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| Right from the start, Ken Moelis wanted to build an institutional investment bank |
Banker of the year:
Ken Moelis
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In the aftermath of the financial crisis hundreds of high-profile dealmakers left the big banks. Dozens and dozens of them set up their own boutique firms. Some even thrived. But how many of those refugees from the global banks built new investment banking firms of such scale and durability that they could take them public within seven years of the sub-prime debacle? Euromoney can think of one: Ken Moelis, chairman of Moelis & Co, which he founded as a US-centric boutique in July 2007 after he left UBS.
By the time Moelis took the firm public in an IPO on the New York Stock Exchange in April it had a market value of $1.6 billion. The firm has advised on over $1 trillion of transactions since inception, including three of the 10 largest announced global mergers and acquisitions and four of the 10 largest announced global recapitalizations and restructurings in 2013.
“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 tells Euromoney. “I have a lot of respect for many of the investment bankers that blazed the trail by setting up their own boutiques, but many of them tended to be small shops where senior bankers could go for five or 10 years, maybe sharing office rent and support-staff cost with a handful of like-minded bankers, do four or five big deals with their best clients and monetize their personal franchises. All that’s fine but they were not scaleable.”
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As much as I hate to admit it, the firm would do just fine if something were to happen to me Ken Moelis |
Right from the outset, Moelis chose a different path, seeking to build not so much a boutique but an institutional investment bank.
“From day one we hired people straight out of business school, which is not the model of most boutiques that hire bankers in their 40s and 50s. But we decided that, with the financial crisis unfolding, here was an opportunity to build an integrated firm where talented young people could come and feel that the firm would train them, imbue them with its culture and develop them to the point where they could lead the firm. And so our culture is not to be a commission shop, paying big-name bankers a fixed percentage of the deal revenues they bring in. We pay people who do good work for their clients, even if no revenue comes in any given year, because if you work hard for your clients and give them the best advice, eventually they will find a way to reward you.”
Always engaging and fun to talk to, as the best investment bankers invariably are, Moelis at the age of 55 can at times lean towards the folksy. Euromoney asks him to describe a few of the firm’s most important deals from the last 12 months. “We did 263 deals in the past year, and every single one of them was significant.” He can be very amusing. Euromoney asks whether investors attending meetings for the firm’s IPO raised the issue of key-man risk. “I’m 55. My succession plan is not to die. Seriously, I intend to be here for a while. The firm has over 90 MDs located in 15 offices around the world and we are well known for innovative independent advice. So as much as I hate to admit it, the firm would do just fine if something were to happen to me.”
Importance of network
His management speak can even sound a little new agey. Of building the firm’s international offices across south America, Europe, the Middle East and Asia, Moelis says: “I’m a big fan of Metcalfe’s Law, which, you know, says that the efficiency of a network goes up exponentially in relation to the number of nodes on the network. If you have offices in Dubai, London, Germany, France, Brazil, Mumbai, it’s vital to support the network that connects them to bring all the benefit to the client. You don’t open in Brazil just because Brazil is a good standalone market but because of what it brings to the network. We can win business in Iowa because of something that comes to us in Brazil or Mumbai.”
Moelis says that the firm’s IPO says little about the revival of the M&A advisory business, but rather is an affirmation of its business model. As well as a thriving M&A business, the firm also boasts one of the top practices advising on restructuring and recapitalization of struggling companies. For example, it advised the unsecured creditors of AMR on that company’s $29.6 billion Chapter-11 reorganization that led to an eventual $17 billion merger with US Airways, despite the initial reluctance of AMR. It does capital markets advisory for mid-market US companies. It advises some of the world’s biggest banks on managing down portfolios of illiquid, highly structured derivatives positions.
And Moelis is just getting started. “We could easily double the size of this firm,” he says.
