Management of Greenhill & Co liked to boast that its stock price hit an all-time high of nearly $100 per share in 2009 after the failures of Wall Street brutes such as Lehman Brothers and Bear Stearns. Unfortunately, others had also noted a changing of the guard.
In the following decade, several Greenhill copycats emerged while the boutique investment bank restrained its growth. Amid a 2010s deals boom, that caution proved mistaken. On Monday, Greenhill’s independence ended after 27 years as it announced its sale to Japan’s Mizuho Financial Group for an enterprise value of $550mn
Greenhill’s listing in 2004 was a watershed event. Lazard, Evercore, Moelis, Houlihan Lokey and Perella Weinberg would follow. Those IPOs enabled founders to realise fortunes and theoretically create a currency for banker pay and acquisitions.
But Greenhill’s desultory conclusion demonstrates the shortcomings of a publicly traded model for an enterprise ultimately driven by a handful of superstars. In a hyper-competitive and cyclical market, its shares made a poor investment for mutual funds.
Deal fees are paid typically as a percentage of the dollar value of transactions. In theory, the fee pool should commensurately expand as share prices climb. However, equity value appreciation is erratic and any deal adviser can lose its market position quickly.
In 2007, Greenhill recorded annual revenue of $400mn when the S&P 500 was around 1,500. Today the index is above 4,000. Yet Greenhill never again exceeded $330mn in annual revenue. As a private business, consistently generating $200mn to $300mn would pay bankers handsomely. But that hardly works when public investors seek constant growth.
Other rivals like Evercore and Moelis expanded, profitably adding new business lines and bankers. They may, yet, hit their own ceilings and sell out to larger institutions. Maintaining Greenhill’s uniqueness will pose a tricky challenge for Mizuho. As the financial crisis showed, even the most storied brands on Wall Street have no unalienable right to avoid reckonings.
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