Moelis: A Boutique No Longer
The banking firm is using its expanding bench of seasoned professionals to help it enter new markets. Is an IPO the next step?
Late this spring, senior managers at Moelis & Co. gathered for a routine conference call to discuss the firm’s deal pipeline and its business outlook. Bankers from offices in various time zones chimed in with ideas and updates about their transactions.
Then, from his office in New York, Ken Moelis, the firm’s founder and chief executive, brought up some reading material not found in any pitch books: a business book recounting Goldman Sachs’ role in taking Ford Motor Co. public in the 1950s. The story of Sidney Weinberg, the senior Goldman banker who worked for years to build a rapport between Ford and Goldman, clearly resonated with Moelis.
Caroline Silver, a managing director and FIG specialist banker at Moelis & Co. in London, recalled how Moelis during the call tried to impart the lessons from that deal: “'Guys, I’ve been reading about how Goldman rose to its position. I was struck by how they worked with clients, and the clients stayed with them. I took a lot from that story, and you should not be afraid to find those relationships.’”
This philosophy fuels a firm that has grown from a dozen dealmakers to just over 400 professionals in the three years since it opened its doors. It has built up a business in Europe, and has pushed into Asian and Pacific markets, specifically Australia. Also, it hopes to continue expanding its foreign operations to broaden its sources of fee income.
During an interview in his firm’s midtown Manhattan office last week, Moelis himself recalled the Weinberg-Ford story. “Weinberg called on the Ford family for seven or eight years,” he said. “I was impressed with how committed he was to making that relationship work for years with no immediate return.” Moelis said he had just made such a call on a corporate client. There was no agenda and no specific pitch — just a simple introduction of his firm and its services over a lunch. (Naturally, he did not name the firm or its industry.)
Roger Hoit, a managing director and financial sponsor specialist with 20 years of investment banking experience at Morgan Stanley, SG Cowen and Gleacher & Co., called that long-term focus “part of Ken’s mantra” and akin to what Hoit was trying to do while at Morgan Stanley.
Some of Moelis & Co.’s notable mandates are the result of long-term relationships cultivated by its founder, who got his start with Drexel Burnham Lambert in the early 1980s and worked with Steve Wynn when the casino operator was raising money for his earliest Atlantic City business.
Another such relationship is with Jerry Perenchio; Ken Moelis advised him when he bought Univision for $500 million and worked with him when he sold it for $14 billion.
“I am proud of the fact that those relationships last 25, 30 years,” said Moelis. “How many marriages last that long? It’s hard not to make a mistake that somebody misinterprets.” Many of his colleagues have more than two decades of experience advising companies on mergers, acquisitions, restructurings and sales of debt and equity.
The firm is associated with big-name restructurings, including those of MGM and Dubai World, and it has been involved with some renowned M&A transactions such as Hilton’s $26.5 billion sale to Blackstone and Anheuser-Busch’s $61.2 billion sale to InBev. It also advised Yahoo! when Microsoft stalked it in 2007.
Moelis & Co. is courting Fortune 500 and Standard & Poor’s 500 firms, but it also gets mandates on behalf of small firms when a client refers a friend.
“It’s a word-of-mouth business,” Moelis said. “I find it hard to control where you end up, because you are following your relationships, and your relationships take you places.”
Elizabeth Crain, Moelis & Co.’s chief operating officer, says roughly 40% of the global investment banking fee pool is in the United States, while roughly another 40% is in Europe and the rest is in the Asia-Pacific region. As a result, she said, the firm made sure it had dealmakers in all of those regions.
Moelis said he would like to add some more specialists to the FIG and health care teams, and he wants to get a toehold in oil and gas. “Oil and gas is the one I feel like I have not gotten a foothold [in] yet,” he said.
The firm has drawn attention in investment banking circles for the dealmakers it has recruited from a wide range of sources, including UBS, Morgan Stanley and Bank of America Merrill Lynch, as well as for its multibillion-dollar mandates.
