Sotheby's Purchases Art Advisory Firm

Some really interesting news, and also another indicator of how auction houses are encroaching and leveraging their brand and reach to expand into other art related businesses.  The NY Times and Wall Street Journal, as well as a press release by Sotheby's report on the purchase of Art Agency, Partners. What I find rather incredible is the price Sotheby's has paid, $85 million ($50 million with an additional $35 million if certain goals are met) for the two year old consultancy business run by New Museum curator Allan Schwartzman and former Christie’s executive Amy Cappellazzo. According tot he articles, the plan Sotheby's has is to have art consultancy as part of its services to work with collectors in building, and in disposing of important collections.

As this is rather important to many appraisers and art consultants, below in the block quotes are the articles from the WSJ, the NY Times and the Sotheby's press release.

I recommend you take a few minutes and read the articles and press release.

The Wall Street Journal reports
In a novel bid to expand the way auction houses do business, Sotheby’s said Monday it had agreed to buy a blue-chip art advisory firm in a deal that could be valued up to $85 million.

The company—Art Agency, Partners—was started two years ago by former New Museum curator Allan Schwartzman and former Christie’s rainmaker Amy Cappellazzo.

By branching into the art advisory business, Sotheby’s said it aims to position itself as an indispensable guide to heavyweight collectors seeking advice about ways to expand or retool their art holdings.

Such advisory firms have proliferated in recent years. They serve as independent consiglieri to collectors, hired to help buyers navigate the opaque, high-stakes world of auctions, galleries and fairs to amass coveted artworks.

Art Agency’s current clients include Dallas Museum of Art trustee Howard Rachofsky and Brazilian mining magnate Bernardo Paz, whose 5,000-acre park Instituto Inhotim is dotted with oversize art installations selected in part by Mr. Schwartzman, its creative director.

Sotheby’s said it bought Art Agency for $50 million with a pledge to pay an additional $35 million if undisclosed performance targets are met by the firm’s 15 members over the next five years. Under the terms of the deal, the house will hire the firm’s staff and absorb its art fund and entire client roster. Mr. Schwartzman said the firm’s clientele had been notified, adding, “Everyone was really supportive.”

The move is the latest salvo from Sotheby’s new chief executive Ted Smith, who wants the art house to offer clients services beyond the traditional business of buying and selling of art.

“Clients have come to our specialists asking if there is any way to pay them separately for advice or curatorial help,” Mr. Smith said, “but we didn’t have a structure for that until now.”

Mr. Smith added that he wants to expand Sotheby’s expertise to include providing market intelligence, advising on potential purchases at other houses or helping organize exhibits of collectors’ works.

The purchase also responds to an increasing pressure from the art world on Sotheby’s and rival, Christie’s International, to expand beyond their traditional auctions.

However, Sotheby’s deal could backfire if collectors feel pressured to shop at the art house. Clients will pay their advisers on a retainer basis so that fees aren’t linked to sales, Sotheby’s said. (Retainers could also bring the house steady fees even if auction sales waver overall; clients say Art Agency’s fees can top $10,000 a month.)

Dallas Museum’s Mr. Rachofsky, one of Art Agency’s first clients, said he plans to continue his working relationship with Mr. Schwartzman, but said he’s still digesting the long-term ramifications—and potential conflicts of interest.

“What Allan does is pretty intensive and creative in helping me shape my collection,” he said, “but Sotheby’s is in the gathering and distribution business, so it is hard to say how the personalized aspect will translate.”

Other art advisers remain cautious. Beverly Schreiber Jacoby, chief executive of BSJ Fine Art in New York, said she thought the deal might ultimately serve as a way for Sotheby’s to reassure investors after its recent lackluster sale of Al Taubman’s estate, and offer a buffer against a softening market.

“Sotheby’s is looking to find a floor for its stock and gain greater access to property,” Ms. Jacoby said, “while the agency gets added protection.”

Sotheby’s share price has halved since June. However, on Monday, the deal helped boost the stock nearly 7% to $23.15.

