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Evercore Partners Lands Advisory Fees On Big Deals

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T he nameEvercore Partners ( EVR ) may not sound familiar, but you've probably heard of its clients, some of the biggest names in corporate America and beyond:DuPont ( DD ),Nokia ( NOK ) andCVS Health ( CVS ), to name a few.

There's nothing small about Evercore's clients.

The most high profile work of late by the financial advisory firm has been as a consultant to DuPont in its pending $68 billion merger withDow Chemical ( DOW ) and to tech companyEMC (EMC) on its potential sale to Dell. The $67 billion EMC/Dell merger, which has yet to be consummated, would be the largest-ever marriage of two technology companies.

Analyst Doug Sipkin of Susquehanna Financial Group said in a note to clients that Evercore is one of the top M&A destinations in the investment banking industry. And despite its relatively anonymous status, it's starting to make the hard climb into greater prosperity.

Take the firm's fees. Sipkin notes that its fee share on deal work through the first nine months of this year was 5.5%, still robust, though down from 6% in 2014. Fee-share gains will be tougher to get, and that's a good thing, Sipkin says.

"Share gains will be harder this year and tougher going forward, as Evercore moves to the upper ranks of the fee league table," Sipkin wrote in his note. "We do believe this is a testament to the strong hiring efforts and execution of senior management."

Independent Bank

Evercore is an independent investment bank, with most of its revenue derived from advisory services in mergers and acquisitions, divestitures, restructurings and other transactions. Its acquisition of ISI Group last year brought in a well-regarded investment research arm.

Evercore itself also has some illustrious names behind it. It was co-founded in 1995 by its executive chairman, Roger Altman, a former deputy treasury secretary in the Clinton administration, and Austin Beutner, a former general partner at theBlackstone Group (BX).

Their connections and those of Evercore's top bankers have helped attract work on some of the biggest deals stretching as far back as a decade ago, such asAT&T 's (T) acquisition of BellSouth andGeneral Motors ' (GM) sale of its $7.9 billion stake in GMAC, both in 2006.

Evercore has gotten a lot bigger over that decade, with revenue rising from $217 million to nearly $1.2 billion this year. But it's still much smaller than the big investment banks such asJPMorgan Chase (JPM) andGoldman Sachs (GS), for example, or even investment bank Jefferies Group, owned byLeucadia (LUK).

Better-than-expected advisory fees caused revenue and earnings in the third quarter, ending Sept. 30, to beat analysts' views. Adjusted earnings in the quarter rose 14% from the earlier year to 81 cents a share on revenue of $305.6 million, which was up 36%. Investment banking made up $280 million of that total and was up 41% from last year. Of that, $218 million was in advisory fees, $58 billion in equities, commissions and fees and another $4.5 million in underwriting.

Bigger Deals

While the number of deals didn't increase, the average deal size was "considerably higher," Altman said in the quarterly conference call.

Other advisory work called out in the quarter was forCentene 's (CNC) soon-to-be-complete $6.8 billion purchase ofHealth Net (HNT) ;Shire 's (SHPG) potential combination with biotech firmBazalta (BXLT), in a deal valued at over $30 billion; and the huge Thames Tideway Tunnel project in the U.K. Earlier, it advised aBroadcom (BRCM) committee on its potential sale toApple (AAPL) supplierAvago Technologies (AVGO).

In the quarterly report, Altman said Evercore's advisory business delivered the best results for the third quarter and first nine months of the year in the firm's history. He added that Evercore is starting to see restructuring opportunities in energy and other industries impacted by falling commodity prices.

Weak Link

But if investment banking was Evercore's strong suit, its much smaller investment-management business was a weak link. Revenue was down 4% from last year to $24 million. Its Mexican unit was especially hurt; institutional assets under management in Mexico declined 9% from a year ago as the value of the peso fell.

Still, Evercore got a boost when the company priced 5.45 million shares to be sold by Japanese investorMizuho (MZF) in a secondary offering. They went for 55 apiece, with 3.1 million shares available to the public. Evercore agreed to buy back 2.35 million shares.

Moreover, Mizuho and Evercore extended their nearly 10-year-old agreement to jointly pursue merger advisory work for three more years to all parts of the world, not just U.S.-Japan transactions. The new agreement lets Mizuho and Evercore capitalize on global M&A activity given that there are limited opportunities within Japan, Chief Executive Ralph Schlosstein said in a conference call.

The global M&A market "remains vibrant," Altman said in the same call, adding that announced global volume for the first nine months of the year was $3.2 trillion, up from $2.4 trillion in 2014. About half of the global total was in the U.S., which was up 50% through the first nine months vs. the same period in 2014, he said.

"I don't see anything in the mix right now which would weaken the M&A market. It has considerable momentum," Altman added. Evercore executives were not available for an interview with IBD.

'Clear Positive'

The Mizuho transaction and expanded M&A agreement are a "clear positive," noted analyst James Mitchell of the Buckingham Research Group. He expects the firm's strong advisory pipeline to fuel continued fee growth over the next few quarters.

He estimates that Evercore's advisory fee pipeline at the end of Q3 was up 54% vs. a year ago and that significant new assignments continued in October, offsetting a sizable amount of completed work.

Analysts polled by Thomson Reuters expect earnings this year to climb 21% over last year to $3.13 a share and go up another 18% next year. Revenue is seen rising 28% this year to $1.17 billion.

CEO Schlosstein, who co-founded the giant asset-management firmBlackRock (BLK) in 1988 and earlier served as an adviser to President Jimmy Carter, likes to say that Evercore competes on the basis of its intellectual capital, ideas and relationships.

If Evercore's intellectual capital is its bankers, it has an increasingly bigger pool to bank on. The firm hired a record 10 senior managing directors this year through the third quarter, for a total of 79 senior managing directors across the firm.

Said the headline in a recent report on Evercore from Credit Suisse, which came with an outperform rating: "The core (of Evercore) continues to blossom."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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