pre-ipo analysis of Evercore:
EVR - Evercore Parnters
EVR - Evercore Partners plans on offering 3.95 million shares at a range of $18-$20. Lehman, Goldman Sachs, and JP Morgan are all lead managing the deal. Post-offering EVR will have 27.1 million shares outstanding for a market cap of $515 million on a $19 pricing. Approximately 1/2 the ipo proceeds will be utilized to repay all debt, the remainder will be used for general corporate purposes.
EVR does plan on paying a $0.07 quarter dividend. Annualized at $0.28 a share, EVER would be yielding 1.5% on a pricing of $19.
EVR's senior leadership is comprised of Roger Altman, the former U.S. Deputy Treasury Secretary and Vice Chairman of The Blackstone Group; Austin Beutner, a former General Partner of The Blackstone Group; and Eduardo Mestre, the former head of Citigroup’s Global Investment Bank.
Executives and directors combined will own 32% of EVR post-offering.
From the prospectus:
'Evercore Partners is the leading investment banking boutique in the world, based on the dollar volume of announced worldwide merger and acquisition transactions on which we have advised since 2001. When we use the term "investment banking boutique", we mean an investment banking firm that does not underwrite public offerings of securities or engage in commercial banking activities. We provide advisory services to prominent multinational corporations on significant mergers, acquisitions, divestitures, restructurings and other strategic corporate transactions.'
In addition to advisory services, EVR also operates an investment management business in which EVR manages private equity for affluent clients.
We've seen two other investment banking ipos this year in Cowen and Co and Thomas Weisel. EVR differs from these two in that EVR's focus is M&A and not public stock offerings. In this fashion EVR is structured more along the lines of Greenhill(GHL) then COWN/TWPG.
EVR's business is broken down into 2 segments, Advisory and Investment Management.
Advisory - Segment is EVR's core business accounting for 85% of revenues since the beginning of 2005. Since the beginning of 2004, EVR has advised on more than $300 billion of announced transactions, including acquisitions, sale processes, mergers of equals, special committee advisory assignments, recapitalizations and restructurings. Advisory Senior Managing Directors have, on average, more than 22 years of direct experience. A few of the larger recent deals EVR has advised: Advised AT&T on its pending acquisition of BellSouth; CBS on its sale to Viacom; CVS on its acquisition of certain assets of Albertsons; General Motors on its pending sale of a 51% interest in GMAC to an investor group; Credit Suisse on its pending sale of Winterthur and Cendant on its split-up.
EVR feels a strength to their advisory business is that since they do not underwrite securities, their advisory services are free of potential bias and conflicts of interest. Note that 44% of 2005 advisory revenues came from the media/telecommunications space.
Investment Management - EVR manages three private equity funds with aggregate capital commitments of over $1.2 billion as of March 31, 2006. Evercore Capital Partners I and Evercore Capital Partners II are value-oriented, middle-market private equity funds while Evercore Ventures is an early stage private equity fund formed to invest in emerging technology companies in specific growth sectors. In addition EVR recently created Evercore Asset Management, that seeks to make value investments in small- and mid-capitalization publicly-traded companies for institutional and high net worth investors.
In addition in May EVR decided to combine their business with that of Protego Asesores, a leading investment banking boutique in Mexico. Protego’s advisory services include mergers and acquisitions, energy project finance, sub-national public finance and infrastructure, real estate financial advisory and restructurings. A few deals Protego advised on include the development and financing of Cemex’s power self-generation project, which was the first and largest project financing for a private project of its kind in Mexico, on the sale of HomeMart to Home Depot. In addition Protego also served as advisor to the government of the State of Mexico on its $2.5 billion debt restructuring and fiscal adjustment plan. Protego also operates a private equity fund as well as an asset management business focused on money market and fixed income securities. Protego as a separate entity has revenues of roughly 10% that of EVR the past 18 months.
Protego's business in Mexico appears to mesh quite well with EVR's focus and core business in the US.