Assignments have included troubled companies like Sonic Automotive, American Media and Ashton Woods Homes. Moelis & Co. has advised numerous clients on asset sales, and provided fairness opinions. It has advised creditors, including those involved in LyondellBasell’s court-supervised workout, and it has advised firms like Beazer Homes on the sale of high-yield debt and equity.
Moelis & Co. has proven, so far, that dealmakers don’t need to rely on the deep pockets of a commercial banking parent to win mandates. “In a few situations, we have been heavily disadvantaged” by not having a commercial bank parent, said Jeff Raich, a managing director who worked with Ken Moelis at UBS and DLJ. “But there have been a large number of opportunities where we have had success because we are independent.”
Rodman Drake, chairman of the special committee of Student Loan Corp.’s board, retained Moelis & Co. for a complex transaction and has recommended it to other executives. “A big issue in this business is the more lines of business bulge-brackets have, the more possibilities of conflicts there are,” he said.
(Moelis & Co. advised Student Loan Corp’s special committee of the board of directors on a complex deal involving Citigroup, Discover Financial Services and Sallie Mae in September.)
Crain said her firm was profitable by its third quarter of existence. Asked about profit and revenue specifics, she declined to offer them.
According to industry sources, Moelis & Co.’s revenues are in line with or top those of its publicly held competitors that are boutique banks.
But with its team of hundreds and its wide range of advisory work, Moelis may be ready to shed its boutique status. Some observers are speculating if the firm is ready to go public.
A chief executive with another middle-market bank, who asked not to be named, marveled at Moelis & Co.’s growth and tied much of it to the firm’s energetic founder, who is “always on” and ready to take calls from clients.
Moelis likened his interest in banking to an enthusiasm for crossword puzzles; in his case, the problem-solving involves corporations. “When it looks simple and easy, it’s tough to value advice,” he said. “When things get difficult, you want a highly focused banker.”
Ken Moelis may be taking his cues from his first employer, the former Drexel Burnham CEO Frederick Joseph. Before moving into investment banking, Moelis considered studying law, and he saw the Drexel Burnham job as a layover before going to law school. But as he sat 25 feet from Joseph, Moelis marveled at the CEO’s interaction with clients.
His boss “was a down-to-earth guy,” Moelis said in an interview with IDD when Joseph died last year. “He never lost sight of who he represented. The clients were depending on him. He was talking with his friends all day. He loved the people.”
That push to interact regularly with clients is very much a part of Moelis & Co.’s culture today. Moelis said he is forever pushing for quality over quantity regarding deal mandates.
Though Moelis & Co. has been behind some major deals, it has handled banking work for small clients in niche industries that some Wall Street firms might overlook, like JG Wentworth, which buys settlements and annuities from consumers.
“For me, the lessons were learned at DLJ,” Raich said. “DLJ took more growth-oriented clients who turned into big clients over time.” Those clients included Life Technologies, a business that began its corporate life with $19 million in annual revenue and became a publicly traded entity with a market cap of up to $10 billion.
Moelis’ Raich likened the firm’s growth since its inception in 2007 to building a home. As he puts it, “putting in a foundation of a house is one of the toughest things to do and it is one of the most important things.”
When asked to define Moelis & Co.’s current culture, dealmakers like Silver likened it to Morgan Stanley in the 1990s.
Nearly all the professionals interviewed by IDD for this story expressed the sense of relief at not having to cross-sell products such as bridge loans, and they relished being able to focus more on solving problems for corporate clients.
Mark Aedy, head of Europe, Middle East and Africa who joined the firm from Bank of America Merrill Lynch, said he enjoyed the idea of a firm focused on “building long-term relationships” that is not “league-table obsessed” and didn’t miss the “delivery pressure that has polluted many firms.” Like many at Moelis, Aedy liked the idea of helping build a business: “Not many people get a chance to build something.”
Ken Moelis makes a point of visiting his firm’s different office locations routinely to meet informally with colleagues. He and various managers try to emphasize maintaining a culture of collaboration, saying the type of infighting that has hurt larger firms could derail fast growth.
