking my questions.

[Operator]

Thank you. Next question comes from the line of Devin Ryan of JMP Securities.

[Devin Ryan, JMP Securities]

I just want to start on the outlook for [indiscernible] business and kind of maybe digging a little bit more around trends in the M&A market, obviously, just a phenomenal year and kind of ended the year as well. And you appreciate the outlook for the first half of 2022, I think that's pretty consistent with how we were already modeling the business. But if you take a step back, can you maybe just talk a little bit about just the tone in that business after such a tremendous 2021, I mean, is activity still accelerating? We did hear from one peer last night that there's been a little bit of a push out in terms of the timing of deal completion. So I'm just curious kind of more broadly, what you're seeing and kind of a billion dollar plus revenues in 2021. How much of a high watermark is that versus maybe an ability to get back there or grow through that over the intermediate term?

[Chad Abraham, Chairman and Chief Executive Officer]

Yes. Thanks, Devin., I mean, obviously, that's certainly the big question I would say in general many of the factors that drove such a fantastic 2021 for the advisory business are still in place. Especially when it comes to just the sponsor business, which lots of dry powder good ability to finance transactions. I would say relative to taking longer to close transactions, we didn't see a lot of that in Q4. In fact when we started Q4, I mean, we usually look at the list of what we expect is going to close. And I then look at when we get to January, what didn't close, we had a lot of stuff just get closed in Q4. I would say, relative to a few of our larger transactions, where we're certainly seeing some of the approvals take a little longer and push out, but for the vast majority of our sort of middle market sponsor pipeline that's not the case. So, for a lot of us, we looked at sort of pipelines by industry team, I think our pipelines are very similar to where they were this time last year. Obviously, our business has always been sort of weighted to the back half. And I would say everybody that's quite active in the sponsor PE market, it's just a trend, that more business closes in the back half of the year relative to when they start those processes.

So our pitch calendars are very high, the pipelines are good, we're not going to stick our neck out, relative to where the back half is going to come in. But relative to the last several years, there are still fantastic M&A market conditions.

[Devin Ryan, JMP Securities]

Okay, great color. Thanks, Chad. Very helpful. I guess one for Deb here on the fixed income, brokerage business. I'm trying to think through some of the puts and takes there, the business did benefit from lower interest rates just as depositories were flush with cash, and then we're repositioning their securities books. And as rates move higher, I appreciate that maybe there's a period of repositioning, but there's that -- is there just a lag there. So right now, you're seeing very high volume, but the expectation is that may transition as kind of that runs through the system. And potentially depositories aren't as flushed with cash and they've already repositioned.

And then, I'm trying to think about on the other side, some of the other handoffs in your fixed income brokerage business, because it is a much more diverse than it was heading into 2020. So just trying to think about some of the puts and takes there as well, particularly given what I thought sounded like a pretty positive outlook for the business in the near term.

[Deb Schoneman, President]

Yes, thanks, Devin. Specifically, maybe, I guess I would start by saying overall higher rates tend to be good for our overall business. The comments that you made around banks, it's very true in that they have had lower loan demand out there more deposits and more to invest. A couple of things will happen to though as that starts to shift, and those they start lending more obviously was the other side of those transactions. And part of it for us is when there's a lot of interest rate volatility. We also do a lot of advisory work and derivatives business with the banks trying to help them really manage through that volatility.

The other thing, which you alluded to in the second part of your question is just what's on the other side of that, and we are very focused on growing the other client verticals as well. You highlight rightly so that a lot of the business currently as with financial institutions, but looking for ways to expand the business, we do with them through even [non-QCed] [ph] products, that can tend to maybe be a little less of the day-to-day trading of volatility and volumes that you might see. So net-net higher rates will generally help our fixed income business. We have seen, as I had noted, in my prior comments, the fourth quarter started to pick up a little bit as we had seen declining volumes or declining revenues, throughout the year, and we are seeing decent start to the year, which gives us some confidence in our comments just around how we see the outlook for the overall year but very much likely to be more evenly spread this year than you would have seen in 2021.

[Devin Ryan, JMP Securities]

Great. If I could squeeze one more in just to round things out and give Tim a question as well. Just thinking about the excess cash position, clearly fantastic year, a lot of cash generation, also a lot of redeployment into M&A and the dividend and a special and even some buyback. After a great year, I guess after you pay the special and you pay bonuses. How should we think about the excess cash position today relative to a year ago? I don't there's a way to quantify that but it still feels like even after all of those actions, there's been some nice build there. So just trying to think about some of the moving parts and just how you feel like your position heading into 2022, even after you kind of satisfy some of the cash needs here.

[Tim Carter, Chief Financial Officer]

Yes, Devin. Thanks. You You're right, I would say year-over-year there is some increase to that excess cash and capital position, even after the dividends and buybacks. Obviously, we're a little less active during '21. In terms of corporate development, now, we've done the Cornerstone deal just closed, and we've got Stanford lined up smaller deals but things that we can use some cash for. So, obviously, we've continued to move up in the dividend payout ratio to a little over the midpoint, I mean, we can continue to flex that, up. But we continue to want to be active to grow the business, through corporate development and having some of that excess cash to do that puts us in a good position to grow that way.