EVR's growth strategy going forward will be focused on continuing to recruit experienced advisory executives as well as expanding geographically and to continue to raise private equity funds. I really like EVR's acquisition of Protego. While it will not contribute mightily to the bottom line initially, it could provide a nice blueprint for future EVR geographic expansion.
Compensation and benefits expense - In investment banking, compensation expense levels are important to follow. Overall compensation is always the largest expense line with these type operations and one needs to make certain that the investment banking entity is not funneling all the profits to management/employees but also growing shareholder value. EVR plans to keep total compensation levels at 50%, much lower then the approximately 60% levels of TWPG/COWN pre-ipo.
$1+ in cash per share post-offering, no debt.
M&A has been a very nice spot to be the past few years. This offering will undoubtedly be compared to the recent COWN/TWPG ipos, however EVR is much closer in structure and focus to GHL/LAZ two of the more successful ipos of the past few years. LAZ's ipo was structured just lousy for new public investors, however the core business has been so strong the stock has had a very nice run. Make no mistake, EVR is much more akin to the very successful GHL/LAZ ipos then the lackluster COWN/TWPG.
Note also that the earnings statements here are a bit misleading. EVR has and will continue to have much of their business structured as a partnership with separate share classes. The bottom line folds out 'minority profits' when in reality those are monies attributable to the fully converted 27.1 million share count. I'm running the numbers as if all classes were converted to the 27.1 million shares outstanding, as this is what will eventually need to occur for any future stock sales. Result is that EVR is much more profitable then they immediately appear.
Revenues have grown very strongly the past few years, from $86 million in 2004, $125 million in 2005 and a pace of $180 million in 2006. Very nice growth.
2005 - Advisory revenues accounted for 86% of total revenues when the Protego acquisition is back in. Total revenues of $145 million when including Protego. Compensation expenses of approximately 50%, net margins of 11%. EVR earned $0.63 per share in 2005 when factoring in all 27.1 million shares and the Protego acquisition. At a $19 pricing, EVR would be trading 30 X's trailing earnings.
2006 - EVR has had a strong first 6 months of 2006. Again including Protego revenues, EVR had approximately $90 million in revenues through 6/30/06. Net margins were 15%. Due to the nice revenue bump and the increase in net margins, EVR should grow the bottom line strongly in 2006 to approximately $1 - $1.10 per share. On a pricing of $19, EVR would be trading 18 X's 2006 earnings.
Let's take a quick look at EVR along with GHL/LAZ.
Greenhill(GHL) - $1.62 billion market cap, currently trading 22 X's 2006 earnings, negligible debt and an expected 10% growth rate. GHL has strong net margins in the 25% range.
Lazard(LAZ) - $1.5 billion market cap, currently trading 18 X's 2006 earnings with an expected 10-15% growth rate. LAZ does have substantial debt, laid on to pay out insiders ahead of the ipo. This has led to LAZ net margins of 5% or so.
Evercore(EVR) - $515 million market cap on a pricing of $19. Would be trading 18 X's 2006 earnings with a 2006 revenue growth rate of 25%. 15% net margins no debt.
The key here is whether EVR can continue to grow revenues by 20% the next 1-2 years while expanding net margins from the current 15% range.
Conclusion - This is a stronger deal in my opinion then either the recent COWN/TWPG ipos. EVR's core M&A business focus has been a nice spot to be the past 3 years. Unlike COWN/TWPG, EVR has been able to ramp revenues nicely by being in the 'right' spot of the investment banking world. EVR is not coming at a grand discount however. To be a successful public company EVR will need to continue to be able to grow the top line while maintaining margins. The recent Protego purchase is a nice move in growing worldwide revenues and the target 50% compensation level should allow net margins to remain robust. I like the risk/reward here. EVR has done a very nice job growing their business the past few years, and 2006 should be the year the company really boosts profitability. If they can continue their progress another 18 months, the stock should do quite well. I'm recommending this one in range as a mid-term+ potential gainer.
August 15, 2006, 4:18 pm
Page : 1