Greenhill & Co., Inc.
Q3 2014 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Good afternoon, and welcome to the Greenhill Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Grubb, Chief Financial Officer. Please go ahead.

[Christopher Thomas Grubb:]

Thank you. Good afternoon, and thank you all for joining us today for Greenhill's Third Quarter 2014 Financial Results Conference Call. I am Chris Grubb, Greenhill's Chief Financial Officer, 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 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 L. Bok:]

Thank you, Chris. The third quarter was a strong one for our firm as we have been signaling it would be given an increase in transaction announcements that started in June. Revenue more than doubled versus last year's third quarter. Our compensation ratio was at 50% and we had a pretax profit margin of 33%. This performance allowed us to repurchase some stock in addition to maintaining our strong dividend, while maintaining a balance sheet with almost no net debt. Year-to-date, despite the slow start to the year, our advisory revenue was down 3%, our compensation ratio is 55%, consistent with where we were at this time last year, and our pretax margin is 22%, a bit lower than at this point last year in part because of an investment loss we incurred earlier this year. In our improved pace of transaction announcements, which are indicators of future revenue potential, continued in the third quarter with important transaction announcements involving such leading companies as Cerner, Gannett, MannKind, Masco and QR Energy. Stepping back to look at the market environment. Transaction activity for the year is evolving very much in line with our expectations and consistent with comments made in our last 2 quarterly calls. Starting with completed transaction activity, as that as the primary driver of revenue for firms like Greenhill. Through the first 3 quarters of the year, the total number of completed transactions was affectively unchanged from the prior year, while the volume of completed transactions was up only 9%. Taking a longer-term perspective, based on the pace of transactions through the 3 quarters, the completed transaction volume for the full year is on track to be about in the middle of the range that has prevailed for the 6 years since the onset of the financial crisis. In other words, we have yet to see any meaningful improvement in the transaction statistics for completed transactions. Announced transaction data continues to provide a more positive perspective, one that is indicative of an increasingly active market and bodes well for the future revenue outlook. Through the first 3 quarters of the year, the number of announced transactions was up 10% with announced deal volume up significantly more at 49% driven by an increased number of very large transactions. However, those very large transactions have proven very difficult to complete. None of the 12 largest deals announced this year have yet closed. 4 have already been withdrawn, several faced significant antitrust scrutiny, 1 is a hostile bid with an uncertain outcome and 1 is a tax inversion that could be impacted by regulatory changes. The largest deal announced this year that has actually closed, number 13 in announced size, is the $23 billion Actavis Forest Labs' transaction on which we advised earlier this year. Despite the challenge in getting very large deals completed, we see this increase in large transaction announcements as boding well for future transaction activity. These announced transactions have the potential to reshape industries and thereby cause other companies to pursue transactions in reaction to a new competitive framework. They can equally be a signal of confidence for the decision-makers evaluating transaction opportunities. And at the very least, they have helped put strategic M&A firmly back on the agenda for management teams and boards to a degree that has not been the case since the financial crisis began in 2008. Our sources of revenue through the third quarter are largely consistent with the broader trends. M&A completion fees are down relative to last year, but announcement fees are meaningfully higher. Restructuring has continued to be slow given highly accommodating credit markets, but we have more than offset that with some significant equity financing advisory roles, including on spinoffs, IPOs and other transactions. And we believe the recent pullback in the high-yield and leveraged loan markets could signal increased opportunities for debt advisory and restructuring assignments next year. Finally, we continue to see an increase in fund placement revenue compared to last year, attributable to multiple big successes in the real estate area. Looking at activity regionally, we are seeing solid contributions from each of our regions with a year-to-date percentage contribution from each very much in line with last year. Looking forward, activity in our Australian offices is the strongest it has been in some time with a number of meaningful transaction opportunities in our pipeline for that market, which should play out in the quarters to come. Our European team continues to announce meaningful transactions and win advisory mandates from many of the leading companies in that market. And our North American team is active in what continues to be the most robust transaction environment globally. By industry sector, we are seeing a good level of activity across most sectors, particularly consumer retail, healthcare and industrials. In summary, this year is playing out in a manner very much consistent with our comments on prior calls this year. M&A activity has improved and we are seeing the benefits of that. But by historical standards, we are in the very early days of an upturn in transaction activity. While headlines generated by a small number of large, but controversial deal announcements might suggest that M&A's booming again, the fact is that the volume of actual completed transactions has moved very little despite a tripling of stock market valuations over the past 5 years. That suggests to us that a lot of upside remains as deal activity around the world ultimately returns to historical norms. With a strong brand in multiple global markets, we believe we are very well positioned to benefit as that happens. Now back to Chris.

