Evercore Partners (EVR)

Evercore was one of the prime beneficiaries of the latest M&A boom, and is also likely to be one of the greatest victims when this current cycle turns. EVR derives ~90% of their revenue from M&A advisory (helping companies sell themselves or buy other companies), with over 80% of that revenue coming from the US. EVR also tends to focus on mega deals ($5b+ acquisitions), that have been all the rage the last two years, which has officially come to an end.

Going forward, we are likely to see declining overall M&A volumes, increasing volumes in the rest of the world compared to the US, and sharp declines in both the number and size of mega deals. These trends, which I will discuss in detail, do not bode well for EVR.

EVR provides financial advisory services, including M&A advisory, recapitalizations, and restructuring, but the biggest chunk of that is M&A. Unfortunately, the company--probably for good reasons--does not break-out advisory revenue into its different segments. They are often hired by the acquirer or the seller to advise on a prospective deal. They are typically paid a % of the total deal size upon the deal's closing, ranging to an average of about .06% of the deal size for sub $1B deals, .224% for $1B-5B deals, and .545% for <$1B deals. These numbers are estimates, but they should be relatively accurate. However, if the deal does not close, the company’s not going to make any money

Even if the only thing to decline is the number of mega-deals, EVR will be in serious trouble. Mega deals have accounted for the majority of their revenue the past few years, and are likely to decrease in both number and size. Given below is the estimated dollar value mega deals ($5B+ deals) that EVR has closed since 1997.

Note that mega deals have generally peaked as the market has peaked, and can even disappear entirely from EVRs pipeline in more mild economic times. This trend has continued in 2007, though we've already seen the completed mega-deal number for EVR come down substantially as mega deals are increasingly being done in non-US markets, or by foreign companies in US markets (neither of which EVR is particularly strong in). Mega deals have accounted for an estimated 78%, 55%, 94%, and 84% of EVR's deals in 2004, 2005, 2006, and 2007 respectively. The numbers are a bit lower as a % of revenue (since the % fee per deal dollar is lower), but it is still substantial: likely 50%+ in each of the last 4 years). EVR has only one mega-deal in its pipeline (the ADS deal, which has blown up and likely won't happen), and odds are seemingly increasingly likely that even if they do nab one or two of these deals in 08', the average value of these deals is likely to be smaller than the average mega-deal size in 07' and 06'. This development alone could cut revenue in half (or more) in 2008, even if small to medium size deals increase slightly.

Even if the only thing to decline is the number of mega-deals, EVR will be in serious trouble. Mega deals have accounted for the majority of their revenue the past few years, and are likely to decrease in both number and size. Given below is the estimated dollar value mega deals ($5B+ deals) that EVR has closed since 1997.

Note that mega deals have generally peaked as the market has peaked, and can even disappear entirely from EVRs pipeline in more mild economic times. This trend has continued in 2007, though we've already seen the completed mega-deal number for EVR come down substantially as mega deals are increasingly being done in non-US markets, or by foreign companies in US markets (neither of which EVR is particularly strong in). Mega deals have accounted for an estimated 78%, 55%, 94%, and 84% of EVR's deals in 2004, 2005, 2006, and 2007 respectively. The numbers are a bit lower as a % of revenue (since the % fee per deal dollar is lower), but it is still substantial: likely 50%+ in each of the last 4 years). EVR has only one mega-deal in its pipeline (the ADS deal, which has blown up and likely won't happen), and odds are seemingly increasingly likely that even if they do nab one or two of these deals in 08', the average value of these deals is likely to be smaller than the average mega-deal size in 07' and 06'. This development alone could cut revenue in half (or more) in 2008, even if small to medium size deals increase slightly.

Evercore was one of the prime beneficiaries of the latest M&A boom, and is also likely to be one of the greatest victims when this current cycle turns. EVR derives ~90% of their revenue from M&A advisory (helping companies sell themselves or buy other companies), with over 80% of that revenue coming from the US. EVR also tends to focus on mega deals ($5b+ acquisitions), that have been all the rage the last two years, which has officially come to an end.

Going forward, we are likely to see declining overall M&A volumes, increasing volumes in the rest of the world compared to the US, and sharp declines in both the number and size of mega deals. These trends, which I will discuss in detail, do not bode well for EVR.

EVR provides financial advisory services, including M&A advisory, recapitalizations, and restructuring, but the biggest chunk of that is M&A. Unfortunately, the company--probably for good reasons--does not break-out advisory revenue into its different segments. They are often hired by the acquirer or the seller to advise on a prospective deal. They are typically paid a % of the total deal size upon the deal's closing, ranging to an average of about .06% of the deal size for sub $1B deals, .224% for $1B-5B deals, and .545% for <$1B deals. These numbers are estimates, but they should be relatively accurate. However, if the deal does not close, the company’s not going to make any money