Piper Sandler Companies

NYSE:PIPR

Earnings Call Analysis

Optimistic Outlook Despite Mixed 2023 Results

In the fourth quarter of 2023, the company posted $457 million in net revenues, a substantial 49% increase from the prior quarter and 17% year-over-year, primarily driven by a robust advisory business. However, annual revenues dipped 7% to $1.3 billion compared to 2022. Operating income for the quarter stood at $99 million with a 21.7% margin, and $213 million for the year with a 16% margin. Earnings resilience enabled $155 million in shareholder returns, with expectations of a reduced compensation ratio near 63% for 2024, anticipating improved business conditions. Fixed income showed recovery in Q4, optimistic for 2024, with cautious views on the M&A and equity capital markets. The firm remains strategic in tech and software sectors and private equity relations, with a focus on expanding market share, while maintaining a steady growth in managing director headcount.

Warm Welcome and Introduction

Piper Sandler Companies held its fourth quarter and full year 2023 earnings call, with management delivering forward-looking statements accompanied by customary disclaimers about potential risks. Chad Abraham welcomed participants and introduced new CFO Kate Clune.

A Transition of Leadership and the CFO's Role

Tim thanked everyone for long-term support and expressed confidence in Kate Clune taking over the CFO role to steer the next phase of the company's growth after several transformative acquisitions.

Strong Year Despite Market Challenges

Piper Sandler reported strong performance in its diversified business model throughout 2023, despite tough market conditions, with notable achievements including the repayment of long-term debt related to Sandler O'Neill's acquisition and gaining market share in advisory, capital markets, and brokerage. The fourth quarter proved particularly robust, marking the company's third-highest revenue quarter on record.

Public Finance and Equity Brokerage Update

Public finance saw improved conditions in the fourth quarter, after a year hampered by high interest rates and poor demand. The equity brokerage business maintained solid performance throughout the year, despite a slight year-over-year drop, thanks to collaboration between analysts and share gains despite lower market volatility and volumes.

Financial Outlook and Capital Allocation

Kate Clune highlighted an increase in Q4 net revenues and a strong performance from the advisory business. The firm expects improving conditions and a compensation ratio trending towards 63% for 2024. Piper Sandler remains committed to returning capital to shareholders, with significant share repurchases and dividends throughout 2023.

Anticipating Challenges and Opportunities in 2024

Management conveyed cautious optimism for the fixed income brokerage business in 2024, anticipating improved conditions but not without challenges, including the unpredictability of rates and rate volatility. M&A and capital markets activity are expected to see sector-by-sector recovery, particularly in health care, and possibly an uptick in financial services capital raising.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to the Piper Sandler Companies conference call to discuss the financial results for the fourth quarter and full year of 2023. During the question-and-answer session, securities industry professionals may ask questions of management.

The company will make forward-looking statements on this call that are not historical or current facts, including statements about beliefs and expectations, and involve inherent risks and uncertainties. Factors that could cause actual results 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 pipersandler.com and on the SEC website at 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 measures of financial performance prepared in accordance with GAAP. Please refer to the company's earnings release issued today for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure.

The earnings release is available on the Investor Relations page on the company's website and at the SEC website. As a reminder, this call is being recorded. And now I'd like to turn the call over to Mr. Chad Abraham. Mr. Abraham, you may begin.

[Chad Abraham, executive]

Good morning, everyone, and thanks for joining us today to talk about our fourth quarter and full year results for 2023. I am here with Deb Schoneman, our President; and Kate Clune, our newly appointed CFO. I'd like to welcome Kate to her first of many earnings calls. She is an excellent addition to Piper Sandler and our leadership team. Kate has an impressive skill set, and we look forward to leveraging that to help drive the firm's next stage of growth.

We also have Tim Carter with us today, our former CFO, who is serving as Senior Vice President of Finance through the transition before retiring in April. I'd like to thank Tim for his leadership. He has been an incredible partner to me and instrumental in helping guide us through our growth over the years, including several transformative acquisitions.

[Timothy Carter, executive]

Thanks, Chad. I feel incredibly fortunate to have spent over 28 years at Piper Sandler, and I'm really proud of everything we've accomplished. The firm is well positioned, and I'm excited to have Kate in the CFO seat to guide us through the next stage of growth. It's been an absolute honor to work side-by-side with so many fantastic people at Piper Sandler, which is what I'll miss most.