[Christopher Thomas Grubb:]

Thank you, Scott. I will address compensation costs, non-compensation costs, dividends and share repurchases and only comment here that there are no updates this quarter are likely going forward on our very modest remaining principal investments. Starting with compensation costs. On a year-to-date basis, our compensation ratio is equivalent to the same year-to-date period last year at 55%, with lower RSU amortization expense being partially offset by a higher year end bonus accrual. As we've commented previously, we have consistently achieved our annual goal of a GAAP compensation ratio that is the lowest among our closed peers driven by the high productivity of our people, and we expect to maintain that position for the full year. Moving to our non-compensation costs. Our third quarter non-comp costs were $15.4 million, equivalent to the second quarter and slightly higher than our third quarter of 2013. On a year-to-date basis, our non-comp costs continue to be well under control at $45.1 million, down slightly from $45.6 million in the same period of 2013. Our non-compensation costs have been fairly flat for the past few years and we continue to expect fairly stable non-compensation costs for the foreseeable future. Putting our 2 categories of costs together, our costs year-to-date are down slightly in absolute terms compared to last year. Our pretax profit margin is 22% year-to-date, reflecting a meaningful improvement from the first half result of 12%, demonstrating the significant operating leverage inherent in our business model as revenue improves and only down slightly from the 24% achieved through 3 quarters last year. Looking at our dividends and share repurchases. Our dividend this quarter was again $0.45 per share, consistent with the quarterly distribution made in recent years. During the third quarter, we repurchased 212,000 shares of our common stock in the open market for a total cost of approximately $10 million, plus a small number of share equivalents for tax settlement purposes on the vesting of RSUs. On a year-to-date basis, the firm has repurchased approximately 590,000 shares and share equivalents at an average cost of $49.95 per share for a total cost of $29.6 million. We ended the quarter with share count similar to a year ago and we continue to maintain a share count that is effectively flat with our 2004 IPO, despite significant annual stock-based compensation and our acquisition in Australia, which compares very favorably to both our large and small competitors. We ended the quarter with cash of $36.9 million and debt of $39.2 million. Our Board of Directors has authorized the repurchase up to $75 million of our common stock through the end of 2014, of which approximately $45 million remains available. The level and timing of stock repurchase activity going forward will primarily be driven by the timing of cash generated in our advisory business. Now let me turn it back to Scott.

[Scott L. Bok:]

Before we take questions, let me highlight some of the characteristics that make Greenhill unique compared to our many competitors. Most importantly, we are solely focused on the advisory business. We have senior teams across industries, across geographies and across types of advice, but in every case, they are purely focused on providing advice to clients on their most important strategic needs and are not conflicted or distracted by other business or other products to sell. It is that exclusive focus on the high-margin advisory business that allows us to repeatedly generate sector leading profit margins. Second, we are the most diversified of our peers by industry sector and by geography. Meaning we are not overly dependent on any individual, sector or region for our continued success. Finally, an analysis of public transaction announcements demonstrates that a larger portion of our deals fall in the billion-dollar or greater category as compared to our peers. And that helps us build the kind of brand we want, results in high productivity for our people and creates greater operating leverage, which will pay off as and when the transaction environment continues to improve. And with that, we're happy to take questions.

[Operator:]

[Operator Instructions] Our first question is from Ashley Serrao of Crédit Suisse.

[Ashley N. Serrao:]

Scott, with respect to your pipeline of early-stage assignments that you noted in the press release, I was wondering if you could share us some high level color on size and when you expect some of these deals enter the public domain.

[Scott L. Bok:]

Well, Ashley, it's awfully hard to say that obviously, at any given time, our pipeline has been a, literally, dozens of assignments in place. It's hard to know exactly when things going to get to announcement, let alone to completion. But as I've said in the comments and in the press release, certainly, business continues to be better than it has been for much of the period through the financial crisis. And in a pretty broad-based way across industry sectors and as I also commented across regions with no, kind of, one area looking particularly weak relative to the others.

[Ashley N. Serrao:]

Got it. And then on fund placement, that business continues to chug along nicely. I was hoping you'd just share some color on pipelines there and where we are in the fund placement cycle and your plans for the next leg of growth there.

