One of the most interesting debates I've heard lately about this
market is whether or not the increase in M&A activity is
bullish. The bearish Doug Kass says it's not and the ever-eBULLient
Jim Cramer says it is.
I'm not sure who is right. But I'll tell you
is right: putting money on the focused, experienced deal-makers at
This "boutique" investment bank -- I've always loved that phrase,
like it's a shop on Fifth Avenue for the 1% (which it is I guess)
-- was founded in 1996 by current Chairman Roger Altman, a veteran
of Wall Street and Washington.
Altman served as Deputy Secretary of the US Treasury in the late
1970's and again in the 90's and was head of M&A for Blackstone
Group (BX) before launching his own firm on the premise that
clients would be best served by an investment banking firm free of
the conflicts of interest inherent to large, multi-product
Kill the Traders and Other Distractions
Altman believed that this pure advisory model, undistracted by
proprietary trading and sell-side research, would serve clients the
best and attract the most talented senior finance professionals to
This is important because while M&A deals seem like quick cash
grabs on the surface where big money simply has to make a deal that
makes both sides richer, there is a lot more to Evercore's
business, including advising on divestitures, restructurings,
specialized financings, public offerings, private placements and
other strategic transactions.
Re-Building the Core
Though global M&A activity rebounded fairly strong in 2010 and
2011 after the financial crisis, Evercore was a slow starter. You
can see from the Price & Consensus chart below that earnings
estimates would start out rosy for each year 2010 through 2012,
only to be taken down. And, of course, the stock price followed.
But in late 2012, you can also see that story quickly began to
change. Analyst consensus estimates made a dramatic turnaround on
the heels of one of the company's biggest deals ever, advising
Kraft Foods on its $36 billion spin-off of Kraft Foods Group.
And as corporate deal-making heated up in into the end of 2012,
with average Wall Street deal premiums crossing 25%, profit
projections for EVR got hotter too. In early December, they signed
on to advise McMoRan Exploration in its interest to be acquired by
Freeport-McMoRan Copper & Gold (FCX) for $3.2 billion.
Evercore has now facilitated over $1 trillion in transactions,
including advising a special committee of Dell's board of directors
in the recent bid to take the company private. And one thing to
remember about Evercore is that even if a deal doesn't close, they
still get paid advisory fees for their work.
The firm also has a growing Investment Management Services division
with over $12 billion AUM in private equity, venture capital, and
trustee services for institutional investors and high net worth
How the Zacks Rank Banked Coin in EVR
We could talk about Evercore's rising revenues, its balance sheet,
or why the Zacks quantitative model picked up its dramatically
improving earnings outlook. But, sometimes it's best to just let a
picture tell the story. Below is a 1-year price chart with
notations about when the model turned from red to green.
Investors who spotted the "green lights" in December jumped on this
story early for 50% gains. Even its earning of a #1 Rank on January
12 gave time for substantial appreciation. And while the momentum
may slow soon, it looks like dips to the 50-day and that area of
congestion between $38 and $40 should be bought as long as the Rank
is at least a 3.
Evermore, A Deep Bench
I mentioned the leadership of Altman in creating a world class firm
to take on the bulge bracket. But the firm's CEO is equally
impressive. Last week I watched an interview with CEO Ralph
Schlosstein on Bloomberg and he comes across as not only a
thoughtful economist, but a world class negotiator.
Schlosstein, who also worked at the Treasury along side Altman in
the 70's, was for almost twenty years the President of BlackRock
(BLK), the largest publicly traded asset management firm with over
$3.6 trillion of assets under management. He co-founded BlackRock
No stranger to politics, in the interview he carefully dissected
the battle lines in Washington over fiscal issues and I could tell
I was watching a master of solving problems and communicating
solutions, skills which must be required at the top of
multi-billion dollar deals with diverse shareholder interests.
Schlosstein also shared his steady view of the M&A horizon.
First, he described the 3 major conditions in place for a continued
M&A revival: (1) supportive capital markets, (2) economic
visibility, and (3) CEO confidence.
Then he described Evercore's tracking of 33 years of M&A data,
calling it a secular growth story that continues to make higher
highs and higher lows in deal volume throughout economic cycles. He
noted that the average down cycle is 2 to 3 years, and the average
up cycle is 5 to 8 years.
Since we are in year 4 of an up cycle, Evercore should be on your
buy list of deal masters.
Kevin Cook is a Senior Stock Strategist with
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