26
take on a senior role there
prior to the AAP deal.
During a January
conference call with
analysts and interested
parties, Smith said AAP
“was developed around the
client-first mentality, and
it very much resonates
with us here culturally. One
of my key priorities was
to improve and increase
our client-first mind-
set.” Speaking of the AAP
principals, Smith noted,
“I particularly love the
closeness they have to
customers and the deep key
advisory approach they
take. They are close to
some of the most important
collectors in the world.”
What wasn’t discussed
during the call, but is buried
in the small print of the
Securities and Exchange
Commission 8K filing by
Sotheby’s, is that the deal
also includes the transfer of
AAP’s art funds, known asthe Fund and the Fund JV,
totaling $53.9 million.
Although those assets will
remain wholly owned by
their investors, they now
fall under the widening
administrative umbrella of
Sotheby’s. “The fund will
be maintained while we
assess the fund business
overall,” says Sotheby’s
spokes person Lauren Gioia.
At first blush, the
announcement pleased the
financial markets, as
Sotheby’s New York Stock
Exchange traded equity
(BID) rose an impressive7.5 percent, or $1.56, to
$23.23 a share, a brighter
shade or two above its
52-week recorded low of
$21.74. That jump disap-
peared during early winter’s
subsequent trading days
as Wall Street endured a
rapid downward slide. Re-
actions to the news beyond
the street were positive,
although more focused on
the home-run aspect of
the deal for AAP.
“I think Amy and Allan
are very good people, and
good on them that they can
achieve such a wonderful
price for their services,”
says Philip Hoffman, CEO of
the London-based Fine
Art Fund. “I don’t think it’s
so much an advisory
company they’re acquiring,”
he continues of Sotheby’s.
“From what I can gather,
it’s basically hiring three key
people in the business
and what they can bring to
the auction market.”Hoffman further speculates
that “they’ve got to bring
in an additional $250 million
of business just to break
even,” meaning an excess
of that figure is expected in
order for Sotheby’s to
profit from the acquisition
or for the AAP team to earn
any of that $35 million
success fee upside.
Even with that guessti-
mate, exactly what AAP can
deliver to the Sotheby’s
table isn’t clear to analysts
who regularly follow the
house’s stock market
performance. “They purposelyhaven’t given us numbers to
work with to determine
the valuation,” says George
Sutton, a partner in re-
search at the Minneapolis-
based Craig-Hallum
Capital Group. “Obviously,
that suggests this is a very
expensive acquisition/group
hire, but also very strategic.”
As to the reasons why
the young company decided
to give up building its
brand name so soon after
establishing itself, Cap-
pellazzo, who also sat in on
the conference call with
Schwartzman and Chinn,
said, “We felt the timing
was right and that the team
here was right and the
canvas on which to paint—
no pun intended—was quite
expansive and open.”
“I’m slightly surprised
to see them quitting
so early in their business,”
says Hoffman. “But I
guess this was an offer
they couldn’t refuse.”
The larger question
surrounding the acquisi-
tion is whether the art
advisory aspect will take
off under the Sotheby’s
brand; on the surface, the
prospect looks riddled
with potential conflicts of
interest. Even before the
deal, Schwartzman, a
longtime and valued
member of the New York–
based Association of
Professional Art Advisors,
resigned from the organiza-
tion. “The business model
he and Amy developed,”
says Kim Maier, executive
director of the APAA,
“is outside the parameters
of APAA’s guidelines.
Advisers who are members
have to be independent
and have no affiliations.”
Cappellazzo was never a
member of the association.
“We’ve spoken with all ourclients, who are extremely
excited about this new
relationship,” said
Schwartzman while on the
call. It is unclear how the
Sotheby’s specialists who
have been providing free
consulting to its top clients
will work within the parame-
ters of the new division.
Still, the major coup for
CEO Smith was nabbing
Cappellazzo, a charismatic
figure in the global art
market and someone who
could seemingly fill the
personality and rainmaking
void left by Tobias Meyer,
the former worldwide head
of the contemporary art
department at Sotheby’s,
following failed contract
renewal talks and his
ensuing departure in
November 2013. It is also
known that Cappellazzo
has a big fan in Daniel
Loeb, founder and CEO of
the hedge fund Third Point,
who now holds two seats
on Sotheby’s board, and
who incited the highly
publicized regime change
at the house last spring.
“Ultimately, for collec-
tors,” says Frank Moore,
the noted, New York–based
contemporary art collector,
“it’s going to be business as
usual. I just wonder how
some clients who’ve paid
Amy and Allan a lot of
money over the years are
going to be rewarded in
this new iteration. It’s not
so clear.”
Moore likens the
acquisition of AAP to deals
in the professional sports
world, “where it feels
more and more like one
of those franchises
buying top-tier talent at
a superhigh price. The
price is pretty steep for
whatever product they’re
going to get.” JUDD TULLY“They’ve got to bring in an additional
$250 million of business just to
break even,” says Philip Hoffman of
the London-based Fine Art Fund.
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