Where the large investment banks like Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS) and JP MorganChase (NYSE: JPM) dominate the investment world like whales on the high seas, every once in a while you get a smaller, nimbler shark that swims circles around the whales and scores a free meal.
Known as “boutique” investment banks for their more concentrated and specialized focus as advisors, these small to mid-cap banks are playing an increasingly prominent role on Wall Street, taking business away from the banking giants. One such boutique bank – Moelis and Company – scored one of last year’s largest mergers between the two large-cap advertising firms Publicis (NYSE: PUBGY) and Omnicom (NYSE: OMC), each with a $19 billion market cap.
It was enough to prompt Thomson Reuters to place Moelis and Co in the 13th spot on its worldwide ranking of financial advisors – beating out the likes of RBC Capital Markets in 16th place, BNP Paribas in 18th place, Wells Fargo in the 20th spot, and HSBC Holdings in the 22nd position.
Business is so good for Moelis and Co that its board is gearing up to take the firm public on the New York Stock Exchange under the ticker symbol MC, aiming to raise $100 million, although the figure could be far more. The date and number of shares of the sale have yet to be announced.
When it finally does debut, will the new company be a good investment opportunity for all us little pilotfish investors to follow along, scoring a nice meal for ourselves from its kills?
Introducing Moelis and Company
Moelis & Company is an international investment bank that provides financial advisory, capital funding and asset management services to corporations, institutions and governments.
Established in 2007 by veteran investment banker Kenneth D. Moelis upon leaving UBS, Moelis and Co specializes in mergers & acquisitions, recapitalization & restructuring, capital markets and risk advisory. It also offers asset management services with involvement in private equity through its subsidiary Moelis Capital Partners, in multi-strategy credit through Gracie Asset Management, and in direct lending through Freeport Financial.
Headquartered in New York with 14 offices in the United States, Europe, the Middle East, Asia and Australia, the 600 employee firm recently won Euromoney’s Best Investment Bank in the UAE award for 2013 for its role “advising on the debt restructurings of Dubai’s various government-related entities… by far the most important work in investment banking in Dubai,” praises Euromoney Magazine.
The company turned some heads among investment banker elites when it paired up with Rothschild advisory group on facilitating last year’s $35 billion merger between Publicis and Omnicom – without the involvement of a single one of the large investment banks.
Other attention grabbing deals include the $26.5 billion sale of Hilton Hotels to Blackstone Group, the $28 billion sale of Heinz to Berkshire Hathaway and 3G Capital, the $41 billion disposal of most of Natixis’ credit derivatives portfolio, and the $61 billion sale of Anheuser Busch to InBev.
For a relatively small boutique firm, it certainly doesn’t shy away from the big jobs. In operation for only 7 years, the firm has already orchestrated more than $240 billion worth of deals in its top 10 assignments to date.
But now that it’s going public, how will it fair against competitors? Will it be worth adding to our portfolios?
Jockeying For Position
As a relative newcomer to the investment banking and consulting sector, Moelis and Co. will certainly have to push its way to the trough amongst older rivals, such as Lazard Ltd (NYSE: LAZ) established in 1848 and trading publicly since 2005, and Evercore Partners Inc (NYSE: EVR) founded in 1996 and publicly traded since 2006.
At 10th place on Thomson Reuters’ worldwide list, Lazard operates as a financial advisory and asset management firm advising on mergers and acquisitions, restructurings, capital structure and capital raising, and provides investment management services to corporations, governments, institutions, partnerships, and individual clients. The $5.6 billion mid-cap reported $1.9 billion in revenues last year (33.9% of market cap), with net income available to common stock of $160 million (8.4% of revenues).
At 17th place on TR’s list, Evercore similarly operates as an independent investment banking advisory firm on mergers, acquisitions, divestitures, leveraged buyouts, and other strategic corporate transactions to companies in financial transition, as well as to creditors, shareholders, and potential acquirers. The $1.85 billion small cap reported $765 million in revenues (41% of market cap), with net income available to common shareholders of $56 million (7.3% of revenues).
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For its part, Moelis and Co reported just over $411 million in revenues last year, $70 million of which was profit (17% of revenues). That seems to indicate its stock should be more profitable to shareholders than its competitors’ shares, though it remains to be seen how much of that profit will trickle down to common shareholders. In its SEC filing, the company has not revealed compensation benefits to any of its employees except for the top three men at the helm – Mr. Moelis and his two co-founders, Navid Mahmoodzadegan and Jeffrey Raich.
As a comparison, the $78 billion large cap Goldman Sachs reported revenues of $34 billion last year (43% of market cap), with net income available to common stock holders of $7.7 billion (22.6% of revenues). For a big player, Goldman is pretty generous to its shareholders.
Yet growth is one of the most important considerations when investing in a stock. The soon-to-be-public Moelis and Co grew its revenues by a decent 6.7% last year. This compares to Lazard’s 9.4% revenue growth year-over-year, Evercore’s 2.2% growth, and Goldman’s revenue shrinkage of -4.9% – which certainly puts Moelis in a favorable light.
Given the splash it has made in the investment banking and advisory sector, Moelis and Company seems destined to continue climbing the ladder of investment banking firms worldwide. And when its new IPO finally debuts, its stock should be poised to invade the big banks’ turf and keep stealing some hearty meals like a shark that’s simply not going to cower in the presence of whales.
Joseph Cafariello
