Veteran investment banker Kenneth Moelis left UBS in March
2007, ending a stint as president of its global investment bank
to go into business for himself. Never one to think small, he
says he envisioned Moelis & Co. as a modern, global version
of one of those great firms like Drexel Burnham
Lambert and Donaldson, Lufkin & Jenrette, where he worked
before joining UBS.
The upheaval in the financial markets has crushed rivals big
and small. But Moelis, 50, continues to dream of creating a
major new M&A advisory practice for the global market. Even
as announced global M&A activity declined 20 percent, to
$3.2 trillion, for the first ten months of 2008, according to
research firm Dealogic, Moelis & Co. advised on $77 billion
worth of deals during that time. Notable assignments included
Junes $6 billion sale of Allied Waste Industries to
Republic Services and the following months $9 billion
sale of Alpha Natural Resources to mining company
Cleveland-Cliffs. In June 2007, Moelis also advised Hilton
Hotels Corp. on its $26 billion sale to Blackstone Group, the
last big buyout completed before the market showed cracks. In
February, Moelis advised Yahoo! on its defense against
Microsoft Corp.s unsolicited $44.6 billion takeover
attempt, a negotiation that collapsed three months later. In
July he advised Anheuser-Busch Cos. on its $59.6 billion sale
to Belgian brewer InBev.
He is a master at recognizing what both sides need and
finding a middle ground, says Hamilton (Tony) James,
president and chief operating officer at Blackstone and
Moeliss former colleague at DLJ.
Moelis faces plenty of challenges. Although the model of the
large independent investment bank collapsed during the
financial crisis, smaller independent advisory firms remain
viable. Blair Effron, another UBS alumnus, in 2006 co-founded
start-up advisory firm Centerview Partners, which ranks tenth
among U.S. investment banks in terms of deal value for the year
through October, according to Dealogic. Thats ahead of
Banc of America Securities at 11, Lazard at 12, BNP Paribas at
13, Wachovia Corp. at 14 and Moelis at 15. Evercore Partners
and Greenhill & Co. rank at 16 and 17, respectively.
Moelis is expanding the firm as he finds the right people.
In September he snatched Kristian Bagger, former vice chairman
of investment banking at Deutsche Bank, and charged him with
opening an office in London, the first international expansion
for Moelis & Co. Ken Viellieu, formerly head of Midwest
investment banking at Bear, Stearns & Co., joined in June
and opened an office in Chicago. Since the beginning of the
year, Moelis has more than tripled his staff, to 150 from 45.
The firm is headquartered in New York and also has offices in
Los Angeles and Boston.
Moelis is building up his restructuring staff in
anticipation of a wave of funding problems. Standard &
Poors says $177 billion in speculative-grade debt will
mature in 2009. The default rate has jumped 0.5 percent this
year as of the end of the third quarter, to 3.2 percent,
according to S&P. It may rise further. So Moelis has built
up a 40-member restructuring team headed by William Derrough
and Thane Carlston from New Yorkbased Jefferies & Co.
The team is already busy, advising on the pending sale of
bankrupt Tropicana Casino and Resort in Atlantic City, New
Jersey, and the ongoing restructuring of commercial television
broadcaster Pappas Telecasting Cos. of Reno, Nevada. Moelis
says the problem that brought down Drexel in 1990 is behind the
current financial meltdown. Banks and their clients have been
funding longer-term assets with cheaper short-term financing.
That works until the debt cant be refinanced. Yes,
you get higher earnings, but at a cost of risk that nobody
takes into account until it hits you, he says.