[Scott L. Bok:]

Well I think we feel very good about where we are in the real estate business. I mean, it's clear that the team we have is, kind of, has already had a good year. So this year's effectively in the bag. And I think they have enough substantial assignments in place that we feel very good about next year as well. One of the things that we've noticed recently is -- and particularly in the real estate area as opposed to some of the private equity areas -- is the funds are being spent really quite quickly. So even funds that may have raised their last fund. It could be quite a large fund, 12 or 18 months ago, are already talking about coming back to the market. So -- and so we are optimistic about getting some re-ups in terms of funds that were quite successful last time around. And as for broadening it beyond real estate, we continue to evaluate lots of opportunities. We might do nothing. We might hire a select group of individuals. We might do something larger and it really just depends on the specific opportunities that come our way.

[Operator:]

Our next question is from Devin Ryan of JMP Securities.

[Devin P. Ryan:]

So, Scott, I know you mentioned before the business can be streaky. This is maybe a follow-up, kind of, on the last question, but the year did start on the slower note for announcements. The past 4 months have really been as good as I can remember for Greenhill in terms of announcements. So I'm just trying to get an idea if we should look at the recent pace as a good proxy, of kind of what's really going on there. I know you said it's an increasingly active market, or should we just take the comments more in the context of thinking about the announcements in aggregate over the entire year.

[Scott L. Bok:]

Well, okay. Again, it's hard to -- it's not a business where it's that easy to sort of predict exactly how quarters, let alone years, are going to roll out. And certainly we've seen this year that even when people are fortunate enough to get significant deals announced, it doesn't always mean they're going to close. But look, I think what you've seen in the recent months from us is kind of indicative of what we expect, in general, going forward. I think things in Europe are still very patchy relative to longer-term history. But they're a lot better than they have been in any times of the financial crisis. As I said, Australia, which went through a little bit of a slower period for us, feels very active. We've announced, not huge ones, but a couple of deals just over the last couple of days there. And the U.S. market continues to be probably the best one around the world. So I can't tell you exactly how to build your model, but I can tell you that we're pretty busy here.

[Devin P. Ryan:]

I appreciate the color there. And then just with respect to compensation, I think there's a debate, clearly, in the industry around what's the right philosophy and what it takes to run people heavy advisory franchising. Greenhill has always been the leader on the comp side and comp ratios. And you guys have put up better margins over time than really anyone. So that being said, some of your peers appear to be more willing to subsidize their platforms through a greater degree when activity is maybe a little bit less robust. And so from a competitive perspective, how do you guys manage this and maintain the franchise especially when, maybe, some peers are being, in your eyes, irrational? And then with respect to the fact that we've been in an extended lull on activity for some time, has your philosophy changed at all in terms of the compensation side of things?

[Scott L. Bok:]

I would say that the philosophy hasn't really changed. I mean, the fact that we're able to have a lower compensation ratio and higher profit margins than all of our peers really is the function of 2 things. One is that our people are just literally more productive. If you just take revenue figures and divide by number of total heads for us and others over the last many years, it's a bit higher than others. And so a smaller compensation ratio on a higher dollar productivity per person nets out to, sort of, the same place as where our peers are. So I don't think we're at any, kind of, disadvantage relative to our people. And obviously, we can benefit our shareholders. The second big thing is, we're only in the one business. I mean there's almost no overhead here. Our CEO, our CFO, our Chairman are out every day doing work for clients, generating revenue for the firm. We don't have a lot of issues with conflicts. We don't have a lot of spending or people involved and going into other businesses or managing other businesses with the conflicts between advisory and those other businesses. So we're kind of a lean team of people all focused on one thing. And it's just -- it's not an easy business to manage, but it's probably easier than firms that are a lot more complicated. And I think that factors in the headcount which factors in the compensation, and that's why I think we can both be competitive in compensation and have the lowest ratio and the highest profit margin in our peer group.

[Operator:]

Our next question is from Alex Blostein of Goldman Sachs.

[Alexander Blostein:]

So Scott, one of the metrics that you guys have always focused on when you think about your market share is the growth of your advisory revenues versus the growth rate of the bulge bracket firms or the big banks advisory revenues. Given the fact that it looks like this year, the bigger banks are going to have a decent year, do you still think you'd be able to surpass their growth rate in your business?

