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A Hungry Little Investment Bank

04/29/2011 11:25 am EST


Hilary Kramer

Editor, GameChanger Stocks

With the right leadership and an aggressive strategy that has gained access to a number of mergers and acquisitions, Evercore is growing into the small bank to watch through 2011, says Hilary Kramer of GameChangers in this exclusive interview with

The news media is buzzing—or twittering!—with rumors about deals and IPOs for Twitter, Groupon, LinkedIn—and, of course, the Big Kahuna, Facebook. Obviously, this is good news for our lovely friends, the investment bankers, isn’t it?

It absolutely is, and there are some opportunities to buy the investment banks. I mean the financials have really been laggards for us across the board.

Well, they had a big move early in the market, and then they’ve kind of really petered out.

Yes, but I’m talking about 2010, not the fact that in 2009, you could’ve had a real double.

Yes, Goldman Sachs went down to about $40 a share and is now trading in the $170 range. Absolutely. But the stocks stopped dead in their tracks while tech took off, as well as certain areas of biotech. Certainly, the big industrials.

Look at what’s happened with Caterpillar (CAT) and technology companies like IBM (IBM).

But when you look at the investment banks, the opportunities are in these smaller boutique banks. For example: Evercore (EVR). Evercore was founded by Roger Altman, who came out of the Clinton administration.

The Deputy Treasury secretary.

That’s right, and he also came from Lehman Brothers. And the new CEO is Ralph Schlosstein, who was one of the founders of BlackRock, which has more than $3 trillion under management.

So, why these boutiques? I mean, obviously, we know they’re focused, whereas the Goldmans and Morgan Stanleys have become essentially trading houses. Right? So will they be able to get in on the big offerings of these companies that tend to go with the bulge-bracket firms?

They could be part of the syndicate, which is very important—but more importantly, the money is being made on mergers and acquisitions. Evercore went out there and formed partnerships, and took investments, and even just acquired investment banks in Brazil, China, India, and the United Kingdom, for cross-border transactions.

Let me give you a great example of this kind of opportunity. Just recently we saw the Deutsche Borse merge with the New York Stock Exchange.

Propose a merge with them, yeah.

That transaction was handled both sides by Perella Weinberg. Perella Weinberg is a very small boutique investment bank—even smaller than Evercore—and that’s the trend we’re going to see, Many of the bankers that are at Evercore have come from some of the big bulge-bracket firms, so they have the relationships behind them and they’re able to work on M&A.

The way mergers and acquisitions work, it’s lumpy in terms of the revenue stream, because transactions have to close, and there’s a seasonality—most M&A deals happen in the fourth quarter, and then close over the first and second.

However, in the case of Evercore you have two revenue streams: Mergers and acquisitions, and then you have the asset-management business. Evercore has $17 billion under management. Some of that money is called alternative investments, like hedge funds, private equity, and venture capital.

So Evercore takes a fee from that. It could be 50 basis points or it could be 2% on some of that money. They also take a 20% carry on the performance that’s made.

So, it’s this multiplying effect in terms of the earnings that these companies can enjoy, because relatively the staffs are much leaner.

What about their fees? I mean, there’s a lot of talk that fees overseas are 1% to 2% in Asia, where they’re 6% to 7% in the US. Are they charging 6% to 7% in the US?

Yes, some of these transactions are that, and there are different components to them because you have the valuation, you have the transaction, you have the follow-on, and you have the debt financing. You have the bridge that needs to be arranged.

So even if the bridge is arranged through JPMorgan, Evercore will still take a piece of that fee for arranging the placement of that, and mergers and acquisitions.

I mean some of the projections are extraordinary for 2011. We are going to see that, because money is still cheap.

There’s a lot of cash on balance sheets of companies, and I think EVR is an excellent company to invest either in the short-term, meaning through 2011. You know, we could see 20% to 30% upside in the stock between now and year’s end.

Where is the stock as we’re speaking now?

It’s at $34.

Where is its high?


So it’s off its high.

Yeah, it came off sharply. They reported earnings, and they were up 10% on earnings, even though the revenue was down because of some transactions that hadn’t yet been booked, but will be coming through, but Evercore has also built up a staff of more than 60 professionals to start research and trading on the equity side.

Do you own this stock?

Yes, I own Evercore, and I actually own Evercore for the long term. I’m going to be sitting here with a stock that I think is going to be like Greenhill (GHL), or Lazard (LAZ), or Jefferies (JEF).

And those all had big appreciations.

Yes. As a matter of fact, Lazard’s market cap is over $5 billion. We’re talking about a market cap of $600 million for Evercore, and yet they compete head-on—and Evercore is a much hungrier and more aggressive firm, and in the right areas.

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