Evercore Partners (
) derives almost 90% of its revenue advising companies on
mergers, acquisitions, divestitures and other forms of corporate
restructuring. The merger market has been flat of late, actually,
a bit disappointing. But weakness in its major market has barely
held back Evercore.
Since 2005, Evercore has been gaining M&A advisory
market share, notes Jeff Harte, an analyst with Sandler O'Neill
& Partners. In 2003, reports Harte, Evercore commanded just
1.04% of the global advisory revenue pool. By 2012, Evercore had
quadrupled its share to 4.22%.
Merger advisory revenues can be lumpy, depending on the timing
of deal closings. That's why quarterly results in this sector can
sometimes be misleading.
Evercore reported quarterly earnings Wednesday of 65 cents a
share compared with a consensus view of 54 cents. That was 33%
above the year-ago report of 49 cents.
Some analysts noted the results offered little confirmation of
an overall upturn in merger activity.
"It seems the revenue of independent advisory banks is holding
up much better than overall M&A industry volumes would
indicate," said Morningstar analyst Michael Wong.
He noted that Evercore executives were "a bit elusive" when
asked about the outlook for the second half of 2013. Still,
analyst Harte likes Evercore's long-term potential. "They'll
continue to gain share," he said. "They're the right player at
the right time for gaining market share and being a leader," he
Evercore was founded in 1996 on the premise that corporate
clients might prefer a small firm focused on merger advice to the
investment giants who then and now dominate M&A. The giants
of M&A, firms like Goldman Sachs, JPMorgan and Morgan
Stanley, typically underwrite and trade, along with dispensing
advice on deals. This can create conflict of interest issues,
according to the Evercore pitch.
Evercore founder and Chairman Roger Altman was no babe in the
M&A woods. He had risen to lofty oversight positions at
Lehman Bros. and Blackstone, and had also served as deputy
Treasury secretary in the Clinton administration.
The M&A business is all about who you know. And Evercore
started with a bulging Rolodex. Altman said at one recent meeting
with analysts: "I'm in touch with as many companies as probably
any banker on earth."
Since 2007, Evercore has more than doubled its roster of
banking pros, notes Wong. It continues to hire M&A pros,
often from larger rivals, and now has 63 partners, CEO Ralph
Schlosstein told analysts in April.
Evercore bankers are bringing rain. Senior managing directors
averaged more than $10 million each in advisory revenues over the
last year, said Schlosstein. Those are productive totals for
investment bankers, especially at smaller firms, notes Wong.
Though GAAP revenue in 2012 totaled just $642 million,
Evercore has in recent years been in on some big deals. It
advised Burlington Northern Santa Fe on its sale toBerkshire
Hathaway (BRKA) andSanofi (
) on its acquisition of Genzyme.
This year,AT&T (
) andBlackRock (
), among others, turned to Evercore for acquisition advice.
Though Evercore began with industry strength mainly in
technology, media and telecom, it is now diversified, across many
industries, said Harte.
Worldwide merger dollar volume in the first half of 2013 was
essentially flat with the prior year, according to S&P
How well would Evercore do if M&A activity heated up?
"Out of all the publicly traded investment banks, Evercore is
probably second to Greenhill in terms of upside earnings momentum
from a pickup in merger activity," said Wong.
Generally, merger activity does heat up as equity market
prices rise. Potential acquirers who were scared to buy in at
lower prices jump in when markets get frothy. And since their own
shares are likely frothing, too, deals with heavy stock
contributions are cheaper for buyers. But this time around,
buyers have not jumped en masse on to the bull market
"A lot of the normal indicators have been flashing green,"
noted Harte. But the pace of M&A recovery "has not been what
we're used to seeing," he added.
Buyers have held back for a number of reasons.
"There's been a lack of confidence after the deep recession.
Companies are much more inwardly focused," said Harte. And the
broader economic recovery has been too weak to fortify buyer
confidence. "We haven't really had much economic growth," he
"We're not sure why M&A has held back so much," said
Kenneth Leon, an analyst with S&P Capital IQ.
Still, Evercore was able to grow revenue last year from $524
million in 2011 to $642 million. One reason, some argue, is that
in the aftermath of the financial crisis there has been a trust
issue for larger rivals that underwrite and trade, along with
By contrast, said Leon: "Evercore is not likely to make direct
investments in something they advise on. At the large banks that
have huge trading operations as well as merger advisories,
"there's a potential for information leakage," added Wong.
As Evercore grows, its relative lack of presence outside the
U.S. could become an issue. Though Evercore has been trying to
muscle up overseas, it is still mostly dependent on the Americas.
This hasn't hurt much thus far as Europe and Asia have both had
to work through problems that have held back merger activity.
"Americas M&A has done very well for the first half of
this year as opposed to Europe and Asia," noted Leon. This trend
will "probably" continue through the rest of this year, he
Meanwhile, Evercore has diversified with an asset management
operation that contributed 12% of revenue last year.
Morningstar's Wong points out that margins in this business will
improve as assets under management -- now $13.6 billion -- grow.
Even so, said Leon, asset management won't be a big enough
business to "move the needle."
The needle needs deals.