[Operator]

Thank you. Next question comes from the line of Michael Brown of KBW.

[Michael Brown, KBW]

So just wanted to maybe put some of your commentary together and just kind of think through the operating margin here. So obviously, you had a really strong margin result last year at 27.8. And you get some commentary on the comp ratio and the non-comp lines. But again, if we pull that together, what is the right way to think about your operating margin for the business in '22 and beyond? Is it 20% still kind of like a right way to think about a floor here? Just interesting some thoughts there?

[Tim Carter, Chief Financial Officer]

Yes, Mike, maybe I'll take that. We had talked about sort of this 20% hurdle from a margin perspective is a goal. I think, we've certainly feel like we've moved past that. I think, a little bit more now in the near term that could be in the low to mid 20s. I think as we think about it, now, a little more long-term, it's that idea of getting to kind of 25 plus on a more sustainable basis. But I think given you look at over the last two years and running 20.3 in 2020. And now the 27.8, I mean, you kind of feel like, the 27.8 was certainly higher benefited from some different aspects that were unique to the year. So I think more in the near term is -- it's in that that low to mid 20s.

[Michael Brown, KBW]

Okay, great. Thanks, Tim. And then just wanted to talk about the $2 billion target for corporate investment banking. So, I've always appreciated the way you guys put a guidepost out there so we can understand where your longer term growth trajectory could go. But Chad, I thought it would be helpful just to hear a little bit about how you get there, if you think about over the next five years, what's the balance between inorganic growth and organic growth? And the organic growth side, is that just simply adding more envies to the platform and increasing the overall fee size? Or is there anything else you should be thinking about there?

[Chad Abraham, Chairman and Chief Executive Officer]

Yes, no, perfect timing. And I was actually just -- I was just with we had an MD offsite for investment banking in Utah with our 150 Managing Directors, we talked about the same $2 billion target. Yes, for the 10 years, sort of I've been involved in helping run investment banking, we have set these longer term targets to stay focused on growth. It's a combination of a number of things, obviously, you've got productivity, you've got new hiring, you've got promotions of Managing Directors. So clearly, to get to 2 billion, we've got to keep growing the managing director headcount from the 150. We have -- if you look back our last five years that really comes that growth, pretty close to 50%, sort of organic and 50% through corporate development.

So we do believe in that five plus year target, 2 billion for banking that some of that will come through corporate development. I think it's sort of safe to look at it half organic, half through. Corporate development, we've talked about some obvious themes, I think, obviously our two biggest businesses, healthcare, and financial services. Once you have these great franchises, it's in some ways easier to grow, what you're great at and we in both of those franchises, just as examples, we have some green space, we're pushing really hard into sort of healthcare services as a just a fantastic part of the M&A market as an example.

And then, in financial services, we had a nice growth year in non-depositories as well. And we think there's still, lots of opportunities there. And then maybe the two other big themes we've talked about, we've made some good progress in sort of how we think about Europe and potential growth areas there. And then I think, the last several calls, we've been pretty specific relative to that technology group. While we have grown our tech software business nicely, the last couple years, it is still really undersized relative to the size of the market. So that's a significant opportunity.

So I think you stacked up in all of our industry teams, there's an opportunity. There's certainly a few larger opportunities, like tech in Europe, we've talked about and so it's a brick by brick strategy to 2 billion over the next five years.

[Operator]

Thank you. Next question comes from the line of Mike Grondahl of Northland Securities.

[Mike Grondahl, Northland Securities]

Congrats on the quarter guys. Chad, a question about, obviously the huge advisory quarter, you called out records in financial, diversified industrials and consumer just trying to understand kind of the relative contribution maybe from health care and energy in the quarter.

[Chad Abraham, Chairman and Chief Executive Officer]

Yes. So, frankly, for the year, I think we had records in every industry team, except energy. Obviously, energy is starting to recover with oil prices and frankly, the transition from our business to more clean tech and renewable. So, we were pretty optimistic about the year we can have in energy in 2022. Relative to the quarter, frankly, all of the industry teams, had significant quarters, I think, on a relative basis are diversified and industrials business had a really big Q4, which isn't surprising given that, that business is almost 100% tied to sponsors. And in general, the back half of the year is very good for our sponsor business.

So and then on a just a year-over-year basis, by far the biggest business we had in advisory was a financial services. Really good year, frankly, some good transactions still expected to close here in the first half of '22, as well.

[Mike Grondahl, Northland Securities]

Got it. And then maybe just lastly, any update to call out on Europe and some of the progress you're making there. And then, as part of that $2 billion goal in five years, any rough estimate what might come from Europe?

