Greenhill & Co., Inc.
Q2 2015 Earnings Call Transcript

Published: 24 Jul 2015

[Operator:]

Good afternoon and welcome to the Greenhill Second 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 Chris Grubb, Chief Financial Officer. Please go ahead.

[Chris Grubb:]

Thank you. Good afternoon and thank you all for joining us today for Greenhill's second quarter 2015 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'd now like to turn the call over to Scott Bok.

[Scott Bok:]

Thank you, Chris. The second quarter continued for our firm in the market generally many of the key themes that we discussed during our first quarter call. For Greenhill that meant continued advisory revenue growth compared to last year, increased transaction announcements of generally larger transactions and additional hiring and personnel moves to strengthen and best position the firm for continued success globally. For the market that meant continued extraordinary strength in transaction activity for deals $10 billion and greater in size or activity in deals below that size range was essentially unchanged. And an M&A market heavily driven by activity in the U.S. with Europe remaining much less active. Starting with our financial results for the second quarter, we achieved advisory revenue of $73 million or 14% increase over the second quarter of 2014 bringing our year-to-date advisory revenue growth to 20%. Our year-to-date total revenue growth was 27%. The first half of the year was not a particularly strong period in terms of large completed transaction revenue, but we are showing growth in that category relative to last year and more importantly are showing growth in both in announcement and opinion fees and retainer fees which are more correlated with the level of current and future activity in our business. Our improved revenue outcome resulting in cost ratios below last year's first half levels with our compensation ratio of 54% as same as last year's full year result and our non-compensation cost lower ratio of revenue even as the absolute dollar of amount of non-compensation cost grew due to the acquisition of the Cogent Partners business and related expenses some of which are either one-time or should be eliminated shortly. Even after those non-recurring costs which had a negative impact of about 2 points of margin and $0.03 of earnings per share in the quarter, we achieved a 22% pretax profit margin and EPS of $0.30 for the second quarter. For the first half even including non-recurring Cogent related cost that had a year-to-date negative impact of about $0.05 of earnings per share, we achieved 21% pretax profit margin and EPS of $0.55 more than double that at the first half of 2014. We again paid a strong quarterly dividend and as signaled on our last quarterly call directed the bulk of our cash flow to paying down debt related to our Cogent acquisition versus our usual share repurchase activity. In the quarter the first since acquiring the Cogent business, we already retired half of the first [trench] of debt incurred in connection with that acquisition while continuing our practice of maintaining a cash balance in excess of the outstanding balance on the revolver that we use to manage cash globally. We continue to see an unusually large share of our revenue by historic standards coming from U.S. clients. In the first quarter we highlighted the diverse regional participation in our announcement activity, but the second quarter saw results more in line with the current market statistics. Transaction announcements heavily weighted towards the North American market with the UK market, an area of long time strength for us being the other region of significant success in the year-to-date. Looking ahead, we expect our improved flow of significant deal announcements in those markets to continue. Given the low level of activity outside those regions in recent years and the strength of our teams in those markets, we continue to see a lot of upside potential for incremental revenue from those regions as and when they catch up to increase levels of transaction activity in the U.S. market. By sector, communications and media, healthcare and industrials continue to be the most productive for us largely in line with overall market activity. By type of advice, we continue to generate the majority of our advisory revenue from M&A transactions. Within M&A, completion fees as always were the biggest driver but revenue from announcement and opinion fees was up meaningfully compared to a year ago. It is also worth noting or announced transaction volume or league table credit is up meaningfully in 2015 similarly skew like overall market activity by our role and larger higher profile transactions start of the year. Our financing and restructuring advisory business is finding financing advisory opportunities and involvement some of the largest bankruptcies in the market, but a very favorable credit environment continues to constrain the level of traditional bankruptcy and restructuring activity in the market. Our capital advisory business is off to a strong start again this year with a very active real estate fundraising environment and Cogent the business we acquired that advises on secondary market transactions for alternative assets benefiting from another quarter of robust market activity, it’s first quarter is part of our firm. Before I comment further on Cogent, let me briefly make some observations on the market environment for M&A activity. As discussed during our first quarter call, the market statistics for the first half of 2015 continue to be skewed towards larger transactions versus a broader increase in the number of transactions. Specifically for the first half of the year, the number of announced transactions was up only 6% versus a year ago, while the volume of transaction announcements is up about 34% compared to the prior year driven by large percentage increases in very large transactions. If you annualize the first half level of activity, the result would be a doubling and the number of global deals of $10 billion or greater in size but no increase at all in the $500 million, $5 billion size range, which is where the bulk of significant advisory fees are usually generated and which is historically been a very important part of our business. As it relates to the transaction completions, the trends are very similar with total transaction completion volume increasing 35% year-over-year driven by small number of large transaction completions, while the total number of transaction completions was essentially flat compared to last year. Sneaking through all those markets statistics as well as what we are seeing with our clients, we have no doubts with the M&A market has improved and we expect that improvement to continue. We are simply making the obvious point that the improvement to date is fairly nearly focused on mega-deals and the U.S. market. We think there is much more to come if we want that improvement in activity [growing]. During the first quarter call, I went into quite a lot of detail on the Cogent business, so I’ll not repeat that here. It is worth highlighting that we continue to be very pleased with the Cogent acquisition, which we announced earlier this year and closed on April 01. The integration is going very smoothly, but the culture that we anticipated playing out even better than expected and leading to much collaboration across teams of our new business opportunities. The secondary market for alternative assets for the Greenhill Cogent team focuses is showing robust levels of activity and our team is continuing their market leading share of that activity both in their volume and by a considerable margin in number of deals. We remain optimistic about the contribution of Greenhill Cogent team will make to our business in the quarters and years to come. We won’t be breaking our secondary market revenue each quarter, but I can say that this group is performing well in terms of deal volume, revenue and new assignment wins, while still early days in this regard the contract is well exceed the revenue requirements or not arrangement we agree this part of the acquisition. Now I’ll turn it back to Chris.