[Chad Abraham, executive]

Thanks, Tim. Now turning to our results. Our diversified platform performed well during 2023 despite challenging market conditions for much of the year. We finished the year strong with the fourth quarter representing our best quarter of 2023 as well as our third highest quarterly revenues on record. We generated adjusted net revenues of $457 million, a 21.7% operating margin and adjusted EPS of $4.03. On a full year basis, adjusted net revenues were $1.3 billion, generating a 16% operating margin and adjusted EPS of $9.28.

There are a number of highlights worth noting from 2023. Advisory services revenues represented over half of our total net revenues for the third consecutive year. The business delivered its second strongest quarter on record and accounted for 60% of total net revenues for the fourth quarter. We grew market share in our advisory, equity capital markets and equities brokerage businesses. We generated record revenues in our restructuring practice and in our agent and debt business, demonstrating the strength of differentiated product offerings for clients. And we repaid $125 million of senior notes upon maturity, which completes the repayment of our long-term debt financing procured for the acquisition of Sandler O'Neill.

Overall, 2023 marks another successful year as we continue to grow market share and maintain strong operating discipline, to generate $166 million of adjusted net income, demonstrating how durable our diverse platform is in a challenging market environment.

Now, I'll provide an update on our corporate investment banking business. We generated revenues of $314 million for the fourth quarter of 2023. A significant increase on a sequential basis as well as an increase from the fourth quarter of last year, driven by the strong performance of our advisory business.

For the year, corporate investment banking revenues of $840 million declined 7% from 2022 but delivered a strong performance relative to the overall market. Contributions were relatively diverse across sectors, led by our market-leading health care and financial services franchises followed by another strong year from the energy and power team and record results from our restructuring group.

Our performance within health care was powered by med tech advisory and increasing market share in biopharma equity capital raising. Health care remains a large and growing fee pool and with one of the largest and most respected teams in the marketplace, we're well positioned to benefit from this growth.

Our performance within financial services was led by depositories where we were the #1 adviser in U.S. bank M&A based on number of announced transactions and aggregate deal value and we advised on 7 of the largest 10 bank mergers and acquisitions completed during 2023.

Additionally, we saw increased contributions from our insurance team. We had another record year in this vertical as the team leveraged our robust financial sponsor coverage to win larger mandates. Contributions from our asset and wealth management team continue to grow as well.

Another sector with strong performance in 2023 was our energy and power group. We retained our leadership in oilfield services where we were one of the top advisers based on the number of completed deals. With one of the largest and most tenured teams in the Street, we continue to feel great about our market position.

Specific to advisory services, we generated $284 million of revenues during the fourth quarter, nearly double the sequential quarter and up year-over-year. We benefited from a higher average fee and more completed transactions as we experienced an elevated close rate during the quarter. For the year, we generated $709 million of advisory revenues, which were more resilient than the overall market. Our revenues declined 9% from 2022 while M&A market activity was down approximately 20% to 30%. We maintained our rank as the #2 adviser on announced U.S. M&A deals under $1 billion.

The sector and product diversification of our business, along with balanced coverage between strategic and private equity clients drove our strong performance for the year. Private equity activity in the market was down sharply in 2023. However, our advisory revenues from PE clients grew in 2023 highlighting the scale of our PE business and the increased relevance of our platform to a broader universe of financial sponsors. A key contributor to our strong performance with PE clients was our debt advisory business.

Our debt advisory team excels at finding creative and tailored financing solutions to help clients navigate a challenging leverage finance landscape. Another success was record revenues from our restructuring team including advising the FDIC on the sale of substantially all of the deposits and loans of both Silicon Valley Bank and Signature Bank in March of 2023. In addition to partnering with our financial services franchise, the team completed a number of restructuring deals in collaboration with our health care, energy and power and consumer groups.

Looking forward, our advisory pipelines remain strong. With improving market conditions, we expect the first quarter of 2024 to be modestly better year-over-year. Given the elevated close rate in the fourth quarter of 2023, we anticipate a similar seasonality in our 2024 advisory revenues to what we experienced last year.

