Evercore Partners (EVR)

As of August 25, 2006

  1. Company Overview

Evercore Partners was founded in 1996 by Roger Altman and Austin Beutner. The Group’s principal activity is to provide advisory and investment management services to prominent multinational corporations. Evercore is driven primarily by its advisory business (75% of total revenue). It has advised on several notable deals, including General Motor’s pending sale on GMAC, and AT&T’s pending acquisition of BellSouth.

Evercore raised $95 million in its August 10, 2006 IPO at $21 per share. Concurrent with the IPO, Evercore acquired Protego Asesores, an investment bank boutique in Mexico. Protego founder Pedro Aspe joined the management team of Evercore. Evercore has also announced plans to acquire Braveheart, a boutique firm in the United Kingdom. As of August 25, 2006, Evercore stock is trading at $31.44, which is up 50% since its IPO.

Bottom Line: Evercore is a boutique investment bank that has two main revenue streams: advisory services, which makes up the majority of its revenue (mergers and acquisitions, restructuring, etc.), and investment management (several private equity funds and asset management business). Evercore’s current price at $31.44 is 50% up from its IPO price of $21 two weeks ago.

  1. Industry

Evercore is in a highly competitive industry, competing with both boutique and bulge-bracket investment banks, as well as asset management firms. This competition comes not only in advisory fees for investment banking deals, but also in retaining high-performing senior investment bankers. While its closest boutique comparables include Lazard (LTD) and Greenhill (GHL), Evercore also competes with firms such as but not limited to: Goldman Sachs (GS), Morgan Stanley (MS), Credit Suisse (CS), Merrill Lynch (MER), Lehman Brothers (LEH), and Bear Stearns (BSC).

The investment banking and brokerage industry has tended to be one that is very dependent on a strong economy. As much of Evercore’s revenue comes from its advisory fees (ranging anywhere from 0.3 to 0.6% percent of total deal value), it thus also responds to the cyclicality of the M&A market. Much of the growth of the investing business has been with the intention to smooth out revenues in down M&A years.

The Investment Banking and Brokerage business has been strong so far in 2006, yielding 20.4% compared to the S&P 500’s 6.3%.

Bottom Line: Evercore operates in a highly competitive industry and competes with both large and small firms. The investment banking industry as a whole is highly sensitive to M&A cycles and the overall economy. It has also done well compared to the S&P 500 over the past year (20.4% vs. 6.3% return).

  1. Technical Analysis

  1. Fundamental Analysis

Many of the metrics for investment services firms include Advisory Revenue per Senior Managing Director (SMD), and Assets Under Management (AUM). In 2005 Evercore earned $9.8 million per SMD, versus $7.0 for Lazard and $5.7 for Greenhill. Evercore held $1.2 billion in assets under management in its three private equity funds.

Although there are few comparisons that can be made in regards to some important valuation metrics that matter for companies in this industry (due to the fact that Evercore just recently had its IPO), many of Evercore’s core competencies (revenue per SMD, AUM) show their strength relative to competitors.

  1. Valuation

As Evercore has not reported earnings as of August 25, 2006, just two weeks removed from its IPO, we cannot anticipate what the EPS or PE ratio will look like. However, from looking at boutique banking competitors LAZ (15x) and GHL(25x) we can expect Evercore to trade somewhere in between the two. Compared to many of the bulge bracket firms, the PE ratios of boutique investment firms have been relatively higher.

  1. Investment Risks

Some of the investment risks that we run into include the fact that as a small boutique firm, Evercore is sensitive to personnel losses and also dependent on the M&A cycle. Uncertainty stemming from its recent IPO could cause Evercore to be seen as a risky investment.

However, many of the risks that Evercore faces are mitigated by the strength of investment boutique firms, as well as the fact that Evercore’s investment management business helps to smooth out the cyclicality of M&A advisory fees. Furthermore, investing early in a company like Evercore can bode well; if investors had invested within two weeks of Goldman Sachs’ IPO in 1999, they would have earned over a 200% return over the last seven years. Greenhill, which went public in May 2004 around the same price as Evercore ($19) is now trading at $53.71 (as of August 25).

  1. Recommendation

We recommend that SWS invest in Evercore at the current market for several reasons. First, Evercore is a premiere performer in a boutique investment banking industry that has been very strong in 2006. With acquisitions in Mexico and the UK, further growth is expected internationally which should increase its revenues. Second, the trendline for the stock has also gone up while its competitors have stayed relatively flat over the same period, signaling that the stock is performing well compared to competition. Third, fundamental analysis of basic important ratios show that Evercore is earning more revenue per SMD than its peers, and also maintaining a strong asset management business to smooth out M&A cyclicality. Although it is a smaller boutique firm, we believe that this sets Evercore apart in its ability to retain and acquire high-performing talent compared to bulge-bracket firms. We believe that the opportunity to buy at the market price is a great one, as past performance from similarly priced firms show the growth that we can expect from such a firm.