With just 317 bankers, Moelis took in $411.4 million of revenue in 2013, a 6.6 percent increase from the year before. For the first-quarter, it projects revenue as high as $115 million, a 92 percent gain from the same period a year ago, filings show. Dealmaking activity in the first quarter had its strongest start to a year since 2007, before the global financial crisis, data compiled by Bloomberg show.
The firm ranked 12th among merger advisers in 2013, its highest-ever position, with roles on Heinz’s $27 billion buyout and the merger of Omnicom Group Inc. and Publicis Groupe SA, which created the world’s largest advertising company with a $35 billion market value, two of the year’s largest deals. Moelis generates revenue through fees for advising on transactions.
“There’s increasing share taken by the independent investment banks and that’s proven from what Moelis has been able to do,” Leon, who covers Greenhill and Evercore, said.
Earnings Risk
Still, the independent banks lack sources of revenue that can offset a decline in takeover activity, according to Erik Gordon at the University of Michigan. Moelis ranks 37th among M&A advisers in 2014, with its largest deal being TIAA-CREF’s $6.25 billion purchase of Nuveen Investments, the data compiled by Bloomberg show.
Evercore and Greenhill illustrate the risks. After its initial public offering in 2006, Evercore posted three consecutive years of losses during the financial crisis, and its unadjusted income still hasn’t returned to 2006 levels. Greenhill’s 2013 earnings were less than half of what they were at the peak in 2007.
“Deals are subject to macroeconomic swings,” said Gordon, a professor at the Ross School of Business. “If you buy this stock just in time for a downdraft, Moelis could be a lot scarier.”
Ken Moelis will own stock valued at about $386 million, with another $100 million in trust for his family, according to a filing. The company plans to use $141 million of the IPO proceeds to make a one-time payment to partners, while about $35 million will be for general corporate purposes.
“He’s selling a bunch of shares, he’s keeping iron-clad control solely to himself,” said Gordon. “How do you get growth when these guys are willing to take the money now?”