The Priciest Boutique by Andrew Bary
Highlighted companies: Evercore Partners Inc. (EVR), Greenhill & Co Inc. (GHL), Lazard Ltd. (LAZ), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), AT&T Inc. (T), General Motors Corp. (GM), Dow Jones & Company Inc. (DJ)
Summary: Evercore Partners Inc. (EVR) has carved out a niche among "boutique" banks by focusing on M&A advisory to large corporations. Its clients include AT&T Inc. (T), General Motors Corp. (GM) and Dow Jones & Company Inc. (DJ). It ranks #11 in U.S. advisory work; impressive, considering it has only 240 employees. The downside: After going public in August for $21, shares now trade for $35, giving the company a market cap of $1B. That's 35x projected 2006 profits and 28x 2007 estimated earnings of $1.27 a share; Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and other major brokerages trade for a multiple of 11, while competitor boutiques Greenhill & Co Inc. (GHL) and Lazard Ltd. (LAZ) trade for 23x and 16x '07 profits. The stock also looks overpriced (12x) against EVR's diminutive book value of $3/share; big firms command an average of 2.5x book value. Investors are betting current earnings estimates are conservative; they may be, but if the M&A environment cools, or its market share slips, EVR is acutely exposed -- 85% of its revenues come from advisory work. And half of its advisory revenue over the past two years has come from just five clients, making it vulnerable to a downturn in any of their M&A activity. Bulls like Evercore's ability to lure top investment bankers from the big firms by paying them a premium; CEO Roger Altman calls his team the "best group of senior investment bankers in the industry." Barron's remains unconvinced: "It's going to take a lot more deal activity, however, to justify Evercore's stock price, the richest in the securities industry."
Quick comment: On Nov. 2 Nomura Holdings announced it would be buying Instinet for about $1B. Evercore was Instinet's advisor on the deal • Seeking Alpha's M&A coverage