Sotheby’s acquisition comes two months after it offered voluntary buyouts and several weeks after Mr. Smith hired Marc Porter , another top deal maker at Christie’s.

A new management hierarchy is also emerging, much of it led by newcomers to Sotheby’s. Under the house’s newly created fine art division, Mr. Porter will serve as co-chairman alongside Mr. Schwartzman and Ms. Cappellazzo. Mr. Porter will focus on expanding private sales globally, while the other two will work as advisers and oversee several specialist departments including impressionist, modern and contemporary art.

Eventually, Sotheby’s said, additional collecting categories spanning the 20th and 21st centuries will fall under the new division’s purview including American art, Latin American art and modern British art

Former investment banker and lawyer Adam Chinn, the firm’s third partner, is executive vice president of world-wide transaction support succeeding Mitchell Zuckerman, a 37-year veteran of the house who is retiring.
Source: The Wall Street Journal 

The NY Times reports
.In a highly unorthodox move bound to shake up the auction world, Sotheby’s is paying up to $85 million for a boutique art advisory business run partly by a former executive at its archrival, Christie’s.

The firm, Art Agency, Partners, will lead a new fine-art division within the auction house, focused mainly on 20th- and 21st-century art. By acquiring the group, effective on Monday, Sotheby’s hopes to increase profits, build private sales and expand its client base at a time when the company’s stock price has been steadily declining.

“It’s going to bring significant new profit and revenue streams to us, and it will deepen our bench considerably in terms of the high end of the fine-art market, private sales and overall deal making,” said Tad Smith, 50, Sotheby’s new president and chief executive, in an interview. “It also brings significant new talent and leadership into the organization.”

Sotheby’s financial commitment to the group — which includes $50 million in cash, as well as additional payments of up to $35 million if undisclosed financial targets are reached over the next five years — is roughly the cost of a blue-chip Rothko painting. But it may raise some eyebrows, given that Sotheby’s just went through a round of buyouts that decreased its staff by about 80 people, which the company expected would result in a fourth-quarter charge of about $40 million.

This move also comes on the heels of the largest guarantee in auction history paid for a single collection, $515 million, to the family of A. Alfred Taubman. (Guarantees are pledges by the house to the seller that it will cover a minimum price.) Various sales of the Taubman collection have so far totaled about $438 million, leaving a shortfall of about $77 million. A sale of works by old masters, on Jan. 27, might realize $21 million to $30 million.

Still unclear is how a small, independent shop like Art Agency, Partners — founded just under two years ago — will marry its entrepreneurial operations with an established behemoth like Sotheby’s, the oldest company listed on the New York Stock Exchange.

The acquisition, which came together over the last few months, is part of a larger strategy by Mr. Smith to improve the company’s position at the high end of the Modern and contemporary art market. That strategy includes bolstering private sales capability and finding new opportunities for growth in advisory services. The acquisition came one month after Sotheby’s hired Marc Porter, a 25-year auction veteran, from Christie’s.

Art Agency, Partners is managed by Amy Cappellazzo, 48, the high-profile former chairwoman of Christie’s postwar and contemporary-art development; Allan Schwartzman, 57, a longtime art adviser; and Adam Chinn, 54, a co-founder of the investment bank Centerview Partners and a former partner at the law firm Wachtell, Lipton, Rosen & Katz.

The team has developed strong relationships with top collectors around the world and charted new ground by executing complicated financial transactions that are increasingly part of the highly competitive art market. Its clients include the Dallas collector Howard Rachofsky, the Brazilian art collector Bernardo Paz and the Miami collectors (and married couples) Norman and Irma Braman and Petra and Stephen Levin.

The firm has prided itself on helping clients with everything from art consultation and investment to estate planning and museum development.

“Soup to nuts — whatever you wanted done from framing a work of art to the most complex deal structures, it was one call,” Mr. Chinn said in an interview. “People transacting at the highest levels are expecting a level of service and sophistication and best practices they’ve been used to getting everywhere else.”