[Chad Abraham, Chairman and Chief Executive Officer]

Yes. I would say, just relative to progress in Europe, I mean, we made a couple of significant hires in healthcare that had some impact, we made a hire. In sponsors, we had a fantastic year from our Valence chemicals business, which is always sort of been a half European business. So we're definitely seeing the green shoots of others things we can add to that. I mean, on a relative basis to all of our peers in the middle market, we're still way underweighted in Europe.

And so, I don't know if that's becomes $100 million, $150 million or $200 million business, but there's a lot of growth opportunity for us there.

[Operator]

Thank you. Next question comes from the line of Steven Chubak of Wolfe Research.

[Brendan O'Brien, Wolfe Research]

This is Brendan O'Brien filling in for Steven. To start, anti-trust rhetoric has continued to pick up with banks seemingly in the crosshairs. However, we haven't really seen regulators take any action on bank deals of late other than maybe a more prolonged time from announced to close. I was wondering if you are hearing anything in your conversations that would suggest that the deals that are currently in your backlog could be at risk, or whether the increased scrutiny has impacted willingness to transact in sector at all?

[Chad Abraham, Chairman and Chief Executive Officer]

Yes, so I think you characterized it perfectly in the question, which is, there was a lot of noise around that, sort of in Q3, Q4. I do think on most of our larger transactions, they're taking a little longer. We really can't point to transactions that haven't closed because of that, I do expect that scrutiny and rhetoric to continue. But frankly, even being focused even more at the high end of the market. And certainly being talked about, but I think the fact that deals are still closing, activities still happening. People are going to talk about it less and keep transacting.

[Brendan O'Brien, Wolfe Research]

That's great color. Thank you for that. And you mentioned that you see the public finance business growing to 200 million per year run rate eventually, which implies pretty significant growth relative to this past year. Given that issuance was once again, your record levels and is likely to moderate somewhat as interest rates rise, I was hoping you could provide a bit more color around what you see is driving that growth.

[Deb Schoneman, President]

Yes, absolutely. I am going to echo comments Chad made around the growth of our corporate investment banking business in this sort of brick-by-brick. If you look at it from two different aspects, one is our governmental business, the second being what we call our specialty businesses. We continue to look for individual talent and this is where it's brick-by-brick adding in different geographies, and we see definite room to grow market leadership in areas more in the Eastern part of the United States, Pennsylvania, the Southeast holistically, still see a lot of opportunity there. So again, could be really small acquisitions, or team hires or individual hire.

So again, brick-by-brick, and just maybe touching on governmental relative to the interest rate environment. We have seen the trend move towards new money issuance versus refinancing. Over the last year, new money's about 70% of the issuance in the municipal market, refinancing 30 and refinancing was down about 25%. So I guess my point is, you're already seeing a shift there. I just think if the economy recovers, and we see more and more new money, which tend to be slightly less interest rate sensitive.

Then if I go to the specialty businesses, here's where we see probably even a larger opportunity in some of our current businesses that we're in, take something like senior living and hospitality, which actually have been hurt by COVID somewhat as we come out of that we're seeing those businesses pick up our special district business, which we moved into late in 2020, a lot of opportunity there as we build that out nationally. And those tend to be, again, a little less interest rate sensitive, little more focused on what's the credit outlook and investor demand for those. So happy to fill in any other gaps. But that's how we see that business growing.

[Operator]

Thank you. A follow up question from James Yaro of Goldman Sachs.

[James Yaro, Goldman Sachs]

I just had one for Deb, I'd be curious to know what the impact of weaker client performance among a number of asset managers year-to-date means for the equity brokerage business, and whether that could end up being somewhat of a headwind?

[Deb Schoneman, President]

Yes. I think that it's a good comment and a true comment. And overall, as you've watched the equity brokerage business over the years, just the almost natural decline in that market wallet, which is why we have been really focused on closing the gaps in our product offering and building scale and becoming much more relevant to clients. So we believe and you heard in the commentary around our ability to with Cornerstone now closed last Friday, that's going to grow our revenue by about 30%. So getting us on close to that $200 million run rate on an annual basis. Having filled in some of those gaps, building our market presence with these clients we feel that can offset what you speak to which is going to be some headwind in the business overall. So which really means that we need to continue to gain market share.

[Chad Abraham, Chairman and Chief Executive Officer]

Yes. And I would add James, I mean, obviously you're talking about some of the performance of certain funds was really hurt here at the start of the year, that always impacts how people pay. But I think we just still see an opportunity with doing Cornerstone, still getting the benefits of [weed] [ph] and there's lots of accounts that we can get more market share from and make up for some of that

[Operator]

Thank you. There are no further questions at this time. And I would like to turn the call over to Mr. Chad Abraham for closing remarks.

[Chad Abraham, Chairman and Chief Executive Officer]

Okay, thanks, operator. Let me close again, by thanking all my employee partners for their hard work and dedication to our clients. We very much look forward to maintaining our strong momentum in 2022. Thanks, everyone, and have a great day.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.