Turning to corporate financing. We generated revenues of $30 million for the fourth quarter of 2023, down sequentially and year-over-year. For the year, corporate financing revenues of $131 million improved from 2022. Equity financing revenues increased 28%, which was offset in part by a decline in debt financing activity for financial services companies. We completed 88 equity and debt financings, raising $20 billion in capital for corporate clients. Equity issuance has remained depressed after robust activity in 2021. The equity capital markets fee pool for 2023 represented approximately 51% of the average over the last 10 years.

Our relative performance in equity capital raising for 2023 was strong with fees from sub-$5 billion market cap companies increasing 46% over the last year versus a 17% increase in the market fee pool. Health care again led our equity issuance activity, serving as a book-runner on 45 of the 46 deals priced this year. Additionally, we ranked as a top 5 investment bank based on the number of book-run deals for sub-$5 billion market cap companies within the biopharma space. We expect equity and debt financing activity to increase in 2024 as companies raise needed capital to execute on their strategic plans.

Turning to investment banking managing director headcount. We finished the year with 169 managing directors, up a net 10 from last year. A significant component of our 2023 MD growth was driven by internal promotions across our industry and product teams, highlighting our success at developing talent, which remains a priority for us. We also continue to focus on building a culture of growth that makes us a destination of choice for top tier talent. Over the last 10 years, we have grown MD headcount by an average of 13% annually. Given this growth, we remain intentional about strategically managing headcount and driving productivity while consistently looking for opportunities to strengthen the platform.

Before handing it off to Deb, let me make a couple of concluding remarks. Over the last decade, we have executed on our strategic vision and delivered strong growth and shareholder returns. We have built a diverse and resilient platform with significant scale, margin and cash flow. We continue to focus on growing annual corporate investment banking revenues to $2 billion by scaling industry groups, product share gains, increasing transaction and fee size, continuing our momentum in growth with private equity clients and corporate development.

Now I will turn the call over to Deb to discuss our public finance and brokerage businesses.

[Debbra Schoneman, executive]

Thanks, Chad, and congratulations to both Tim and Kate. I'll begin with an update on our public finance business. Market conditions were challenging for most of the year in this business due to higher nominal rates and weak investor demand. However, conditions improved during the fourth quarter. We generated $29 million of municipal financing revenues for the quarter, up 47% sequentially as the better market conditions allowed us to execute a few more high-yield offerings.

For 2023, we generated $83 million of municipal financing revenues, down 23% from last year. We underwrote 413 municipal-negotiated transactions raising over $12 billion of par value for our clients. Based on the number of municipal-negotiated underwritings for the year, we maintained our #2 ranking. The number of new issuances in the overall market for 2023 declined approximately 13% from the prior year. High-yield new issuances decreased approximately 21% and due to higher interest rates for issuers and depressed demand from buyers. This impacted our performance as a meaningful component of our public finance business is in high-yield specialty sectors.

As we look ahead to 2024, market conditions continue to be challenging. However, declining rates and more investor demand have us cautiously optimistic that momentum will continue. Our diversified middle-market model is a key differentiator in the marketplace, and we're excited about our growth prospects for this business.

Turning to our equity brokerage business. Equity markets rallied during the quarter to finish the year strong, and volumes increased 8% compared to the third quarter. We generated revenues of $55 million for the fourth quarter, up 9% sequentially and down modestly year-over-year. For the full year, equity brokerage revenues of $210 million were consistent with 2022.

Performance was broad-based with our high-touch program and derivatives trading, all generating strong activity. Market share gains in 2023 offset the declines from lower market volatility and volumes compared to the prior year. The strength of our platform attracted over 1,700 unique clients, and we traded 10.7 billion shares on their behalf. Strong collaboration between our fundamental analysts and our macro research analysts, continues to bring a valuable and differentiated view to our clients, recognized by increasing client votes. We maintain one of the largest research platforms in the small and mid-cap space with approximately 1,000 stocks under coverage.

As we look forward to 2024, we expect a more challenging market environment with a lower fee pool and likely less volatility. We continue to gain market share, which should help mitigate these headwinds.