[Scott L. Bok:]

I mean, you're absolutely right. That's always been a metric for us. And no, I don't think it's realistic given the way the year started for us that we will have more rapid advisory revenue growth than they did. Now, we did that, I think, for at least 5 or 6 years in a row by quite substantial margins. I don't think it's possible to, sort of, do every year. I mean, there's some certain randomness to whether your clients do deals versus others and the timing to get them announced and done and things like that. So I don't draw any grand conclusions that, that trend is over, I think far from it. But clearly, this will be the first drought of the last several where we won't have that kind of steady increase we've had for several years in terms of advisory share of the people.

[Alexander Blostein:]

Got you. And I guess, to your point, there is certainly going to be some level of choppiness there. My second question was around Europe and I think you alluded to that, to just kind of the broader environment there. But given the fact that it is an important market for you guys, I was hoping maybe you could spend a little bit more time on how the recent, sort of, patch of softer macroeconomic data concerns around deflation, lower for longer interest rates, all those things are impacting people's view of the M&A dynamic there.

[Scott L. Bok:]

Well, I think -- look, I think Europe -- you're right, it's an absolutely very important business for us. It was equal to our North American business for many years in our history. Obviously, not since the financial crisis. I think our view is that Europe is clearly in a slower growth mode. I think it probably will be for quite a long time. But I also think that looks sort of the severe downside scenarios of, kind of markets really seizing up and almost like a level of panic and therefore, real conservatism at the corporate level setting in. We don't think that's realistic either. So if you think about an environment where it's very difficult to generate topline growth, I mean, what often happens is industry consolidation. That's the way to -- if you cut your own costs as far as you can, that's the way to still grow the bottom line. It's like consolidating your industry. So we think we're seeing some of that in Europe, certainly in some of the deals we worked on. And it can be both consolidating your sector and equally can be selling non-core assets to focus on what you're best at. And so we're hopeful for a long-term upturn in Europe. Obviously, it's been a remarkably long downturn and only time is going to tell. But we think kind of continued progress, maybe not always steady, but a continued progress toward a more normal market there seems the most likely scenario.

[Operator:]

Our next question is from Brennan Hawken of UBS.

[Brennan Hawken:]

Quick question on cash. So it looked like it picked up versus last quarter. Should we think about maybe cash building in the year end due to seasonal needs?

[Scott L. Bok:]

I wouldn't. I mean, frankly, as a shareholder, I wouldn't spend a huge amount of time thinking about our cash. We obviously -- we don't need a huge amount of cash to run the business. We've had a big string of announcements. Obviously, that's probably shows up in cash and also heavily shows up in receivables. And I think it's -- we'll manage the cash a little bit quarter-to-quarter, but essentially, we're going to continue to return all the cash flow that comes from after compensation tax and other costs back to shareholders in one form or another.

[Brennan Hawken:]

Okay. Okay. And if we think about the balance sheet in the event that we see, sort of, more of what we've seen in 2014 versus the dramatic pickup, should we think that probably the debt line would probably creep up or continue to creep up as we move on?

[Scott L. Bok:]

No, I wouldn't expect that. I think if we -- look, we hope not to be in a stagnant environment. We hope that and believe that M&A is picking up and there it should be a better revenue opportunity for us. But even if it didn't, even if it just kind of flat lined, I would not expect our net debt position, which has been roughly 0 for a long, long time, to change.

[Brennan Hawken:]

Okay. Okay. And then when we look at the pipeline, at least the publicly visible pipeline, from our perspective, it's sort of come off a little bit here recently in both dollar volume and in number of deals. Does your backlog show a different trend? And maybe can you tell us how you're thinking about coming into year end? And maybe what the beginning of 2015 looks like from your perspective?

[Scott L. Bok:]

I mean, I think it's hard to get much more granular than I have. But I don't -- look, I think the way analysts -- for very good reasons, it's all the data you have, it's -- the way you guys measure pipeline can be lumpy in its own way, right? A deal closes, and suddenly the pipeline drops. Another one gets announced. Sometimes they don't have a deal value attached to them because it's not disclosed and it's not clear how you guys can factor that in. I mean, I think from our perception, business has been pretty good for the last month. And as I've indicated, we still feel like we're working on a lot of good stuff that should come to see the light of day in the relatively near-term future.

[Brennan Hawken:]

Okay, great. And then last one, have you heard at all about recent market volatility causing any issues with deals getting closed before year end or causing any concern around deal closings? Or have we not seen the volatility be protracted for long enough?

