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Evercore Partners (EVR)
Evercore Planning to Make Some Bigger Bets with New CEO
Evercore Partners, a mid-market boutique investment bank, is bringing in Ralph L. Schlosstein to be its new CEO. He will replace Roger C. Altman who co-founded the firm along with Austin Beutner in 1996. Altman plans to stay on with Evercore as chairman relinquishing day to day duties of the bank. Schlosstein and Altman go back a long way having worked together in Lehman's bond department in the 70's and at the private equity firm, Blackstone (BX: Charts, News, Offers), in the 80's. So the transition should be fairly smooth and investors can confidently expect that both of them will continue to gel well for the foreseeable future to take Evercore to the next level. But why make a change when Evercore's M&A business is going great even in this environment?
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| Stock Analysis |
Evercore has had a couple of high-profile advisory assignments this year and they have put the firm in 10th position in the investment banking league tables for Q1 of 2009 based on dollar volume of transactions advised on. These projects include being one of Wyeth's (WYE: Charts, News, Offers) advisers as the pharmaceutical firm got bought out by Pfizer (PFE: Charts, News, Offers) and assisting Frontier Communications (FTR: Charts, News, Offers) as it purchases about $8.6 billion of assets from Verizon (VZ: Charts, News, Offers). Evercore also reported solid Q1 earnings beating analyst expectations with a 12% increase in revenue. So Evercore has definitely been one of the top performing boutique investment banks on the street this year.
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But the challenges lie beyond the M&A business. Evercore wants to reduce its dependence on deal volume because it can be so unpredictable and as the last few months have shown, sometimes deals can dry up almost completely in tough economic times. So the idea is to expand the other parts of Evercore such as the investment management and private equity businesses. Those have struggled under Altman with the former having recorded a pre-tax loss of $9.94 million in Q1 of 2009. That's where Schlosstein comes in. Not only is he a close colleague of Altman, but he has been down this road before and done so very successfully. He was one of the founders of Blackrock (BLK: Charts, News, Offers) and along with Larry Fink, he separated the Blackrock business (which was then known as the Financial Management Group) from Blackstone and ventured out independently. Blackrock has turned out to be a great success story, it is now one of the biggest investment management firms in the country with approximately $1.4 trillion assets under its purview. Schlosstein was at Blackrock until last fall when he left to create his own fund, Highview Investment Group, which raised about $600 million but then returned the money without investing it as Schlosstein lost confidence in the fund's planned strategy.
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It's also clear that Altman is frustrated that he hasn't been able to grow Evercore exponentially. It was founded in '96 but only generates ~$250 million in revenue and turned in a loss for both 2008 and 2007. The stock has done relatively well though having risen about 17% over the last 12 months, an anomaly in the financial services sector. Of course, the risk exposure at Evercore is very low, the firm doesn't hold a high amount of mortgage backed assets. So now the plan is for Schlosstein to diversify the firm and Evercore's recent acquisition of the Special Fiduciary Services unit of Bank of America (BAC: Charts, News, Offers) (the division primarily houses assets of pension funds totaling about $12.8 billion) should help with that. And Altman can concentrate on being the chief rainmaker and bringing in an even greater amount of M&A advisory business. The trend is shifting towards boutiques from bulge bracket firms given the problems on the trading desks of the latter and the compensation restrictions that have been imposed as a result of TARP. Boutiques are operating without such issues and therefore, have been able to hire away some star bankers
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But this window of opportunity for boutiques might close in the next eighteen months or so once the big banks pay back the TARP money and heal their balance sheets (the wheels are well in motion for both those processes), so Evercore needs to act quickly in the M&A space and beyond to grow its market cap above the current $206 million.
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Profile |
Click here to view a detailed profile of Evercore Partners.
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