Is Evercore the next Bulge Bracket bank?

In honor of Evercore's 25th anniversary, I thought it'd be interesting to talk about their growth and trajectory over the past couple decades.

I am by no means trying to suck up to them, but their growth has been astounding. Evercore consistently competes on the same deals as the top bulge brackets in the industry and ranks extremely high in M&A fees annually. They are able to poach top rainmakers from Goldman, Morgan Stanley, and Citi to bolster their advisory businesses across the US, and  win top talent at the analyst level above other bulge brackets. 

With now over 1900 employees and counting, a growing capital markets and sales/trading group, and Evercore ISI Research, will Evercore eventually become the next bulge bracket? Is it their intention to grow to that size, as it conflicts with the founder's initial intent? Will Evercore remain as a top elite boutique?

All thoughts are welcome!

Comments (54)

 
  • Prospect in IB-M&A
Oct 12, 2020 - 2:00pm

Highly doubtful - Evercore's main value prop is their function as an "independent advisory" bank that is free from the conflicts of interest at bulge brackets.

They're competing at the same level as the Goldmans and JPMorgans of the world, yet the size of the company isn't much of a factor - 1900 employees playing with the top dogs. That's what makes Evercore so great. 

 
  • Intern in IB - Ind
Oct 12, 2020 - 2:08pm

Also consider Evercore Wealth Management. It really does seem they are expanding their business beyond M&A advisory. If they wanted to establish a large balance sheet/strengthen capital markets, they definitely could.

Super interested to hear what others think as well

 
Oct 12, 2020 - 3:10pm

They have private capital advisory or something similar to all EBs which means they place capital without incurring risk like an intermediary (from what I remember when recruiting and all that shit)

So no they are FAR from taking risk themselves. it would be a HUIUUUUUUUUGE change.

One partnership that I found out is really cool is a bank called Pj Solomon, that got bought out by naxitis. Basically naxitis does the risktaking BS work and PJ can still do private placement. I think if a major bank acquired Evercore that would be interesting because the conflict of interest still remains a degree removed but it still would likely be perceived one. With fee sharing agreements conflict of interest is probably there actually.

But no just because they're growing doesn't mean they're taking risk. They're just broadening their INDEPENDENT advisory services. Independent in caps for emphasis btw

 
Oct 12, 2020 - 3:29pm

A botique bank isn't a bank that's been around for a relatively small amount of time. They are banks that keep their staff and thus operational costs small while still pulling in large deals to make higher margins than the BBs.

If Evercore can continue to be successful, and it will be tough but definitely possible once the founding rainmakers retire, they'll probably follow the path of Lazard that's been around since the 1800s where you intentionally stem growth in staff and operations while continuing to grow deal flow to grow margins that flow back into shareholder value and employee salaries. 

 
  • Incoming Analyst in IB - Ind
Oct 12, 2020 - 4:47pm

They have been building out an ECM team over the past few years which is interesting

 
Oct 12, 2020 - 6:36pm

Logistically speaking, how would they become a "bulge bracket bank?" With what balance sheet? I'm not sure this definition is well understood here. It has hardly anything to do with prestige and performance. They're not about to open a shit load of retail branches to compete with JPM/Citi unless you have another idea for them to raise oh idk $3 trillion? 

 
Oct 15, 2020 - 4:38pm

ebitduhhh_1

Logistically speaking, how would they become a "bulge bracket bank?" With what balance sheet? I'm not sure this definition is well understood here. It has hardly anything to do with prestige and performance. They're not about to open a shit load of retail branches to compete with JPM/Citi unless you have another idea for them to raise oh idk $3 trillion? 

Irony...

https://www.wallstreetoasis.com/forums/is-cowen-the-next-bulge-bracket-…

 
Oct 12, 2020 - 6:36pm

No. Evercore's core business will continue to be advisory for a long time to come.

Bulge brackets are inherently diversified within high finance, investing comparable efforts in advisory, underwriting and market-making. The latter two require deploying balance sheet as an integral part of your corporate strategy.

Boutique banks just don't use their balance sheets this way. 

It would appear that the OP has conflated "bulge bracket" with "top tier". Basic logic dispels such a notion. Some bulge brackets are not top tier. Some top tier firms are not bulge brackets. There is little reason to conflate them, though this mistake is still common. 

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
 
  • Analyst 1 in IB - Restr
Oct 15, 2020 - 1:38pm

Agreed. Check out EVR's latest investor relation report which touches on the firm's "Evercore 3.0" focus. Arguably top tier among elite boutiques, specifically in healthcare and tech from what I have heard. I see little reason for EVR to expand its business offerings beyond advisory as it already competes against the BBs for high profile deals without enduring the costs of different desks.

 
Controversial
  • Associate 2 in IB-M&A
Oct 12, 2020 - 6:57pm

From an M&A perspective, GS / MS still currently dominate the landscape and have been doing so for the last 10 years.

Maybe in the distant future, Evercore will be able to make it into top 3 / 4, but they are still too reliant on the US market and it will be difficult to compete with GS / MS without a B/S.

 
  • Analyst 2 in IB-M&A
Oct 12, 2020 - 7:29pm

At the moment, GS / MS are still top for M&A. But with the rising momentum from the boutiques, won't be surprised if Evercore starts consistently being in the top 5 in the next few years

 
Oct 13, 2020 - 11:22am

This thread is irrelevant without mentioning Cowen, Stifel, and Lincoln. They are neck and neck to become the next bulge bracket bank. As I'm sure many of you know considering how often this is thrown around here, DB is officially OUT, leaving room for EVR or possibly PJT. DB just doesn't have the lending capacity anymore not to mention they only do advisory.