Analysts say this kind of approach is what the market demands. “Collectors’ expectations have gone up significantly across the board,” said David Schick, a managing director at Stifel Financial, who tracks Sotheby’s. “They want a holistic and full set of services and advice. A big portion of this transaction relates to what the customer really needs.”

Still, there are bound to be some growing pains; some longtime Sotheby’s specialists will now have to report to the Art Agency executives. And those executives will now report to Mr. Smith and be compensated as Sotheby’s employees.

“I haven’t been an employee since 1983,” said Mr. Schwartzman, who has been a curator but has never worked for an auction house. And while Ms. Cappellazzo had not expected to return to the auction business, she said, “It’s a different moment in the marketplace, a different task at hand.”

The fine-art division will initially incorporate Sotheby’s Impressionist, Modern and contemporary art departments and eventually encompass other categories of the period, including American, Latin American and Modern and postwar British art.

Ms. Cappellazzo and Mr. Schwartzman will oversee specialists in those areas, private sales and the development of a retainer-based advisory business within Sotheby’s. They bring with them a staff of 15. Mr. Chinn will assume the role of executive vice president for worldwide transaction support, succeeding Mitchell Zuckerman, who is retiring after 37 years at Sotheby’s.

In yet another twist, Mr. Porter, who worked closely with Ms. Cappellazzo at Christie’s, will become a third chairman of the new fine-art division, leading global business development. He will report to Mr. Smith.

Some analysts said they see an increasing emphasis on private sales among auction houses seeking to improve their margins, though Christie’s private sales were down 33 percent for the first half of last year.

“The market has gotten more competitive,” said George Sutton, an analyst at Craig-Hallum. “The auction houses have done a good job of gaining share using the private market, the lending business and the auction side of the business — relative to a dealer.”

While Sotheby’s has never before undertaken an acquisition with the scope or integration of the advisory art group, the step is somewhat in line with the company’s expansion history. In 1997, Sotheby’s bought a 50 percent interest in the gallery Deitch Projects; in 1996, it bought the AndrĂ© Emmerich Gallery.

Art Agency, Partners, established in March 2014 when Ms. Cappellazzo joined forces with Mr. Schwartzman, will become a wholly owned subsidiary of Sotheby’s. Still to be determined is whether the advisory part of the business will retain the Art Agency, Partners brand.

While the acquired firm will be based at Sotheby’s York Avenue headquarters in Manhattan, it will continue to keep some staff at its leased Flatiron offices in the short term.

Conventional wisdom has the art market softening. But in April, Laurence D. Fink, chairman of the asset manager BlackRock, said at a conference that “the two greatest stores of wealth internationally today” — compared with gold in the past — are contemporary art and real estate.

To some extent, the burden will be on Art Agency, Partners to earn the remainder of its financial package from Sotheby’s and to prove itself worthy of the investment by giving a boost to a company whose stock price hit $21.67 on Friday, down from a 52-week high of $47.28.

But Sotheby’s stock began climbing early Monday after Mr. Smith informed analysts and investors about the acquisition on a morning conference call. He also said that he planned to announce fourth-quarter results early to allow Sotheby’s to repurchase shares. It closed at $23.23 on Monday, up $1.56 (7.20 percent).

Sotheby’s commissions from auction sales were down 12 percent in the third quarter from the same period in 2014.

But Ms. Cappellazzo said she believed that “Sotheby’s is on the upswing” and that “their lowest low is behind them.”

And Mr. Chinn said he welcomed the challenge to increase profits as well as volume at the company. “It’s a huge responsibility, and we don’t take it lightly,” he said. “Hopefully, we can help create a business model that will make it more stable. It’s a whole business in transition.”
Source: The NY Times 

Sotheby's Reports
.NEW YORK, Jan. 11, 2016 (GLOBE NEWSWIRE) -- Sotheby's (NYSE:BID) today announced that it has acquired the art advisory firm Art Agency, Partners (AAP), managed by Amy Cappellazzo, Allan Schwartzman, and Adam Chinn. With this acquisition, Sotheby's, takes a decisive step toward implementing the strategy outlined by President and Chief Executive Officer Tad Smith.  Cappellazzo, Schwartzman and Chinn will begin immediately, reporting to Smith, and will be based in New York.