[Scott L. Bok:]

I don't personally think there's been enough volatility to have an impact on that. I mean, financing markets are still quite wide open. And frankly, it's not like we're working on a lot of things that are, sort of, hugely dependent on extraordinary leverage. Perhaps, if people are working on deals with the private equity industry or something, they might have more of that. But from our perspective, financing markets are staying strong. And so there shouldn't be much of an impact. What probably volatility impacts is more the stuff that's still earlier stage where you might be negotiating a valuation of the company and maybe the acquire or stock is bouncing around or the target stock is bouncing around, it can get more difficult to negotiate a transaction. So those things slow down a little bit. But I certainly don't think sort of 1 week or 10 days of volatility is changing the way any company looks at a deal. Had last week's trend continued to spiral down, it might well be a looking a little more tenuous right now, but obviously, markets have yet again bounced back. So I don't see any real impact.

[Operator:]

Our next question is from Steven Chubak of Nomura.

[Steven J. Chubak:]

So Scott, you noted the recent pullback in the leverage lending could actually drive come increased activities in the debt financing or advisory space. And I was hoping you could share your thoughts as to whether the pullback there, do you believe this is merely temporary? And I suppose separate from that, whether you expect any -- the increased regulatory scrutiny of leverage lending activities from the big banks to create a sustained opportunity here.

[Scott L. Bok:]

Well, look, this isn't a -- restructuring is another area where we've waited quite a long time to see a bit of a financing crunch that will lead to more restructuring activity. And there has been some pullback and certainly, you hear some of the big distress that investor is talking right now about raising very large funds. They think there's going to be a huge opportunity. It's not here yet, but they think it's coming. And I think that's probably where we are. I don't think there's been any dramatic change in the market. But we've always felt that a lot of capital structures that were overlevered at the time of the financial crisis, those companies did various things, did really just extend the prices, like amend and extend then kick the can down the road and all those things people in the restructuring world say, when they mean it's somebody sort of temporarily solved the problem, but didn't permanently solve it. But we think to some extent just through the passage of time, there should be more restructuring activity. And if there's some kind of a pullback, it doesn't have to be a complete shutdown, but some kind of a pullback and availability should accelerate that day.

[Steven J. Chubak:]

Understood. It's really helpful. And then I'm just switching over to the M&A side, I appreciate the context you guys are giving, talking, making the important distinction between deal value versus deal count, and certainly supports that notion that we're still in the early days of recovery. And I'm just trying to understand a bit better, and this question does come up often from investors as well, trying to get a sense as to given the delay in terms of how long it taken for the M&A to begin to pickup, how we should think about that in the context of prior historical patterns? Essentially, how does that inform your thinking as to which inning we're in currently? And then more importantly, I suppose, what's ultimately the length of the game going to be?

[Scott L. Bok:]

Well, those are really good questions. I wish I knew the answer to those. But, look, I think it's been a very long downturn. Historically, you had sort of 7 years of a strong M&A market and 3 years of a weaker one every decade. This time, we're sort of sitting on 7 years of a relatively weak M&A market with some signs through announcements, but not completions that maybe it's picking up meaningfully this year. I tend to think when it comes back in a meaningful way, it will come back for a significant period of time. I mean, very little has happened in Europe in the last several years. And you have to think that creates, sort of, a backlog of strategic desire to grow and develop your company. So I tend to think that it's been a very, very long time building up. But when it comes, there should be one hell of multiple years of good level of activity.

[Operator:]

Our next question is from Joel Jeffrey of KBW.

[Joel Jeffrey:]

Just thinking about the comp ratio, I think in the past you've kind of talked about 50% being, sort of, the mid-level that you guys would like to get to, and then in good quarters, you'd be below that and bad quarters, you'd be above that. I mean should we think about this kind of $90 million revenue number as the sort of line of demarcation for that?

[Scott L. Bok:]

That's probably not real far off, actually. I mean, it's -- again, going back to the longer-term history, which is now long enough that I think people can at least to some degree rely on it. We've been a few points above 50% in the weak M&A years and a few points below 50% in strong M&A years. So it hasn't varied wildly around the 50%. And I think something like this level, it probably would be sustainable at a 50% level. Yes.

[Joel Jeffrey:]

Okay, great. And then going back to the fund placement business again. I think in the past, this has been kind of a seasonally strong fourth quarter business. Just wondering if you guys are seeing the same sort of thing. I know you said that the team's kind of got the rest of the year kind of in the bag. Just wondering if we'll see heightened revenues in this business for the fourth quarter.