 
Oct 13, 2020 - 11:30am

So I have been doing some analysis to try to answer this question. It looks like EVR has ~2.x bn of assets which may prove difficult to compete with banks that have ~$2T+...going to keep running some scenarios, but it's going to be hard to say the least. 

Their investment income was $15mm in 2019, it seems like lending is not their focus but tough to say.

 
Oct 13, 2020 - 3:22pm

In my opinion, no.

Look at their balance sheet. It looks nothing like any of the other BBs, because they aren't underwriting/issuing billions of dollars worth of securities that systematically play a role in all parts of the economy. They don't fit the "too big to fail" criteria. A bulge bracket is a bulge bracket because if they go bust they wipe out other financial firm's balance sheets. Evercore is not that kind of institution.

Evercore does amazing deals, is diversifying, and has a big name, but that doesn't make them a BB.

This forum acts like a bank's M&A team is the end all be all of how important or prestigious they are and that is simply not the case.

 
Oct 13, 2020 - 4:15pm

If they got acquired by a bank with a large balance sheet and trading operations like HSBC then maybe, but not as they stand now.

Dayman?
 
Oct 13, 2020 - 4:31pm

Just for fun, I'll take the negative view on EVR for conversation's sake. I do think EVR is an awesome place and model and they are the leader among independent platforms.

Evercore is in a bit of an odd place - it is so big that they need to "feed the beast", as bulge bracket banks do (and smaller independent shops do not), but they do not (and should not) want to take balance sheet risk. So they are kind of like if JPM's M&A group was just spun out on its own (obviously with some additions). In some years, JPM M&A leads internal revenue generation, in others it needs to be supplemented by cap mkts, trading desk, etc. So in that sense, EVR almost has "operating leverage" in that they are so overweighted towards M&A because of all their investment bringing in top MDs and building relationships. This has been sussed out a bit as of late - they were going gangbusters through 2019, but lately with the pullback in M&A they've gone through layoffs and I've been hearing rumblings of additional rounds (I'm at another independent platform that gets brought up a lot on this site). Again, I attribute this to full weighting towards M&A and less towards other advisory business like Rx or the new kid on the block: independent cap mkts advisory , though I think they are scaling up there as well. (I could right a whole post on independent CM - basically the small shops are saying to clients, you've been getting your eyes ripped out by JPM for years on your revolver and any TLs/offerings...why? You could run a process or even go to Apollo for much cheaper. They sit next to the corp. client to place the debt and get 50-100 bps *with no risk* - it's absolutely insane.) 

Anyway, the point is 1 - yes this is a dumb question as pointed out bc EVR is never going to meaningfully go risk-on. 2 - while they have been a juggernaut, their business has largely been built during the largest expansion in american history and is probably a bit fat around the edges. I think their stock price reflects this when looked at against other independent peers. 

Array
 
  • NA in IB-M&A
Oct 13, 2020 - 8:11pm

I echo these sentiments, and thought i'd add a few observations. To preface, I think Evercore is a great shop and they have a lot of talented bankers. However, I think a lot of prospects are overly optimistic on EVR (and the EBs in general) on this site, and there are definitely some cons and considerations 

 

(1) M&A is a low overhead business (relative to financing/capital markets), but in a COVID environment where M&A fees are depressed vs. normalized levels, EVR (and all M&A groups for that matter) are paying for a lot of unnecessary headcount without other business lines to compensate (EVR's RX team isnt big enough to carry M&A and fees can take a while to hit). EVR in particular has expanded very rapidly in recent years which just compounds the issue. There were layoffs in Jan 2020 and there will likely be more towards year end (and poor bonuses)

 

(2) EBs often take market share from the BBs because they are independent. However, the nature of their advisory roles are often different because they are independent. For example, you will often see EVR involved in a transaction in a Special Committee or Independent Committee advisory role. These roles, while very important, do not pay the same fee as standard M&A advisory roles and just because you saw an EB work on some massive deal doesn't mean they were compensated the same. Two quick examples:

  • T-Mobile's $84bn merger with Sprint: EVR advised the Independent Committee of T-Mobile, while GS and PJT advised T-Mobile. EVR got paid $10m whereas GS got $22m, PJT got $27m
  • Dell's acquisition of EMC for $75bn: Morgan Stanley advised Dell, while EVR advised Dell's Special Committee and provided a fairness opinion. Morgan Stanley made $68m and EVR made $5m

 

 

 

 

 
Oct 13, 2020 - 4:46pm

Why dilute ROIC with lower margin business lines? Corporates are streamlining to leverage as much operating income growth as possible. With advisory being one of the highest margin units, I can't imagine Evercore building a balance sheet. The BB's use their balance sheets to gain an edge on advisory services -- not the other way around. If Evercore's able to grow the advisory unit without the need for large capital commitments, they have the best of all worlds.

 
Oct 14, 2020 - 12:51pm

ROIC is one thing, revenue is another. There's a ton of money to be made on the acquisition financing activities if you, as the advisory firm, also are able to underwrite the bridge loan, syndicate it, and help it take out via debt and equity issuance - not to mention the revenues from making a secondary market on the other side of the wall.

The ROIC isn't infinity, as advisory is on a deal basis (excl overhead), but it's still very healthy, as your effective balance sheet exposure is still pretty low due to the financing schedule you've put together.

This is revenue growth, and while margins are lower, presumably you've built a process/platform that is both replicable and scaleable, and less reliant on key human capital (and therefore lower flight risk with key people). The market would reward you for this with a higher multiple. Your stock is now worth more, and so are your executive bonuses.  

 

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
 
  • Analyst 1 in IB-M&A
Oct 14, 2020 - 9:21pm

That's true that most of their M&A fees come from the US - that being said they are currently #4 YTD in EMEA M&A league tables so I wouldn't discount their European operation... 

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