Boutique banks need scale and agility, says Evercore

Evercore Partners is a New York-based independent investment bank that was founded by Roger Altman in 1996. Altman is a former Lehman and Blackstone banker, who also did two stints in the US Treasury.

We speak to Eduardo Mestre, vice-chairman and head of US banking at the firm, about how to compete and grow as an independent. Mestre spent most of his career in investment banking at Salomon Smith Barney and Citi before joining Evercore in 2004.

Do companies in Asia understand the concept of working with independent investment banks (also known as boutiques)?
Our main line of business the world over is advisory and I’d say the main driver for companies to hire us is to get conflict-free, independent advice. Companies hire firms like ours because we have more senior bankers than any of our bulge-bracket counterparts. The average age of our partners is in the early- to mid-fifties. Our model allows our partners to be hands on and companies benefit from advice shaped by years of experience. We bring our reputation and the intellectual capital that goes with it to the table every time we advise on a deal.
 
In Asia the notion of independents is less important, but what is very important is dealing with a banker you know and trust to get the deal done.
 
Increasingly, advice and balance sheet are going hand in hand. How do you compete?
We cater to a clientele that does not necessarily feel they need to reward their capital providers, or that can reward their capital providers some other way. Lending banks will always win some M&A mandates on the back of the loans they provide, but some clients unbundle the two and others may use a co-adviser structure. If I was to make a list of 10 things I worry about in terms of winning business, this is not one of them!
 
Also, big firms cannot always guarantee their clients they will not accept competing mandates. That’s something we can do, given our size.
 
Over the past few years China outbound M&A has been a large part of the overall Asia outbound trend. What is your strategy to cover China?
We recognise that China is not a place where we can just show up and win business immediately. So we have entered a joint venture with Citic [Securities] to cover China and we have one person on deputation from Evercore sitting in Citic’s Beijing office, as well as a senior resource in New York focused on the Citic relationship. The JV model is one we have also adopted elsewhere in Asia. In Japan we have had a strategic alliance with Mizuho since 2006. And in Korea we have an alliance with Woori Investment & Securities.
 
Many boutique firms have been acquired by larger firms. You also acquired Lexicon earlier this year. What motivates you to stay independent?
Some boutiques stay small, do business in a limited way and then get acquired. That is not our strategy. To be successful as an independent investment bank we believe that we need to create broad sector coverage and geographical diversification. Seven years ago when I joined Evercore we had 40 bankers. Today we have 330. The difference in the way we can execute business today from just a few years ago is dramatic. Lazard and Rothschild have more than 1,000 bankers apiece, but their business model is largely the same as ours.
 
How has the volatility in financial markets since 2008 affected your business?
When you’re a modest size, it is a lot easier to grow revenues and market share, so we have managed to grow despite the turbulence. Our M&A business is doing well and we are optimistic that this will continue. In 2009 our restructuring business picked up and drove almost 60% of our revenues so we are naturally hedged. But if financial markets continue to get more difficult, we will not be immune. Like everyone else we have our fingers crossed that will not happen.
 
Who do you see as your competition?
We compete with both the bulge-bracket firms and the independents, but if I had to rank them, the former are our biggest competition. Our competitive position has evolved since the time we were formed and especially in the past five years. We now sit alongside bulge-bracket firms at the table. There is some elegance to having a bulge-bracket firm and an independent working together.
 

 

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