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.