Lastly, turning to fixed income. We generated revenues of $48 million for the fourth quarter of 2023, up 19% compared to the sequential quarter and down modestly year-over-year. A perception that interest rate increases by the Fed are finished helped motivate clients to move from the sidelines and take advantage of the higher yields. Our depository clients were active in repositioning their portfolios ahead of the new year and we were engaged on multiple balance sheet yield-optimization assignment.

For 2023, we generated $168 million of fixed income revenues, down 14% from the prior year. Market conditions were challenging during the first 9 months of the year as interest rate volatility and liquidity concerns in the banking sector muted client activity. We continue to invest in this business, and we made several targeted hires in 2023 that increased our product depth and client specialization. The current market dislocations should provide opportunity for more targeted hiring in 2024 as we look to continue elevating our platform. From an outlook perspective, we expect clients to be more active in 2024 as the fixed income asset class represents an increasingly attractive investment opportunity.

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

[Kate Clune, executive]

Thanks, Deb, Chad and Tim. Let me begin by saying how happy I am to be here at Piper Sandler. I'm honored to be named the new CFO. I'd like to thank Tim for his continuing invaluable support and mentorship during this transition. Before reviewing our non-GAAP financial results, let me discuss a couple of items impacting our GAAP results this quarter. For the fourth quarter of 2023, our GAAP results included $5.2 million of non-compensation expense related to potential regulatory settlements with the SEC and CFTC regarding recordkeeping requirements for business-related communications as well as the related legal costs. GAAP results also include a $3.8 million restructuring charge associated with headcount reductions as we continue to align head count with our 2024 outlook.

Turning now to our adjusted non-GAAP financial results, which should be considered in addition to and not a substitute for the corresponding GAAP financial measures. Net revenues of $457 million for the fourth quarter of 2023 increased 49% from the prior quarter, and 17% compared to the fourth quarter of last year. An excellent performance from our advisory business accounted for 62% of total net revenues, which drove the strong results.

For the year, net revenues totaled $1.3 billion, down 7% compared to 2022. We generated solid operating results despite reduced market activity for much of the year, as well as a decline in market fee pools in most of our businesses. Turning to operating expenses and margin. Our compensation ratio for the fourth quarter of 2023 was 63.4%, lower compared to the sequential quarter, driven by increased revenues. For 2023, our compensation ratio was 63.6%, a 110-basis point increase compared to 2022.

Our compensation philosophy remains unchanged. We continue to balance employee retention and opportunities to invest in new talent with delivering appropriate operating margins and shareholder returns. Based on our current outlook of improving conditions, we expect our compensation ratio for 2024 to trend closer to 63%, absent significant hiring activity. Non-compensation expenses for the fourth quarter of 2023, excluding reimbursed deal expenses were $60 million, up 5% on a sequential basis.

For the year, excluding reimbursed deal costs, non-compensation expenses totaled $243 million, up 3% compared to 2022, illustrating solid expense management in the face of inflationary pressures and a challenging operating environment. Non-compensation expenses are a key driver of operating leverage, and we remain focused on managing the actionable expenses. Looking forward, we maintain our guidance of approximately $62 million per quarter, excluding reimbursed deal expenses, as business continues to improve.

During the fourth quarter of 2023, we generated operating income of $99 million and an operating margin of 21.7%. For the year, operating income totaled $213 million with an operating margin of 16%, a solid result on an absolute basis. Our income tax rate was 26.7% for the fourth quarter of 2023 and 19.9% for the year. Income tax expense for the year was reduced by $17 million of tax benefits related to restricted stock vesting. Excluding these benefits, our 2023 tax rate was 27.9%. We expect our tax rate for 2024 to be within a range of 27% to 29%, excluding the impact from stock vestings.

During the fourth quarter of 2023, we generated net income of $72 million and diluted EPS of $4.03. For the year, net income totaled $166 million and diluted EPS was $9.28. Let me finish with an update on capital allocation. We remain committed to returning capital to shareholders through market cycles. Our earnings resilience and capacity, combined with our capital-light approach, enables us to generate meaningful amounts of excess cash to deploy through share repurchases, dividends and corporate development.

