Evercore Partners Inc. (EVR) agreed to buy closely held International Strategy & Investment Group LLC in an all-stock transaction as it seeks to expand its research and trading business.
Evercore will issue as many as 8.1 million share equivalents to buy both ISI and the 40 percent of its own equities business that it doesn’t already own, according to a presentation from the company today. Almost 70 percent of the payout is contingent on the five-year performance of the combined business, Evercore ISI Institutional Equities, after the transaction closes, according to the presentation.
If the targets are met, the transaction would be worth $406 million based on Evercore’s Aug. 1 share price of $50.13.
Adding ISI, the firm co-founded by Ed Hyman that specializes in selling research to hedge funds, would help New York-based Evercore expand its trading business. ISI and Evercore’s equities business generated about $230 million in revenue from handling institutional investors’ trades in the year that ended June 30, according to Evercore.
The deal is structured to reward market-share growth and cost discipline, including requiring that the business aim for a ratio of 55 percent compensation to revenue, Evercore said in a presentation on its website. The transactions are expected to immediately add to Evercore’s adjusted pro forma earnings per share in 2015 and are potentially “meaningfully” accretive in 2016 and beyond, according to the presentation.
Thirty-two percent of the payment will be in so-called base units, which will convert to 2.6 million shares over time and won’t be tied to any performance requirements. The remainder will be in performance units, which will convert to base units if the business meets targets relating to operating margin and earnings before interest and taxes, according to the presentation.
Dana Gorman, a spokesman for Evercore, declined to say how many of the units will be paid to ISI and how many will go to the owners of Evercore’s business.
The combined business “will be one of the two leading independent equity research, sales and agency trading businesses in the U.S.,” Evercore said in a statement. ISI had 226 full-time employees as of June, while Evercore’s equities unit employed about 80, according to the presentation.
The transaction is expected to close in the fourth quarter of the year, according to the statement.
Publishing more equity research is a priority that will help Evercore generate additional business underwriting stock offerings, Chief Financial Officer Robert Walsh said in a June presentation.
(Earlier versions of this story misstated the maximum number of shares in second paragraph and maximum value in third paragraph.)