Moelis makes it to the big league

By:
Peter Lee
Published on:

Ken Moelis didn’t set up his new firm in 2007 because he anticipated the crisis, he had just grown disgusted by what Wall Street had become. His new firm, an international and multidisciplinary provider of advice, thrived. This year, he took it public, driven by a troubling vision for the future of the banking industry and a desire to lure in the next cohort of talented bankers.

Ken_Moelis_illustration-envelope
 Illustration: Tracie Ching

It is a highlight in the life of any entrepreneur to take a business they have founded into public ownership on one of the world’s leading stock exchanges. For an investment banker, launching your eponymous advisory firm on the NYSE is an even more extraordinary moment: one that brings up old memories along with new perspectives.

Ken Moelis opened the doors of Moelis & Co in July 2007, one month before the great market convulsions that marked the bursting of the sub-prime mortgage crisis. He always intended it to be much more than a boutique designed to monetize the relationships he had built up over a career advising companies.

"I didn’t spend 30 years working my way up in this industry at DLJ and UBS to then set out to build something small," Moelis, Euromoney’s Banker of the Year for 2014, relates. And by the time he came to IPO the firm in April this year, it had advised on $1 trillion-worth of deals, including three of the 10 largest M&A transactions announced last year and four of the 10 largest recapitalizations and restructurings in 2013.

How did it feel for a banker who has spent a working life pitching ideas to clients to find himself on the receiving end? "Choosing the lead banks for the IPO, sitting on the other side of the table for once and being pitched to, was a little uncomfortable," Moelis says.

Further reading
Ken Moelis1-large
Awards for Excellence 2014:
Banker of the year

In the end, the experienced investment banker did what so many corporate clients have done before him. Moelis chose Goldman Sachs and Morgan Stanley to lead the IPO. "It came down to those exact same considerations you always say it does. Goldman had spent a lot of time working with us. I have good relationships with senior people at Goldman and I had got to know James Gorman and developed a good relationship with Morgan Stanley. You go with the bankers you have a good relationship with, who have covered you consistently, that have worked the details, come up with helpful advice before the IPO process even began, as for example Goldman did on certain tax changes that might have impacted our ownership structure."

The deal was launched in the last day of clear blue skies for equity markets in April before dark storm clouds blew in from the border confrontation between Ukraine and Russia that brought a brief but fierce squall of risk aversion and volatility. Moelis remained calm. He knew that, given the firm’s work at the centre of markets dominated by big financial investors, some of whom had supported the firm as early-stage private equity backers, he needed to do a deal that worked for them as new buyers and existing owners. He trimmed the size of the initial offer, cut the suggested price for the stock below the initial range of $26 to $29 and launched at $25, reasoning that the obvious earnings potential from the booming M&A markets would see the deal home even as other IPOs struggled or were pulled.

Was pricing his IPO below the range a difficult call for the head of a young investment banking firm? "I figured we might get a sloppy deal done at $26 or a tight deal at $25," Moelis shrugs. "Wall Street is our neighbourhood. These investors are our friends. It wasn’t like we could just take the most money at the highest price, walk away with it and never see them again. No, that was not a tough decision." The stock jumped to $26.15 on the first day and was trading at $30 in late July: a pretty close to perfect result.

Moelis, of course, had done this kind of thing before.

"I was reminded of the very first time as a young investment banker I had introduced the road show for a company that was going public. It was 1982 for EMC Insurance. We launched the road show at the Palace Hotel in New York. I was 23 years old. My family came to see me introduce the CEO."

Dark vision

But 32 years later there was nothing the slightest bit sentimental or emotional about the decision to list Moelis & Co, its founder tells Euromoney. "My ambition was always to build the company, not particularly to take it public as some final goal." Doing an IPO was not the realization of a long-held dream, rather a purely practical decision and one born of a dark vision for the future of banking.

Students of the history of Moelis & Co should remember that while the firm opened its doors just as the financial crisis was breaking, and recruited heavily in the darkest days in 2008 and 2009 in the US – and then in Europe during the sovereign crisis in 2010 and 2011 – the business plan was first conceived even as the old model of investment banking advisory as a sales tool or even camouflage for highly leveraged principal position taking by universal banks was still enjoying a full-on bull market.