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RAINMAKERS - His Time to Shine

Deputy chairman Kenneth Jacobs says Lazard’s advice-driven model will thrive in the tight credit environment.

UNLIKE MANY OF HIS COUNTERPARTS ON WALL STREET, Kenneth Jacobs couldn’t be happier that the credit-fueled LBO boom has come to an ugly end. As big, diversified investment banks like Citigroup and Merrill Lynch & Co. struggle with gargantuan credit-market losses and contemplate job cuts, Jacobs, the deputy chairman and head of North American operations at Lazard, is preparing to cash in at their expense.

“This is when you want to be Lazard,” says the lanky, polished 49-year-old. “We’re not encumbered by a bad balance sheet or stuck with all the exposures everybody else has from their past lending and business practices. We have a very simple model, and now is when advice matters more than everything else.”

In addition to his senior management responsibilities, Jacobs doles out plenty of advice to corporate clients, particularly companies in the health care, consumer and technology sectors. He counseled pharmacy benefits manager Medco Health Solutions on its $1.5 billion purchase of diagnostics concern PolyMedica Corp. in October and counts technology giant IBM Corp. as a regular client, most recently advising it on a $12.5 billion share buyback and an agreement to buy rival tech firm Cognos for $5 billion last year.

Such versatility is the hallmark of Lazard bankers, and Jacobs cut his teeth learning from one of the best: former Lazard managing partner and U.S. ambassador to France Felix Rohatyn, who’s now a senior adviser to Lehman Brothers CEO Richard Fuld Jr. Jacobs jokes that he spent his early years at Lazard “carrying Felix’s suitcase around.” (Modesty, at least in public, is a strong Lazard trait; Rohatyn has often said his initiation as a big-league banker involved providing similar services for renowned former Lazard chief André Meyer.)

“Ken gets it,” says Stephen Patrick, CFO of Colgate-Palmolive Co., a longtime Jacobs client, which the banker represented when it took a look at Pfizer’s consumer products division. (Colgate was interested in Pfizer’s Listerine brand but passed on the unit, which was sold to Johnson & Johnson for $16.6 billion in December 2006.) “He is strong in both strategy and tactics, and he’s also very personable. He understands his clients strategically, and he takes the time to know whether a client will be interested in something and doesn’t waste their time.”

Lazard expects to capitalize in the near future on two major opportunities. One is the battered and bruised state of many large investment banks, which are nursing big losses just as the flow of advisory and financing assignments from private equity firms drops substantially — a powerful one-two punch. Lazard, in contrast, has no subprime or LBO debt write-downs to speak of and received just 19 percent of its M&A fees last year from private-equity-sponsored acquisitions, far lower than the level at any of the other top-ten advisory firms, according to research provider Dealogic. The second positive development for Lazard: As buyouts ebb, more of the action in M&A is likely to involve one corporation purchasing another, an outcome that plays to the firm’s strength. Its rivals are laying off bankers and cutting expenses, but Lazard is pouncing on an opportunity to expand.

“We’re countercyclical when it comes to recruiting,” says Jacobs. “We were pretty constrained about our hiring at the peak of this cycle, and my guess is that in 2008 we’ll be very aggressive.”

The firm also hopes to benefit from an increase in M&A activity outside the U.S. Jacobs believes that European and Asian acquirers will step up their purchases of U.S. and other assets and that U.S. companies will make lots of acquisitions beyond their borders. Lazard has long boasted an array of deal makers outside the U.S., especially in Paris and London.

“You are going to see a lot of activity from U.S. multinationals outside the U.S.,” he says, arguing that American companies will look to reinvest profits they earn abroad rather than repatriating them and being taxed by multiple jurisdictions.