During 2023, we returned an aggregate of $155 million to shareholders. We repurchased approximately 495,000 shares of our common stocks, or $71 million, which more than offset the share count dilution from this year's annual stock grants. We paid an aggregate of $84 million or $3.65 per share to our shareholders through our quarterly and special cash dividends. We also repaid the $125 million of our Class B notes upon maturity in October of 2023.

Given our level of earnings, today, the Board approved a special cash dividend of $1 per share related to our 2023 full year results. Including the special dividend, our total dividend for fiscal year 2023 equals $3.40 per share of common stock or a payout ratio of 37% of adjusted net income. In addition, the Board approved a quarterly cash dividend of $0.60 per share. Both the special and the quarterly cash dividend will be paid on March 15 to shareholders of record as of the close of business on March 4.

Our 2023 results demonstrate our firm's resiliency during complicated market conditions. As we look forward, we remain confident that the execution of our strategic priority will strengthen client engagement, drive durable revenue growth and provide strong returns for our shareholders. With that, we can open up the call for questions.

[Operator]

[Operator Instructions].

[Devin Ryan, analyst]

Good morning, everyone. I just want to start on the fixed income brokerage business. You clearly -- nice to see the improvement there and here the depositories are more active. And my sense was that improvement kind of progressed through fourth quarter, so maybe the full quarter wasn't even fully reflecting that improvement. So I'm just curious if the fourth quarter level has been jumping off point as we look to 2024, could it actually improve off of that if you see more acceleration from depositories. Just want to get -- maybe sensitize a bit around what you guys saw during the fourth quarter and then what that means for how to think about jumping off into 2024.

[Debbra Schoneman, executive]

Yes. Devin. We did see that build in Q4, as you said. And I think a lot of that ended up being with banks at -- almost at the end of the year, looking to get their balance sheets repositioned for the start of '24, taking the loss trades, locking in higher yields. As we look to 2024, it ultimately is probably one of our harder businesses to predict because what we've seen already in the first quarter and one of the factors that seems to impact the business is not just only level of rates but rate volatility. And so as we've seen rates move around a lot here again in January, we have seen it start off just a little slower.

But when I step back and look at the whole year in total, we do expect that it's going to be a better year. It's going to be a function of the rate environment, importantly, rate volatility, shape of the yield curve. And then that bank and credit union liquidity, which, as you've noted here, has improved. So I guess a cautiously optimistic viewpoint on fixed income in '24.

[Devin Ryan, analyst]

Okay. Great. One on the M&A environment probably for Chad here. But -- just on the breakdown between sponsor activity and corporate activity, obviously, you guys have good connectivity to kind of both subgroups. And sponsors were really absent from the market last year, but we have been hearing that they're starting to come back. Technology is the largest sector and hearing some more positive commentary there where I know you guys participate as well. So I want to just get a little flavor between sponsors versus corporates.

And then also just -- I hear the comments around kind of the cadence of 2024 and the acceleration through the year. But -- what are some of the kind of key things you're looking for when you talk to clients to get the sense that things are improving? And then the order of magnitude that it feels like? Is it a coiled spring? Or is this just a really kind of long, slow kind of going out, grind higher?

[Chad Abraham, executive]

Yes. I would say, Devin, obviously, we had really good Q4 advisory results. Frankly, the sponsor business had a lot to do with that. Obviously, I've heard the commentary from others. So I think just -- you look at this year in Q4, and we certainly gained some share, we sort of highlighted our sponsor activity, depending on how you look at it as was up somewhat in a market where the fees were down. I would say the first few quarters when we were looking at sort of what transactions we're going to close, the close rates were just incredibly low leading into that. And so we are obviously cautious going into Q4.

I would say that flipped for us quite a bit in Q4. Just looking at the potential deals we could close with private equity. We had a very high close rate. And I do think financing has picked up. It's certainly not perfect. I do think the bid between buyers and sellers, these sort of new valuation levels have settled in for most. Pitch activity is good. So yes, we definitely expect 2024 to be spent a better sponsor year. I don't think it's going to be a coiled spring. And then I would just remind people that sponsor activity is always more back-half weighted than other M&A activity. So by its very nature, it's a heavy-pitch cycle February, March, April, May and heavy deal execution. And frankly, one of the highlights of our Q4 business was we did a lot in our diversified industrial services business, and that's primarily a 100% sponsor business, just as an example.

