BERAL, INC.
Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944
E-mail: mlikar@aol.com

Moelis & Co.

(MC-NYSE)

Price:

$33

Shares Outstanding:

15.0 million

Market Value:

525 million

Price Range:

$36 - $26

Total Cash:

$460 million

Book Value:

$18.70

 

July 22, 2014 

Moelis& Co. is the most leveraged way for companies to invest in the growing M&A market. Comapanies like Lazard (LAZ) , Greenhill &Co ( GHL) and Evercore Partners ( EVR). Moelis & Co. (MC) is the most leveraged way to invest in this industry with only 15 Million shares and the potential for $500 Million cash accumulated in 2-3 years. These investments are risky and these companies frequently trade at high multiples , but if it is a one trick M&A ride then you want to take it.

A new format has emerged – how to play the M&A boom , a $ 2 trillion global M&A market through publicly owned investment banks.

MERGER ADVISORY FIRMS

There are a few newly-born companies in the United States whose specialty is advising particular companies in converting their profile or advising them to advance in the future.

There are very few firms successful in this field, but their success ratio is enormously large.

Mr. Robert Greenhill, a former executive of Morgan-Stanley and later a colleague of Sandy Weil, has begun a trend which has fulfilled an unusual business in the investment banking field and at the same time benefited handsomely from the process.

Robert Greenhill became Greenhill Advisory. Blackstone, a legendary multi-billion advisory company, was originally headed by Peter Peterson and his partners. It was followed by Evercore Partners, whose leader, Roger Altman , was a Deputy Treasury Secretary in the Clinton Administration and colleague of Senator Bentsen.

The two companies built itself up originally as a brokerage company, the Minneapolis-based Piper Jeffrey and Moelis, a New York-based company. Both PJC & Moelis have been described of very few shares outstanding, high cash value, rapid growth. Moelis & Company was formed by Kenneth Moelis who created perhaps the most rapidly growing, cash rich company. Moelis started his career working for Carl Icahn, Donald Trump and Steve Wynn. The description of all these leaders and their companies is high valuation, high cash flow and a clientele of “who is who” in the world of international finance. Moelis in the year 2013 had 317 bankers, a revenue of $411 billion and they advised the famous acquisition of Heinz Company for $28.8 billion which was executed by Warren Buffet.

A Brief History: “Moelis & Company provides strategic and financial advisory services in the United States and internationally. It advises clients in the areas of mergers and acquisitions, recapitalizations and restructurings, and other corporate finance matters. The company offers its service to corporations, governments, financial sponsors, middle market private companies, and individual entrepreneurs.”

STATEMENT OF OPERATIONS

For Years Ended December 31,

 

2013

2012

2011

       

Revenues

$ 411,386

385,871

268,024

       

Expenses

     

Compensation and benefits

264,944

274,941

200,368

Occupancy

13,902

14,098

12,386

Professional fees

13,281

12,256

15,318

Communication, technology and information services

13,819

13,299

11,623

Travel and related expenses

18,153

14,921

15,466

Depreciation and amortization

2,296

2,507

2,085

Other expenses

14,882

15,804

21,648

       

Total Expenses

341,277

347,826

278,894

       

Operating income (loss)

70,109

38,045

(10,870)

Other income and expenses

(771)

333

245

Income (loss) from equity method investment

3,681

(658)

5,737

       

Income (loss) before income taxes

73,019

37,720

(4,888)

Provision for income taxes

2,794

2,498

3,642

       

Net income (loss)

$ 70,225

35,222

(8,530)

       

STATEMENT OF CASH FLOWS

For Years Ended December 31,

 

2013

2012

2011

Cash flows from operating activities

     

Net income (loss)

$ 70,225

35,222

(8,530)

Adjustments to reconcile combined net income (loss)

     
       

Bad debt expense

1,564

2,926

2,948

Depreciation and amortization

2,296

2,507

2,085

Amortization of compensation associated with acquisition

820

820

614

(Income) loss from equity method investment

(3,681)

658

(5,737)

Equity-based compensation

48,539

41,224

24,371

Deferred tax provision

261

(284)

1,564

Other

2,763

2,264

432

Changes in assets and liabilities:

     

Accounts receivable

5,805

(25,696)

2,730

Other receivables

1,175

(1,090)

(1,566)

Prepaid expenses and other assets

(7,403)

1,294

(1,786)

Deferred compensation

2,811

1,783

(8,086)

Compensation payable

(16,728)

47,869

(29,888)

Accounts payable and accrued expenses

238

2,135

1,831

Deferred revenue

4,179

841

(2,199)

Dividends received

2,375

750

--

Other liabilities

2,418

(2,488)

1,313

Net cash provided by (used in) operating activities

117,657

110,735

(19,904)

       

Cash flows from investing activities

     

Purchase of investment

(145,230)

(177,144)

(29,922)

Proceeds from sales of investments

218,142

68,060

1,270

Notes provided to employees

--

(406)

--

Note payments received from employees

383

56

157

Purchase of equipment and leasehold improvements

(1,623)

(3,682)

(2,517)

Acquisition of subsidiary, net of cash acquired

--

--

(127)

Change in restricted cash

(4)

(6)

(85)

Net cash provided by (used in) investing activities

71,668

(113,122)

(31,224)

       

Cash flows from financing activities

     

Capital contribution received from investor in Parent

--

93,217

--

Tax distributions to Parent for partners

(40,130)

(23,665)

(30,644)

Dividend distributions to Parent for partners

(35,399)

--

--

Other cash contributions from (distributions to) Parent

2,016

(2,268)

(21,783)

Net cash provided by (used in) financing activities

(73,503)

67,284

52,427

       

Effect of exchange rate fluctuations on cash and cash equivalents

1,579

494

293

Net increase (decrease) in cash and cash equivalents

117,401

65,391

(103,262)

Cash and cash equivalents, beginning of year

185,623

120,232

223,494

Cash and cash equivalents, end of year

$ 303,024

185,623

120,232

       
       

Cash Flow

A historical achievement
A future is yet to come

Cash per share (est)

 2014

2015

2016

$20.0

$25.0

$30.0+

     

SUMMARY:

  • Moelis recently posted the best quarter in company history along with the best 12 months in company history.
  • Moelis should be the beneficiary of several M&A tailwinds going into the balance of 2014 and into full year 2015.
  • Moelis has 10% upside to hit initial price target and expected to need to increase that after Q2

The publicly owned M&A companies are a novel play in the M&A business. They became cash rich because of the large and successful corporate entities. Year by year they accumulate experts, systems analysis , organizational capability and money. Their organizational abilities and their profit margins create an unusual amount of cash. Looking into the future their stock may be unusually attractive as there are few General Motors and Heinz to go around.

Disclaimer

Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.

 

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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail: mlikar@aol.com

Copyright © 2011 Andrew Racz. All Rights Reserved.

Disclaimer