Smith stated, "AAP's profitable business helps drive initiatives that are imperative for Sotheby's growth — improving our leadership position at the high end of the fine art market, bolstering our private sales capability, giving us new growth opportunities in advisory services, and reinforcing the client-first culture in all we do. The AAP leadership team is widely known for its expertise in fine art of the past two centuries, especially in the realm of post-war, contemporary and modern art.  The principals maintain deep relationships with top collectors around the world, and are unsurpassed at executing the complicated financial transactions that are integral to today's art market.  Most important, however, is AAP's unique approach to client service in all areas of its advisory work, from art consulting and private purchases and sales to art-related estate planning, museum development, and art investment. All of these practices have joined consignment advisory and auction services as important strategic growth areas for Sotheby's."

Schwartzman and Cappellazzo will join Sotheby's as Chairmen, taking leadership roles in a newly formed Fine Art Division focused principally on 20th and 21st century art. They will also have responsibility for private sales and the development of the advisory business within Sotheby's. Chinn will assume the role of Worldwide Head of Transaction Support, leading the company's deal-making efforts on a global basis.

Smith continued, "The AAP team will supplement an extraordinary pool of talent within Sotheby's, and complement other key hires made in recent months in business development, technology and operations, digital development and marketing, and human resources."

"Having devoted my career to helping build great collections, and to tending to the diverse needs of great collectors, I am excited to join Sotheby's, where my colleagues and I from AAP can extend our approach to full-scale service to a much wider client world," Schwartzman commented.  "Today's rapidly evolving art market opens the way toward remarkable opportunities for our clients and the company that serves them. We intend to be nimble and innovative as we help Sotheby's realize its vision of expanding into a broader art business."

Cappellazzo noted, "Ours is an industry poised for change, and the conditions are perfect for a preeminent auction house to transform itself into a premier, client-centric art business.  The addition of AAP to the deep strength of existing talent within Sotheby's promises to make this enterprise first-rate in ways that are unprecedented in the field.  I am excited personally and professionally by the opportunity to help shape this venerable organization."

"The financial, legal, and art specialist spheres have become intricately linked in today's art market, and Sotheby's has been at the forefront of providing advice in all of these areas," said Chinn. "I look forward to further deepening the range of services we provide to art collectors and being a part of setting a new standard for doing business in the art market."

About AAP

Cappellazzo, previously Chairman of Post-War & Contemporary Development at Christie's, and Schwartzman, an advisor to many of the world's most important art collectors, announced the formation of Art Agency, Partners in March 2014. Chinn, a co-founder of the boutique investment bank Centerview Partners LLP, joined AAP as the third partner in October 2014.

Amy Cappellazzo previously served as a market leader in contemporary art during her tenure of more than a dozen years at Christie's, where she rose to be Chairman of Post-War & Contemporary Development. While at Christie's, she oversaw the sale of some of the most important collections of our time, served as a pioneer in private sales and online auctions, and acted as an advisor to numerous families, foundations, and trusts. Cappellazzo began her career as an art advisor and curator and was a key figure in the establishment of Art Basel in Miami Beach.

Allan Schwartzman, a founder and principal of Art Agency, Partners, has almost two decades of experience in advising some of the world's most influential and sophisticated contemporary art collectors and museums. Previously, Schwartzman was a founding staff member of the New Museum of Contemporary Art and director of the Barbara Gladstone Gallery. He has written extensively about art in numerous books and for publications including The New Yorker and The New York Times.

Adam Chinn was a co-founder of the boutique investment bank Centerview Partners LLC and a former partner at Wachtell, Lipton, Rosen & Katz.  He has been closely involved in many significant merger and acquisitions transactions, including transformative deals in the financial services, media, and entertainment sectors, over the course of his career in banking and law.  

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