[Devin Ryan, analyst]

Okay. Great. If I can squeeze just one more quick one in here. Just on the equity capital markets side of the business, you guys have such a big health care book. And that's an area we -- just looking at some of the industry data, it was up roughly 2x from -- in January '24 over January '23. So seeing some improvement. Obviously, early days there. But just -- I think the recovery in equity capital markets is going to be sector by sector. And so just love to get a sense of kind of the order of magnitude you guys are expecting. And then within some of the verticals, because you guys are active in some of maybe the more active areas, kind of what that could mean for Piper or maybe even relative to broader industry trends.

[Chad Abraham, executive]

Yes. So for us in Q4, ECM actually was a bit of a disappointment after we started with a strong October, deal activity really slowed the last 5, 6 weeks, I would say January has started pretty strong for us in ECM, and it's exactly the data you're seeing, and it is driven by primarily health care, I think we would expect sort of with the overall markets and volatility in client conversations that 2024 should be a measured continued improvement for ECM.

A lot of our -- we actually outperformed ECM, if you look at all of 2023, but a lot of that was just market share gains in health care. We do expect that entire ECM fee pool to get better in '24. So we don't even need market share gains to drive some of that.

What will make it great would obviously be broadening into some other sectors, very limited IPOs. And obviously, tech's a big part of that. But if we started to see the tech IPO cycle pick up, we started to see some of the capital markets and energy pick up, that's what would broaden out, at least for us. And then I do think there's a chance -- I mean, we saw really low capital markets activity in financial services, just given all the turmoil and you're starting to see many institutions just sort of take the medicine on capital and other books. So we do think you'll see more capital raising in that sector as well.

[Operator]

We'll go next to James Yaro from Goldman Sachs.

[James Yaro, analyst]

So Chad, starting with advisory, I thought these were excellent results. But I do think the overarching question in investors' minds is whether advisory transactions came forward into the fourth quarter and whether this sets up for a slightly more challenging first quarter, I think you sort of alluded to the seasonality for 2024. So I think the question is how you think about the starting point for '24. And then when you think you can get back to fourth quarter levels in '24 and start to build from there?

[Chad Abraham, executive]

Yes. I would say, look, especially given our sponsor mix, first quarter is always the toughest seasonal quarter for us with -- like I said, with our close rate being high in Q4, it's hard to imagine we didn't have some pull forward there. All that being said, a lot of our sponsor business, like I said, is driven from pitching in the first half that closes in the back half, which is why we sort of said we think we'll have the similar seasonality.

So it's not like in 2023, our first quarter was fantastic from an M&A result either. So as the year progresses, it didn't really pick up for us until Q4. I do think as this year progresses, we might see a little more of that in Q2 and Q3 and not just Q4, but we'll have to see how that plays out.

[James Yaro, analyst]

Okay. That makes sense. And then just maybe quickly on financials, DCM and M&A, which you touched on a little bit before. Does the stress on the regional banks over the past few days as a result of commercial real estate, in particular, push out the timeline for these business to reaccelerate? Just curious what you're hearing from your bankers.

And then just more generally, is that -- are those 2 businesses expected to pick up in 2024? Or is that a longer-term trajectory?

[Chad Abraham, executive]

Yes. I mean I've been obviously reading all the various bank earnings reports. And obviously, we cover a lot of the smaller and mid-sized banks as well. And there's been some -- certainly some tougher reports, I do think that does set up for eventual improvement. I would say relative to our corporate financing results last year, the DCM, ECM financing part of financials was a really low number for us, look back many, many years, certainly one of the lowest.

So while we think it will be a slow recovery, we do think there will be more capital raising, and we certainly don't think there's a way it can go much lower. So I think we would say it would be an improvement, but a slow improvement in financial's capital raising this year.

[Operator]

We'll go next to Steve Chubak from Wolfe Research.

[Brendan O'Brien, analyst]

This is Brendan O'Brien filling in for Steven. I guess to start, I just want to touch on the advisory business. The improvements in the environment are encouraging. But just want to get a sense as to whether the election could have any dampening effect on activity levels. And would be specifically interested in the potential impact on activity in the financials and health care sectors, which can be in or out of the regulatory crosshairs depending on the administration.

