Blackstone has made it clear that among the reasons for going public is the ability to use the firm’s equity to make acquisitions. Most of the more than $7 billion it raised through the June IPO and the China state government deal will go to paying out employees and buying up partnership units. But Blackstone has stock as currency now, and a market cap of more than $30 billion. So who should Blackstone buy? Lazard, according to one banker who used to work there.
    
    The question of how Blackstone plans to grow its business has been batted around Wall Street for several months now. Will Blackstone become the next Goldman Sachs by buying Bear Stearns or Lehman Brothers? Or will they beef up their restructuring group? Maybe grow their small M&A advisory business?
    
    Blackstone declined to comment on its plans. Several bankers interviewed said that the firm is unlikely to do anything big, at least for now. But that hasn’t stopped the theories.
    
    William Cohan, the former Lazard banker who wrote a tell-all book about the bank called “The Last Tycoons,” spelled out why Blackstone should buy Lazard on Monday. Speaking to CNBC’s Erin Burnett (the subject of a New York Post interview over the weekend), Cohan gave his reasons:

    Cohan: You have to ask yourself, how are these two aging billionaire M&A warriors going to perfect their legacy…How is Steve Schwarzman on the one hand going to transform Blackstone in to Goldman Sachs, and how is (Lazard’s) Bruce Wasserstein on the other hand going to exit the scene gracefully, perfecting his reputation…? And I think if you look at the circumstances surrounding this, both from the social and a strategic point of view, the fit is excellent in both situations.
    
    Burnett: And, you are talking about here what Blackstone would get…Lazard is a famous name, number ten in worldwide M&A…and a bigger in terms of the number of senior bankers that are working there.
    
    Cohan: Exactly. And look at it. Blackstone is not ranked in the top 25 from (an M&A standpoint) and has 14 managing directors in their M&A group…Lazard has 149 managing directors in their M&A group…and about a billion dollars in revenue. And there is more to it than that…Not only is it M&A that you get… but the hidden jewel of Lazard is the asset management business–$125 billion of assets under management. How does it compliment Blackstone?…Blackstone, with $85 billion in assets under management, (has) most of that in private equity. They have about $30 billion, $35 billion of assets in alternative investments. 
     
    Burnett: …Is it not the right time to buy Lazard? 
   

    Cohan: Well, yes…The actual market cap of Lazard when you fully dilute the shares owned by partners is closer to $6.5 billion and has 22 price to earnings. Blackstone…probably trades at about a 25 p/e. So it would be accretive to Blackstone’s earnings. And let’s talk about it from a social perspective. Bruce Wasserstein and Steve Schwarzman are friends. They’ve known each other from Harvard Business School and Lazard doesn’t really have anybody who can run the firm in the future, I don’t think. If you look at what is going on now, Bruce is not running it day-to-day.

(Unofficial transcript provided by CNBC)

(Photo, Bruce Wasserstein. Reuters file)