Moelis to Join Ranks of Advisers Turned Moguls With IPO

Kenneth Moelis is set to harvest the rewards of setting up his own business as his merger advisory firm heads toward an initial public offering.

Moelis & Co. announced plans for an IPO yesterday in a regulatory filing, seven years after the veteran Wall Street dealmaker left UBS AG to start the firm. Pretax profit about doubled to $73 million last year and surpassed that of rival Greenhill & Co. Goldman Sachs Group Inc. and Morgan Stanley are managing the stock sale, according to the filing.

Moelis, 55, and his partners are planning to cash in as peers have done, capitalizing on the company’s growth and a rebound in the pace of mergers and acquisitions worldwide. Robert Greenhill’s stake in his own firm, which went public a decade ago, was valued at more than $300 million before he sold most of it, while Evercore Partners Inc. founder Roger Altman held about $73 million of stock at the time of its IPO.

“It’s a badge of honor for an investment bank to go public,” Richard Lipstein, managing director at New York-based search firm Gilbert Tweed International, said by phone. “Going public allows the partners to really cash out.”

Moelis has advised companies controlled by billionaires including Carl Icahn, Donald Trump and Steve Wynn in his 30-year career as an investment banker, which started at Drexel Burnham Lambert Inc. The filing didn’t specify his stake in his firm. Employees own 85 percent of the company, two people with knowledge of the situation said last month.

‘Great’ Coach

“He gives good advice to his clients, even when they don’t want to hear it sometimes, and so they trust him,” said Mark Lanigan, co-founder of Black Canyon Capital LLC, who earlier in his career followed Moelis from Drexel to Donaldson Lufkin & Jenrette Inc. “He’s like a great football coach -- he makes you want to work hard and win for him.”

Moelis ranked 11th among merger advisers in 2013, its highest-ever position, after advising firms such as HJ Heinz Co. on $134 billion in transactions last year, according to data compiled by Bloomberg.

Moelis is looking to raise money at a price-to-earnings ratio in the 30s, similar to levels at which competitors trade, people familiar with the matter said in February. That would value the firm at at least $2.1 billion, four times Greenhill’s valuation when it went public, data compiled by Bloomberg show.

“Evercore and Greenhill were significantly smaller when they went public,” said Lauren Smith, a former bank analyst who now consults for financial-services companies. “Moelis has a pretty exemplary global profile already.”

Partner Payments

Moelis filed to raise $100 million by selling Class A shares, according to the prospectus. That figure is a placeholder used to estimate registration fees and may change. At the average ratio of price to pretax earnings of New York-based Greenhill and Evercore, Moelis would be valued at $1.3 billion, the data show. Andrea Hurst, a spokeswoman for Moelis, declined to comment.

Some of the proceeds from the funds raised in the IPO will be used to make one-time payments to the partners, the filing shows. The firm also is helping to underwrite the deal and should receive a portion of fees. Going public will let the company lure more bankers by offering them stock they can sell.

‘Reasonably Good’

“I don’t see any reason why this won’t be successful and why the public markets won’t be hospitable to Moelis,” Altman said today in an interview with Betty Liu and Erik Schatzker on Bloomberg Television. “Investors like the independent firm model in general, so I think his timing is reasonably good.”

Altman owned more than 359,000 shares of Evercore as of Feb. 18, a stake valued at $20.2 million based on yesterday’s closing price of $56.29. Greenhill still had 1.15 million shares in his firm at the end of January, a holding worth $62.3 million as of yesterday.

Kenneth Moelis has structured the IPO so that he maintains control. Class B shares, which are majority held by the founder, are given 10 votes each, the filing shows. Class B shares have approval rights over decisions such as anti-takeover measures, M&A and annual budgets, according to the filing.

The investment bank increased revenue by 6.6 percent to $411.4 million in 2013, the prospectus shows. Compensation costs fell to 64 percent of revenue, after the bank cut staff by 7 percent. That compares with compensation costs of 54 percent of revenue at Greenhill and 59 percent at Evercore.

Despite the payout, an investment bank’s decision to go public means opening up the trove of once-private information -- from compensation to executive perks -- to exacting analysis.

Cash Bonuses

Kenneth Moelis, as well as co-founders and managing directors Navid Mahmoodzadegan and Jeffrey Raich, each were paid base salaries of $400,000 last year, which accounted for a “small amount of their total annual compensation.” The bulk of their payouts has involved cash bonuses, the filing shows, without providing specific numbers. Executives also will get restricted stock after the IPO.

Moelis was reimbursed by the company for costs he would have incurred had he stayed in hotels when traveling to New York -- where the firm is based -- on business. He bought a condo at the Plaza Hotel for $11.3 million in 2007, property records show. The company spent $2.3 million last year on an aircraft used by Moelis for business purposes, according to the filing.

“In a public company, bonuses are scrutinized,” Jeanne Branthover, head of the global financial-services practice at Boyden Global Executive Search, said by phone. “Private companies are much freer to pay who they want, what they want and when they want.”

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