[Chad Abraham, executive]

Yes. I mean I'm in my 33rd year of doing this, obviously, have seen some elections, have certainly been asked about elections a lot. I think people spend a lot of time on it. I would say the few times both for advisory and ECM that we've actually looked at the long-term data it doesn't have that much impact on either of those businesses. But there's definitely some short-term noise that can be created. I mean, certainly for our health care business, every time you get a lot of talk about regulating different pricing. That impacts health care. I definitely think in our financials business, people will look at the administration and figure out, is it going to be as difficult to get depository transactions done. So while I think there'll be a lot of noise. I think if you just look at the trends long term, it doesn't have that big an impact.

[Brendan O'Brien, analyst]

That's helpful. And I guess something a bit more tangible. The OCC gave new guidance that eliminated the expedited review process for bank mergers. I know it's still early days, but would you expect this to change the velocity of activity? Or would it simply prolong deal cycles and therefore, the eventual revenue tailwind if and when bank consolidation were to really pick up?

[Chad Abraham, executive]

Yes. I mean, I think what our team is certainly feeling now is the level of activity and conversation has picked up. I would also say if you just look at the empirical data, even from this year, we've already been on a small handful of depository transactions. So I think we think it's going to pick up. I do think all the noise around regulatory activity -- I mean, bank CEOs talk to other bank CEOs and if it's a hassle and it takes longer and it adds risk, that uncertainty always scares people.

So I certainly don't think any of that's going to help, but I think it's against the backdrop where -- the environment is going to just warrant consolidation as a way to drive more earnings. And that's certainly what we're seeing in it. But it's going to be a real slow recovery there.

[Operator]

We'll go next to Mike Grondahl from Northland Securities.

[Mike Grondahl, analyst]

So Chad, we're in a new year, 2024. What are your top 2 strategic priorities for '24? And then just secondly, how should we think about the growth of MD headcount the next year or two?

[Chad Abraham, executive]

Yes, I would say it's hard to just pin the priorities down to a couple, if I had to. I'll give you a couple. certainly, we've talked for years about our interest in wanting to increase our market share dramatically in technology and software. I think when you look at our largest industry teams and it played out last year, by far, the 2 largest are financials and health care, we had a big year in energy, and I think certainly in our diversified and industrials business as we've added enough pieces that, that's a big leg on the stool.

But overall, we're going to be disappointed over the next 5 years if we can't get the tech and software business to a similar size with health care and financials. And we've obviously made a lot of those investments. Last year was a pretty tough year in the tech advisory fee pool to have that play out. So we expect quite a bit of improvement there.

And then I would say if I could just highlight one other strategic priority for us in advisory is -- or in advisory is just work with PE clients, the type of work we're doing with PE clients, whether it's some GP advisory, looking more at other services you can offer that PE client base, we really have a strategic advantage in the middle market that shows through in our results. It shows through in most of our industry teams with private equity, we had a really, really good year in debt capital raising in our debt advisory business and the vast majority of that is related to sponsors.

So I think we're just -- we're going to look at how do you press that advantage and continue to gain share. And how can we offer more products and services for what we think is going to continue to be a growing PE fee pool.

Was you're -- your second question was MD headcount. I think...

[Mike Grondahl, analyst]

Yes, how to think about -- yes, head count, MDs in banking.

[Chad Abraham, executive]

Yes. For us, nothing has really changed. We always kind of talk about, on average, trying to add 5 to 7 net MD headcount. Obviously, we've grown faster than that if you look at the last 5 years. But that average is in the acquisitions we've done. So we always put that on top.

I would say we went a little slower on sort of external hiring, just given the environment. I would say just sort of given our momentum and success in just the overall environment, we are seeing a lot more opportunity early this year. And obviously, we got to be careful with that. So we -- there might be some chances to accelerate that, but I think we're sort of banking on the steady Eddie 5 to 7 adds that -- consistent with the last several years.

[Operator]

And at this time, I'll turn it back over to Mr. Abraham for any additional or closing remarks.

[Chad Abraham, executive]

All right. Thank you, operator, and everyone that joined. We very much look forward to updating you on our first quarter results. Have a great day.

[Operator]

That does conclude today's conference. Thank you for your participation. You may now disconnect.