[Scott L. Bok:]

I don't think that -- I think I said this on some of the earlier calls this year that this is some -- again, I -- we haven't been in this business enough years to probably draw any grand seasonal conclusions around that we had seen in a number of years where we've seen like the closings were very heavily weighted in the fourth quarter. This year, we've been pretty clear from the start that they had a number of things that closed in the first and second quarters, for final closings, where including some very large successes. So I wouldn't expect the kind of a huge percentage of the money comes in the fourth quarter. I think they've done very well this year to bring a lot of that forward with some successful large closings early in the year.

[Joel Jeffrey:]

Okay, great. And then I'll take one shot at my last question here. When you guys -- you said you guys have been the advisor on what was the largest deal to close, and that closed very early in this current quarter. Just as you think about the fourth quarter sort of absent of deal like that, do you feel good about your potential fees for the quarter to kind of get you to a level where you will be consistent with last year's revenue number?

[Scott L. Bok:]

To be honest, I didn't look up back at last year -- what last year's fourth quarter revenue number was. So your question, obviously, is too detailed for us to really give an answer. I mean, every quarter, the important thing probably to know from an investor point of view, and this will make it to maybe hard to predict I suppose, but every quarter is made up of different things. Sometimes it's very long term, very large things that have been maybe sitting in the pipeline a long time, and sometimes it's a lot of smaller transactions. Obviously, as I said, as you've seen over the years, sometimes it's a lot of substance very visible in public and other times, it's things like some placement fees and smaller private transactions or restructurings that aren't as visible. So we don't -- we try not to feel good or bad about our business with respect to any given quarter. But what I've said today, I think it's that the trend line feels like a good one to us in terms of momentum in the market generally, and in momentum within our firm.

[Operator:]

Our next question is from Vincent Hung of Autonomous.

[Vincent Hung:]

I was wondering if announcement fees and reimbursements have any meaningful impact on the revenue line this quarter?

[Scott L. Bok:]

Well, certainly, as we've always said and even noted here that announcement fees were up quite a bit over last year and the year-to-date. We -- as it's been noted even by some of the questioners, we did get a lot of significant transactions that were announced in sort of the June, July, August, September period. And so certainly, yes, this was -- has been a period where announcement fees were a nice contributor for us.

[Vincent Hung:]

Okay. Last question is, so there's a large private equity firm that's spinning out its advisory business. And I guess, once it's set free of its conflicts of interest, it could be a meaningful competitor to you guys. Do you see them as a threat or just a reaffirmation of the independent business model?

[Scott L. Bok:]

I'll look -- I take it as a bit of a compliment that one of the leading private equity firms in the world thought that the best way to set up and we get value for an advisory business was to have it be completely independent. But though, I thought it was kind of interesting in that respect. But I don't think we're overly worried about any one particular competitor, certainly not one that's a relatively small and new one that's kind of an early days of building out an M&A franchise. So we have plenty of competitors. And I don't think that one more independent firm is going to change the mix that much.

[Operator:]

Your next question is from Michael Wong of Morningstar.

[Michael Wong:]

Just clarifying the compensation ratio question a bit more. So the $90 million renewal level can be looked at as a good level to get to a 50% comp ratio? Or should it almost be looked at as the 3-quarter trailing revenue level as a good indicator of a 55% compensation level?

[Scott L. Bok:]

I would look at it -- again, I don't want to get too precise on this. I would harken back to the comment I made. We've been doing this for 10-plus years now and it's been right around 50%. A few points worse in difficult M&A markets and a few points better in good M&A markets. The question was it's something like the current quarterly level indicative of where it would settle out. Right about in the middle of that range of 50%. I think that's relatively close. I wouldn't want to get too precise on that. And obviously, that's relative to the current team size, if we went and hired -- increased our headcount by 20%, obviously, all these numbers change. But as we said right now, I think this quarter feels like one that's sort of about in the middle of that range. And that's why we set the comp ratio at 50%.

[Michael Wong:]

Okay. And I was wondering, have you had any difficulty expanding headcount in certain industries without complimentary investment banking businesses such as equity or debt underwriting?

[Scott L. Bok:]

We've never seen that as an obstacle. Obviously, our whole business model is built around not being in things like capital markets or asset management and things like that. And we wouldn't have that strategy if we thought it put us at a disadvantage. We think there's a lot of demand out there for pure advisory services. I mean, as was noted, that is what Blackstone is setting up. So obviously, they must think the same thing as well. And so we respect that others are taking a different point of view and want to be in those underwriting businesses. But we just don't think it's the way for us to maximize our opportunity. Al right, thank you, and I think that's our last question. So thank you all for joining the call. And we'll speak to you again in a few months.

[Operator:]

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