“We have no tolerance for bad behavior from people who are not team players,” Raich said. All the firm’s senior managers are involved with recruitment, and they “tend to attract people who are optimistic and energetic about investment banking.”
Rick Leaman, a managing director who joined this summer from UBS where he was chairman of investment banking, spotted the enthusiasm of the relatively young firm quickly: “We have a profitable base and the upside is exciting.”
Navid Mahmoodzadegan, a managing director at Moelis & Co., worked with Ken Moelis when he was president of UBS’ investment bank. He acknowledged that while the firm has “an extraordinary culture of teamwork, entrepreneurialism and partnership, maintaining those characteristics as you grow is a challenge.” “It is not easy to do that when you go from 20 people to 400,” Mahmoodzadegan conceded, but so far he believes the firm has succeeded in maintaining its culture.
A look at the firm’s 70-plus managing directors reveals clues to what the firm has in mind in terms of recruiting talent — more than half have close to or more than two decades of experience.
Some, like Charles Denison, Aedy and John Binnie, have three decades of dealmaking under their belts. The rest have a decade or a decade and a half of experience as dealmakers. The firm relies on recruiters and personal contacts to build its staff.
According to a survey of banking professionals published last month by Vault, which tracks employment issues, Moelis & Co. was one of the top five investment banks in terms of working environment and compensation. (Goldman ranked sixth in both categories.)
“We have conducted our own employee surveys. People enjoy being part of this firm,” Crain said. “The bigger you are, the harder it is to maintain that” culture of collaboration that comes more readily at smaller firms.
In addition to hiring professionals for its investment banking business, Moelis & Co. has been willing to buy businesses to further its growth.
Last month, it bought Gracie Credit, a $2 billion-asset multi-strategy credit management firm founded six years ago. The price was not disclosed, but the deal was seen as part of Moelis & Co.’s attempts to build up its asset management business.
Overseas, the firm has its eye not just on new Asian markets, but also on Latin America. It could enter these markets by bringing on a team en masse, as it did in Australia, or by forming a joint venture.
“Filling out our footprint globally is a logical next step for us,” said Roger Wood, a dealmaker who joined from Rothschild and specializes in power companies and infrastructure banking. “Clients expect us to have insights into what is going on in other parts of the world.”
Another business line — Moelis’ Risk Advisory group — that is growing dramatically involves helping clients value and sell off investments like collateralized debt obligations and mortgage securities.
“We are helping clients understand and mitigate complex risks they took during the credit bubble,” including pensions, sovereigns and state and local governments, said Christopher Ryan, a managing director who ran global credit fixed income at UBS.
Senior managers at Moelis say that they have a “no jerk” rule, and, perhaps more importantly, their firm has a single bonus pool that allows it to avoid infighting and rivalries that can crop up when different business lines vie for year-end rewards.
“There is no [separate] FIG group, no [separate] capital markets pool,” Moelis said.
That goes a long way with dealmakers like Mark Henkels, a 20-year investment banking vet who specializes in metals and mining, capital goods and building product companies. “When the bonus pool is one pool, it creates a sense of collaboration,” he said.
When it comes to Moelis & Co., one of Wall Street’s favorite parlor games is debating if and when the banking firm will go public, as competitors like Greenhill & Co. and Evercore Partners have already done.
According to Raich, an initial public offering “is an option for the firm” but would not be fueled by a need for capital. “There may be strategic reasons we decide to be public company,” he said.
Raich and Mahmoodzedagan noted that Goldman was private for about 100 years before it went public. As to issuing an IPO, “we have started to ask ourselves the question, but we don’t have the answer yet,” Raich said.
Many of its dealmakers maintain they did not come to Moelis & Co. for the rewards that would come with building a company and taking it public. When asked what he thought of an IPO, Ken Moelis was noncommittal.
“Being private has real positives,” he said. “Being public does, too. It’s a tough decision. I’m not afraid of either one.”
For more information on related topics, visit the following: