Greenhill & Co., Inc.
Q3 2017 Earnings Call Transcript

Published: 18 Oct 2017

[Operator:]

Good day, and welcome to the Greenhill Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Patrick Suehnholz, Head of Investor Relations. Please go ahead.

[Patrick Suehnholz:]

Thank you. Good afternoon. Thank you all for joining us today for Greenhill’s third quarter 2017 financial results conference call. I’m Patrick Suehnholz, Greenhill’s Head of Investor Relations. And joining me on the call today is Scott Bok, our Chief Executive Officer. Today’s call may include forward-looking statements. These statements are based on our current expectations regarding future events that, by their nature, are outside of the firm’s control and are subject to known and unknown risks, uncertainties and assumptions. The firm’s actual results and financial condition may differ possibly materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the firm’s future results, please see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date on which they are made. I would now like to turn the call over to Scott Bok.

[Scott Bok:]

Thank you, Patrick. We reported third quarter revenue of $48.1 million and a loss of $0.18 per share. For the year-to-date, our revenue was $172.3 million, down 26% versus last year and we have a loss of $0.01 per share as a reduced level of revenue resulted in higher than normal cost ratios and lower than usual earnings. It’s worth noting at the outside that while the nature of our business has always produced volatile quarterly results, we have a long history of generating strong revenue and cash flow, and we view the recent period as an aberration that is not at all indicative of the health of our business. In fact, our year-to-date financial results imply a number of positive data points. Globally, our retainer fee income for the year-to-date is up versus last year, indicating a continued high level of engaged with clients. On a regional basis, our total revenue from U.S. clients is up by double-digit percentage versus last year. And our primary capital advisory business has had a good year-to-date while our secondary capital advisory business has had an outstanding year-to-date with both those businesses performing particularly well in the third quarter and showing significantly higher revenue for the year-to-date. The decline in overall revenue numbers is thus entirely a function of reduced corporate transaction activity outside the U.S. Over the course our history, the diversity of our sources of revenue and cash flow has typically been such that in almost any period, weakness in some areas is offset by strength in others, but in the year-to-date, the areas of our outperformance have not been sufficient to offset the areas of underperformance. Specifically, after a very strong performance in 2016, our revenue from European corporate clients has been particularly soft, and revenue from corporate clients in other regions outside the U.S. has continued to be soft as well. But notwithstanding these year-to-date results, our confidence in the strength of our European business remains high. We have a very long history of success in that market, we have an impressive client list with a good number of attractive current assignments, and we have the same senior team in place that produced very strong 2016 results in that region. In other markets outside the U.S., we have a similar level of confidence in our future performance based both on our history and our current book of assignments. While our third quarter revenue outcome was consistent with what we signaled on our last call, in the current quarter and beyond, we continue to expect to see evidence of global transaction activity and total revenue returning toward level consistent with our historic performance. Beyond revenue, our other financial metrics are largely a function of the scale of our revenue and the fact that our revenue has been very heavily weighted to the U.S. Our compensation costs are slightly lower than the last year in absolute terms but obviously higher in ratio terms, given the revenue outcome. Our non-compensation costs year-to-date are similar to last year, but this quarter’s result was negatively impacted by a non-cash adjustment and the probability of the earnout from our Cogent acquisition being achieved, as well as some foreign exchange losses, mostly related to the funding of our Brazil operation. As and when our global revenue returns to more typical levels, we expect our various cost and profit ratios to do likewise. With respect to our balance sheet, we ended the quarter with $51 million in cash and $84 million outstanding on our revolving credit facility with our bank term loan relating to the Cogent acquisition having been fully paid off. However, the more important balance sheet news is that subsequent to quarter-end, we completed the first element of the recapitalization in share repurchase plan we announced a few weeks ago. As noted in our press release, we completed the borrowing of $350 million under our term loan B structure. The key terms of that loan are summarized in our press release and detailed in recent SEC filings. With that loan in place, our revolving credit facility with First Republic Bank has been fully paid off and we have a current cash balance in excess of $300 million. And that figure is before the $20 million in primary common stock investments in the firm that Bob Greenhill and I will complete shortly. Our press release also notes that we have a tender offer to purchase 12 million shares of our common stock that is currently pending. We’ve been advised that it is appropriate to let the regulatory filings with respect to that offer speak for themselves rather than any provide any further commentary on this call. Finally, given our plans for up to $285 million in share purchases, we’ve reduced our quarterly dividend to $0.05 per share, so that our cash flow going forward can be redirected to debt service. Once we have completed our planned share repurchase, we will have returned more than $1.5 billion to shareholders via dividends and share repurchases since we went public in 2004 with an approximately $500 million market capitalization. I will close with a brief comment on recruiting. This was a very good year for us in managing director recruiting with nine hires completed and also a very good year in terms of retention of key people. Our recapitalization plan is obviously an exciting one for our team which will have substantially increased collective economic ownership of the firm as well as leveraged upside potential going forward. It is also noteworthy that since we announced our recapitalization plan, we’ve seen increased interest in our firm from senior bankers of various competitors. So, we are helpful of another strong year of recruiting in 2018. With that, we’re happy to take questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Devin Ryan of JMP Securities. Please go ahead.

[Devin Ryan:]

Yes, thanks. Good afternoon, Scott. Question here just on the recapitalization deal and the structure. Can you give us any information around -- you just ended here talking about interest in the firm and also retention. How many, I guess maybe senior bankers will be receiving shares or will be participating in the deal in any way? Just trying to think about outside of kind of the most senior level and some of the key people if there will be additional kind of incentives to key people on their seats? And then, also just more broadly, the comp ratio outlook kind of longer term here and whether there is maybe a structural shift a little bit higher just as we think about kind of the firm and margins?

[Scott Bok:]

Yes. On the first part of your question, I mean, look, we’ve obviously not had a problem with retention. We’ve really lost pretty much nobody in a very long period of time. So, the -- to be honest, the equity awards we made were really more to provide comfort to lenders. It was something that was appealing to them to have clear alignment between our key people and the debt repayment. And so, we put it in place and obviously, it had a nice impact on that. Hence, we were able to upsize [ph] the deal and so on. First of all, almost everybody is a participant in a sense that pretty much everybody has got equity in some form of either common shares or restricted stock or both that they have. There were a reasonable number of people who got incremental awards. But in some, those were not -- from a shareholders point of view, those were not terribly material. I wouldn’t worry about sort of dilution in any material sense at all. These were more I would call gestures which we thought collectively might be attractive to the lender group. As far as the comp ratio going forward, I wouldn’t really want to speculate necessarily on that. It’s been within a certain range for a number of years. Obviously, it’s a function of revenue largely, which is why this year is at least year-to-date is an outlier. So, we’ll see how the revenue plays out and how quickly we can move back toward the range we’ve historically been in.

[Devin Ryan:]

Got it, okay, helpful. And then with respect to just the deal as well the -- obviously the terms and the size, and that the size was upsized. And so, can you just talk a little bit about the disclosure for the lender group in terms of that process? A question we’ve gotten is kind of what do they know. Obviously, the deal with bigger sort of people who want to give you more money than kind of originally asked for?

[Scott Bok:]

I am not sure what really to say about that. I mean obviously, people do their due diligence. The nature of that market is that a number of people work only with public information and some others are different types of investors and work with private information. But you know the nature of our business is such that if somebody asked us to forecast our revenue four quarters out, I mean it doesn’t matter whether you sign a confidentiality agreement or not, that’s a hard thing to do, other than just in a very, very directional sense. So, I think creditors made their decisions and rating agencies for that matter, based on a very long-term track record of us substantially generating about a $100 million of pre-tax cash flow a year, of which around, call it 30 something million went to pay taxes and 60 something million went to the dividend. And by redirecting that cash flow, I think people quickly got comfort, again, rating agencies and lenders but that -- they were very comfortable with the amount of debt we ended up with and we were pleased to be able to upsize it through the process.

[Devin Ryan:]

Got it, okay. And then, just last one around the environment and what you guys are seeing. So, expectations that we could see some evidence of the rebound in the fourth quarter and I guess into next year. Is that just an expectation that larger deals are improving or kind of what is driving that? Is it just really idiosyncratic with what you’re seeing with your individual clients and just a sense of that they’re more engaged and closer to moving forward on a transaction?

[Scott Bok:]

I’m probably speaking more to our individual situation. I mean, if you -- clearly, if you look at the market data, you can see that volume is pretty flat year-over-year. Volume was pretty flat last year versus the prior year as well. You can also see that large deals, particularly sort of $5 billion or greater and even more so, $10 billion or greater are down very-materially. So, clearly, there have been some kind of market headwinds for our business, both in terms of the fact that the domestic market, I think still continues to be better than international, and the larger deals are tending not to get to announcement, at least in recent months. So, I do think both of those factors will change. I think over time, the M&A business is really a global one, rather than a regional one, and you’ll see activity broaden in that regional sense. And I think certainly, you will see a rebound toward larger transactions in due course. And certainly, on top of those two things, I think for a variety of probably completely idiosyncratic and somewhat random reasons, we’ve not had that many M&A deals of size get to announcement this year. And certainly, our belief is that over the -- of any reasonable timeframe, we’ll return to a more normal sort of pace.

[Devin Ryan:]

Maybe last quick one here just on recruiting. You mentioned that more people are I guess interested in the firm with this deal or you’re getting some inquiries. It’s a little late in the year probably for new recruiting. But, any expectations or hopes for next year and particular areas of focus you think about building from here?

[Scott Bok:]

Certainly, this year was a very good year for us, I am hopeful, next year is a similarly good year. I wouldn’t necessarily predict lot more or many less, I mean I think nine is a lot. And I think we’ll -- we should have a good year next year. There has been -- there were a number of conversations we already were in before. We announced our new plan. But, it clearly has caught people’s attention. I mean clearly some elements of the plan show some real belief and commitment to the business from people here. I think that’s interesting. I think people like to leverage upside, I think people like still being part of a public company, but having bigger ownership internally. So, collectively, those things seem to have sort of prompted a number of incoming calls and a more receptive audience, and it already was quite receptive even before that. So, I’m pretty excited about opportunities to continue to build the firm out in early next year.

[Operator:]

Our next question comes from Ann Dai of KBW. Please go ahead.

[Ann Dai:]

I wanted to follow back up on the question about the upside term loan, but from a different direction. I understand kind of being offered more from the debt market and taking that. But, I guess I’m wondering what the internal conversation was around what to do with that extra $50 million of cash? Why not keep some of it as liquidity buffer instead of putting all of it into buying back more shares?

[Scott Bok:]

Clearly, the Board and management considered carefully before we started this whole process, what level of debt we wanted; how much we wanted that for upfront versus seeing how the market evolves and responded and what terms we could get. Obviously, at the same time, we upsized, we kind of brought down the expected interest rate and expected fees. And so, it was an attractive reception in every way, not just upsizing. Look, our view going forward is that the business doesn’t need -- have few cash needs. I mean, what we’ve spent a lot of money on over the years is the dividend. Once you’ve made a very substantial reduction in that, the quarterly cash needs are not that great. But clearly, we’re going to be prudent about managing our balance sheet. But, we feel we have the ability to do the full $285 million over time of share repurchases. A lot of it maybe in the near term and we’ll -- that will still leave us plenty of flexibility going forward is our current view.

[Ann Dai:]

Okay, thanks for the color. And also maybe just on comps. If we’re thinking about comp for this year, just given that you’re doing the big repurchase and given where the stock price is, do you anticipate any changes to how you think about the mix of cash versus stock comp?

[Scott Bok:]

Not necessarily. We’ve honestly not given much thought to that. Still, our process tends to be really January, more than October in terms of thinking about compensation. So, but I wouldn’t expect anything dramatically different in terms of the way we think about comp structurally.

[Ann Dai:]

Last one for me. Can you just give us some sense of how much of the revenue generation this quarter was from the capital advisory business or restructuring as opposed to M&A?

[Scott Bok:]

I would say -- I don’t want to break it down, because we only that once a year. Of course, we do do it at year-end and so, you’ll see it just a quarter from now. But, it was not a great quarter in terms of M&A completion revenue. It was a very good quarter on the capital advisory business, both primary and even more so on the secondary side. And that’s why we do multiple things. As I said, normally, the spots of weakness were more than enough whereby areas of strength and certainly capital advisory was a particularly strong performer. And our outlook remains pretty positive for that business going forward as well. So, we’re very pleased with how that’s going.

[Operator:]

Our next question comes from Conor Fitzgerald of Goldman Sachs. Please go ahead.

[Conor Fitzgerald:]

So, just want to talk about the pace of debt pay down kind of in the scenario where you have a strong 2018. Should we think about paying down sizable amount of debt? Is it more along the pace of kind of what’s in your covenants? And then on that vein, how should we -- just updated thoughts to think about kind of minimum cash level as we think about the pace of pay downs?

[Scott Bok:]

Look, I think one of the attractive elements of the kind of debt that we issued is that it’s very, very flexible on repayment. And certainly, we’ll make sure to keep a prudent amount of cash on the balance sheet. But beyond that, there is no real need to stockpile it. We’re not going to focus on dividends for a while. We are not going to focus on share buybacks beyond the very large amount we are talking about upfront. And we are not a big one for sort of cash acquisitions or capital expenditures or anything like that. So, our goal would be to pay the debt down as fast as we possibly can. And I think if we started off with a strong year, I think you’d certainly see us do that at a much faster rate than what’s required by the loan documentation, which is meant to be sort of bare minimum as opposed to a larger amount. And again, there’s no penalty at all to repaying on a cash flow. So, we’ve got every incentive to do it as quickly as possible, and obviously the de-leveraging is a big part of our equity story going forward, so we’ll have yet another reason to do that.

[Conor Fitzgerald:]

And then, on last quarter’s call, I think you talked about some of the discussions that precede back all your announcements being strong. Can you just give us an update on how those discussions are tracking? And any sense of maybe when, not to call specific transactions, obviously any sense of when some of the public indicators would start to reflect that strength?

[Scott Bok:]

I think, I mean, if you’re talking about the market generally, I think that’s sort of anybody’s guess, but I think we certainly are reasonably optimistic about the M&A activity continuing for the medium term domestically. And we’re still optimistic medium term things continue or the things will finally get more active overseas. For us, it’s -- I can’t be too specific about it. Clearly, we’ve got a very interesting list of assignments for many companies, many of which would be household type names. And so, while you can look at this quarter and say, we didn’t close much in terms of number of transactions or scale of transactions and so on, it’s a different story if you look at things we are working on and we’ll keep working on those things and see how they come to fruition over time.

[Conor Fitzgerald:]

Got it. And then just a cleanup just on Devin’s question. Can you just talk more broadly about the type of data you shared with debt lenders you signed nondisclosures?

[Scott Bok:]

Again, there’s not really much to say there. It’s -- frankly, it’s very little; it’s very, very little as in number of pages remarkably little. Our business, there is one of the -- I guess one of the attractions of it in a way is that it really is remarkably simple. We have a very, very simple balance sheet. We don’t spend money and capital expenditures. Our cost ratios have been within fairly narrow bounce; over our history it is a business that does not lend itself to making long-term projections that one would have huge amount of confidence in. So, there is not a lot of secret to disclose frankly. We have got 21 years of history we could show. And I can say, both rating agencies and lenders seem to focus very much on that long-term history. Where you earned your money, regional mix, sector mix, things like that. But that’s kind of thing we disclose every year, year-end. We just -- we have put a lot of stuff in sort of nice neat format for them. But it’s no different than what we disclose to equity investors over time. So, the incremental amount that private lenders received is really very, very modest.

[Operator:]

Our next question comes from Michael Needham of Bank of America. Please go ahead.

[Michael Needham:]

So, I guess first, I mean, you guys highlighted in the press release, like the amount of shares that are going to be owned by employees and that like interests are aligned and everything. With these transactions, I’m just trying to compare it like typical leverage buyout, primary value creators making changes to the company, to like grow cash flow. So, just strategically, are you going to be doing something different going forward or do you view this as kind of a temporarily low and market comes back?

[Scott Bok:]

I would say a little bit of both of those. Good question, first of all, I think, and one that we -- certainly is one we’ve reflected on a lot. I think we do view the last period here as a temporary low, and we think that things will sort of return to normal for us in due course. Having said that, we did not want this transaction that we’re doing, even that we’re very, very excited about it, to be purely a bit of financial engineering. We think it sets the stage for a great opportunity for the people that work here and the outside shareholders who want to ride along with the firm as it goes forward from here. But we certainly are looking at everything we do and thinking about how can we do it better, whether it’s recruiting, whether it’s compensating, whether it’s costs of various types, whether it’s how we go after clients et cetera. So, yes, we have every confidence that it’s been a bit of a low, and activity will normally pick up. But, we’re kind of using the transaction as an excuse to just take another hard look at everything and see if we can do things even better, because now we have even more incentive with the large employee ownership to squeeze as much value as we can and really benefit on the leverage outside from doing that.

[Michael Needham:]

And on related question, which is a follow-up on the recruiting and compensating people. I guess, why not hold some of this cash and just use that to grow the business you pay people more?

[Scott Bok:]

To the extent we need the cash to grow the business, we can do that. We’re not spending it all in one shot. As I said, by eliminating a very large part of the historic dividends, it’s obviously a large percentage and it’s going to be fewer shares to pay it on. We’ll have dramatically better financial flexibility going forward. But on top of that, we’ve got -- the proceeds are sitting on our balance sheet right now, we’ll use them over time to buy back the shares in a way that we think gets the best value for the remaining shareholders. And so, we’re mindful of the issue you refer to, but again the key thing really is the reduction of the dividend, which just gives you so much more operating flexibility going forward.

[Michael Needham:]

And on the, like the cash that you’re going to have left after this -- the tender offer, is that the -- I’m sure, it depends on the price. But, is it -- are you planning to kind of get the rest of that done quickly or like offset dilution over time? I guess, how you think about that?

[Scott Bok:]

Look, I think we’ve made announcements in that regard. And the way the rules work, I’m told, we are not supposed to discuss further what our plans are. And by the way, our specific plans are going to be driven by the opportunities that pays us anyway. Obviously, we want to get for the money we’ve raised as many shares as we can. We want to do it in a prudent way and we’ll make decisions along the way to help us to do that.

[Operator:]

Our next question comes from Brennan Hawken of UBS. Please go ahead.

[Brennan Hawken:]

Hey. Good afternoon. Thanks for taking the questions. Scott, curious, if you could maybe square something. You seem to refer to the restricted stocks -- is restricted stock issued tied to this recap as a token, but then that it was draw from potential bankers that were interested and intrigued by the larger employee stake. So, I don’t understand how those two seem to be in conflict. So, maybe, could you square those? And would you mind please disclose the total restricted shares issued to employee, just so we get a sense of ownership?

[Scott Bok:]

Okay. You are misunderstanding the issue. The amount is that -- that we did is -- I didn’t say, it was token. I would not say it is material to investors from a dilution point of view. It’s obviously -- the nature of what was granted is five-year cliff vesting that means it will flow to our income statement, one fifth per year over the next five years. And if you look at the total amounts which we won’t disclose, there is no reason to do that in any greater detail. What I’m telling you is just not material from a shareholders point of view. I think I can tell you I think it is meaningful to people who received it, but just another point of confusion. I don’t think it has anything to do with why people are interested in joining us from outside the firm, because they’re not -- it’s not like they would participate in that. They will be recruited in the normal way, getting a normal package that we would typically offer a recruit, which will be a some level of base, some level of bonus guarantee and some level of restricted stock upfront. That’s really not impacted by the recap. I think people just kind of like that, at least what I’ve got sense from the new recruits have appeared is they like the notion of a leverage upside. They feel like -- they look at the price right now, they think about the leverage from the upside and they think it could be an interest opportunity to trade RSUs and whatever firm they are at now for our RSUs in our firm. And that’s really how they’re impacted by that.

[Brennan Hawken:]

Okay. And then, on the loan, the term loan here. I believe it’s either LIBOR plus 375 or a base rate plus 275, what is that base rate?

[Scott Bok:]

Base rate is prime. And I think you can typically count on us doing the LIBOR plus 375 is what -- is kind of the way we think of the loan. There are certain conventions and it’s kind of the way the documentation’s put together. But it’s essentially a LIBOR plus 375 loan is the way we’re thinking about it.

[Brennan Hawken:]

Okay. And then, last one for me. You indicated that -- I think you indicated global retainer revenue was up versus last year. And so, maybe, would you mind disclosing what those figures are on a dollar basis?

[Scott Bok:]

No, we don’t give that kind of detail. It just doesn’t make sense. Even like for the capital advisory, obviously I’ve given a pretty clear indication that it was a strong quarter for both the primary and stronger for the secondary business. But, I think, given the scale of our firm, it makes sense once a year to go into a lot of detail on what sectors, what regions, what types of business generator revenue; and certainly, we’ll do that again this year after the fourth quarter. But on a quarterly basis, it gets fairly non-meaningful. So, we’ll wait to do it in a ordinary way at year-end.

[Brennan Hawken:]

Well, yes, I mean, I guess, this is not exactly an ordinary quarter. You just went through huge recap. You’ve got folks who are considering taking your bid here at 1725 versus sticking around. And so, I would think that some additional disclosure might actually be helpful in allowing people to understand where things are because when you look at the public data -- I know you’ve assured us that you guys are working on a great many deals and that there are great many bankers who are very interested in working with Greenhill. So, yet the public data doesn’t really support that. And so, hoping to get a few more additional metrics, maybe you could consider that down the road if you don’t want to do it tonight?

[Scott Bok:]

Look, I think there is an awful lot of information out there about us, and people can everyday make a buy or sale decision, based on what’s there. There’s a long history, there’s a fair amount of information about the ways we make business, make revenue. And I’ve given I think a good update today on the capital advisory business; M&A is always a more visible part of the business. And I’ve tried to give some directional views as I always do about the future. And I think there’s -- as I said, we’re not that complicated a firm, so I think people can pretty readily make buy or sale decisions, everyday as they wish.

[Operator:]

Our next question comes from Jeff Harte of Sandler O’Neill. Please go ahead.

[Jeff Harte:]

Hi. Good afternoon. Just a couple of cleanups for me. When we look forward, and I am thinking about the share count here. Once the buyback is done and the shares that you’re buying are done and RSUs to employees and kind of once we get through all that, I mean, I guess I am kind of thinking we’ll be looking at an 80 million, 90 million diluted share count. Is that in the ballpark of being right?

[Scott Bok:]

I think that’s in the ballpark. Obviously it’ll depend on the kind of average price we buy back shares. But, it’s somewhere in that ballpark.

[Jeff Harte:]

Okay. And the term loan being LIBOR plus 375, is it something you would consider or allow to swap floating to fixed or just would you intend to just leave it floating?

[Scott Bok:]

I think we have the ability to do things like that. I suspect, most likely, we’ll leave it where it is. It’s one of the things about the loan and the whole deal. It’s not -- as much as I find very, very attractive the rates we’re at, especially if I think about them on an after-tax basis, if we get a couple of quarter point rate that’s out of the fed, it’s not going to make an enormous difference to us after-tax. So, we’ll hope rates -- the base rates stay pretty low but I don’t think there’s too much risk story about that.

[Jeff Harte:]

Okay. And with the recap coming through and all that, has there been any cash repatriations from overseas? Is it enhanced your access to cash overseas? Is there anything about the non-U.S. cash that changes with this?

[Scott Bok:]

No, nothing really changes. Certainly, the recap doesn’t impact anything in any way. It probably makes it less of an issue frankly because now we are not going to be needing every quarter to pay out a large amount of ongoing cash flow for dividend. So, I think in some ways, maybe it reduces the short-term issue related to overseas cash; longer term, the key change would still be a change in U.S. corporate tax rate of 1 to 25 or even last, I know it’s been proposed to 20. But even at 25, it would make our cash pretty much fundable around the world. But, this whole issue I think is less important now than it was pre our recap announcement.

