Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Evercore is a leading independent investment banking advisory firm providing M&A, restructuring, and capital markets advice, alongside an Investment Management business (Institutional Asset Management, Wealth Management, and Private Equity). The firm operates globally with offices in the U.S., Mexico, and the U.K.
Key Financial Metrics (Year Ended Dec 31, 2009)
| Metric | 2009 Value | 2008 Value |
|---|---|---|
| Total Revenues | $337.4 million | $224.9 million |
| Net Revenues (Total Rev - Interest Exp) | $313.1 million | $194.7 million |
| Net Income (Loss) | $0.2 million | ($9.6 million) |
| Net Income Attributable to Evercore | ($1.6 million) | ($4.7 million) |
| Operating Expenses | $260.9 million | $189.0 million |
| Cash and Cash Equivalents (End of Period) | $206.7 million | $175.9 million |
| Total Assets | $891.2 million | $738.9 million |
| Long-term Debt (Senior Notes) | $96.6 million (Carrying Value) | $95.3 million (Carrying Value) |
Note: Net Income Attributable to Evercore Partners Inc. was negative due to a significant provision for income taxes ($19.5 million) driven by non-deductible charges and valuation allowances, despite positive pre-tax income.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 61% to $313.1 million, driven primarily by a 62% increase in Advisory Revenue ($293.3 million) and a 132% increase in Investment Management Revenue ($21.9 million).
- Advisory Segment: Advisory revenue grew despite a decline in global M&A deal volume, attributed to strong contributions from U.S. restructuring assignments and larger M&A fees.
- Investment Management Segment: Revenue growth was fueled by the acquisition of Bank of America's Special Fiduciary Services Division (SFS) and the consolidation of Evercore Asset Management (EAM). However, the segment reported an operating loss of $50.7 million due to start-up costs and unrealized losses in private equity funds.
- Expenses: Total operating expenses rose 38% to $260.9 million, largely due to higher discretionary compensation reflecting revenue growth and costs associated with new business acquisitions.
- Special Charges: The company recorded $20.1 million in special charges in 2009 related to the cancellation of employee share-based awards and U.S. Private Equity restructuring.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- Management expects continued growth through hiring, geographic expansion, and product diversification.
- In December 2009, the company announced the intent to launch a U.S. cash equities business, committing $50.0 million in equity capital.
- In February 2010, Evercore announced a strategic alliance with Trilantic Capital Partners to pursue private equity opportunities.
Risks and Contingencies:
- Market Conditions: Revenue is highly sensitive to global financial market conditions and M&A volume. Difficult market conditions can reduce transaction volume and asset values.
- Client Concentration: The top five advisory clients accounted for 44% of net revenues in 2009. The loss of a single large engagement could materially impact results.
- Key Personnel: The business relies heavily on Senior Managing Directors; the loss of key personnel could jeopardize client relationships.
- Debt Obligations: The company has $120.0 million in Senior Notes due 2020 with a 5.20% coupon. Cash flows must be sufficient to service this debt.
- Tax Receivable Agreement: The company has a liability of approximately $70.3 million related to tax receivable agreements with Senior Managing Directors, payable over time as tax benefits are realized.
Investor Verification Checklist
- Revenue Quality: Verify the sustainability of the 62% increase in Advisory revenue given the reported decline in global M&A deal volume.
- Tax Provision Impact: Analyze the $19.5 million tax provision and the 98.8% effective tax rate to understand the non-deductible charges and valuation allowances impacting net income.
- Investment Management Losses: Review the $50.7 million operating loss in the Investment Management segment and the timeline for profitability of new acquisitions (SFS, EAM).
- Client Concentration: Assess the risk associated with the top five clients representing 44% of net revenues.
- Debt Covenants: Confirm compliance with covenants related to the $120 million Senior Notes issued to Mizuho Corporate Bank.
- Capital Commitments: Review the $13.7 million in unfunded commitments to private equity funds and the $50 million commitment for the new Cash Equities business.