[Operator:]

Our last question comes from Steven Chubak of Nomura. Please go ahead.

[Steven Chubak:]

Hi. Good evening. So, I wanted to kick things off with just a question on the deal structure. And Scott, it’s a question we’re getting quite often from folks. But just given the attractiveness, which you cited on this call numerous times of leverage upside, high employee ownership and you’re your general confidence in improving M&A backdrop. Why not simply go private, why sort of pick this half measure with the leverage recap?

[Scott Bok:]

A few different reasons. One, I really do believe in the public company model. I think seeing your employees want to know what the value of their equity is, so I think if one were to take it from like ours private, I think one would very quickly start thinking about how would you take it public, again at some point to give people liquidity. So, I don’t really see the benefit of going private in that regard. Two is -- I think it’s better to give shareholders option. And if shareholders would like to cash out, they certainly will have that option and will be buying in the market for some time here. On the other hand, if somebody wants to stay in, they’re more than welcome to stay in. We’re enthusiastic about them staying as a matter of fact. So, I think to make an offer where you’re trying to sort of squeeze everybody out at a particular price, seems less shareholder friendly to me than what we’ve offered. I think what we offered is kind of a perfect pathway to let shareholders have a choice as to what they would like to do; it gives employees more leverage upside, it gives them a bigger ownership by not participating in the tender offer, management, key employees and so on. And so, I think it makes a lot of sense to do exactly what we did, which is kind of halfway between the historic unleveraged structure we always had and a going private transaction.

[Steven Chubak:]

And one of the things that you mentioned is thinking around like how much -- what’s the value opportunity or proposition for prospective investors. And I was hoping you can maybe just outline or articulate, like what’s the investment case that you have discussed or to potential prospective investors as pro forma the leverage recap or pro forma leverage structure. And reason I ask is, we’re getting this question quite often with regards to what’s the growth outlook that you envisage for the business as you got to a more normalize path and what’s reasonable multiple giving that you’re significantly more levered than any of your peers?

[Scott Bok:]

Look, I’m going to -- absolutely to people like you and even more importantly shareholders day today to figure out what the right multiple is. But, I would say this, first of all, I’m not sort of actively marketing to shareholders, we’re obviously in the middle of transaction. So, we’re not -- it’s not something we’re sort of actively doing at the moment. But I certainly heard from a lot of existing shareholders and prospective shareholders. And I think, it always catches investors’ attention when there is a large share repurchase; it probably catches their attention more when it’s one that the insiders are not participating in. It always catches people’s eye when there is large insider buying with new cash, and they see that there. And they also see firm that’s got a very long successful history, but has gone through a period of weakness in the last few quarters and with much lower share price. So, beauty is in the eye of the beholder, I guess. But some people look at all that and say, that sounds like a bottom, I’d like to buy into that. I’m sure other people feel like that there is liquidity being offered and maybe that’s of interest. So, it’s -- I think, there is -- I’m sure this is a case on both sides.

[Steven Chubak:]

And last one for me, Scott. Certainly, one of the encouraging signs that we saw in the quarter is the strength in the primary and secondary capital advisory businesses. I know you’ve given some general color there, and you said that you quantify at least the contributions for the full year at year-end. But I was hoping if you could just speak generally, given the current pipeline that you see within those businesses, is that level of elevated activity still sustainable, at least in the near to intermediate term?

[Scott Bok:]

I think we feel good about both of those businesses. I am not going to say kind of quarterly predictions for them, but I think certainly it looks like it’s going to be a much improved year for both of them, primary and secondary and particularly strong one for secondary. And certainly the ongoing pace of activity is that we continue to feel good about the medium to longer term outlook for both businesses. We have very strong market positions in terms of where we stand relative to competitors. Those are businesses that have far fewer competitors and M&A or restructuring business. So, it’s a strong competitive position and a pretty active market. So, yes, we feel pretty good about both of those for the near to medium term.

[Steven Chubak:]

Helpful color, Scott. Thanks very much.

[Scott Bok:]

Thanks. And I think that’s our last call. So, thanks everybody for joining and we’ll speak again in a few months.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.