[Chris Grubb:]

I will now go into a bit more detail on compensation costs, non-compensation costs, tax rate and dividends, share repurchases and balance sheet matters. Starting with compensation costs. We achieved a compensation ratio of 54% for the second quarter and first half of 2015, consistent with our full year compensation ratio over the last two years. And remember that unlike our appearance we include all GAAP compensation costs in the figures we highlight. As our investors know, we have consistently achieved our goal of a GAAP compensation ratio that is the lowest among our close peers, we’ll also being able to compensate our people comparatively given their high productivity relative to peer firms. Moving to our non-compensation costs. Our second quarter non-comp cost were $18 million inclusive of transaction related expenses incurred during the quarter, including an increase in professional fees redundant operating expenses that we expect to eliminate overtime and interest expense and transaction related amortization that will naturally be reduced overtime. Excluding these transaction related expenses, our core non-comp cost including the additional expected run rate from the Cogent business were $16.5 million for the second quarter and remain well under control. On our prior call, we commented that we expect the Cogent transaction it take our non-comp costs from a run rate of the low $60 million per year to the high $60 million on annual basis and we continue to believe that is a good estimate. Toughing briefly on the tax rate. As discussed in today’s earnings release, our second quarter tax rate is 40% bringing our year-to-date tax rates of 39%. This higher than usual tax rate is driven by a greater proportion than usual of our earnings being in the U.S. relative to other jurisdictions where we operate with lower tax rates. Going forward, our tax rate will as always be a function the jurisdictions in which we generate earnings with the U.S. having the highest tax rate of any region where we operate. As and when the regional mix of our revenues return to a historic norms, our tax rate should decline the historic levels as well. Within our dividend share repurchases and debt pay down activity. Our dividend this quarter will begin $0.45 per share consistent with the quarter distribution made over the last several years. On April 01, we acquired Cogent and financed the upfront portion of the transaction with the issuance of approximately 780,000 shares of common stock and a debt issuance of $45 million. The impact of the transaction financing can be seen in our increased fully diluted share count for the quarter and our increased interest expense is noted above. Also at the time in the acquisition, we signaled that we would direct a meaningful portion of our near-term excess cash flow to paying down acquisition debt before returning to our historical focus on share repurchases. The transaction relates that was structured in two equal tranches of $22.5 million each with the first tranche due April 2016. During the second quarter, the first quarter since completing the acquisition we pay down $11.25 million or half of the first tranche of that. Now [it’s time for] repayments, we ended the quarter on a strong cash position or cash of $47.3 million and a revolver balance of $38.8 million. On a year-to-date basis, we have repurchased approximately 313,000 share equivalents for a total cost of $10.8 million. Our Board of Directors has authorized the repurchase of up to $75 million of our common stock through the end of 2015, of which approximately 64 million remains available. The level and timing of stock repurchase activity going forward will be driven by the timing of excess cash generated in our advisory business over the course of the year and our timing of paying down the transaction related debt associated with the Cogent acquisition. Looking at that ahead, it remains our expectation that while the share count is up a very small amount as a result of the acquisition, we’ll get back to both in net cash position on our balance sheet and applied share count relative to the time of our IPO just as we did not long after our Australian acquisition couple of years ago. Now let me turn it back to Scott.

[Scott Bok:]

Before we open up for questions, I want to close on the few comments on the personal moves we announced today. Essentially appointed two people, who have been playing very important roles in our firm for a long time Kevin Costantino and David Wyles to the position of president of the firm. Wyles is committed to the firm as ever and our Founder and Chairmen Bob Greenhill remains very actively involved as well. We concluded that would beneficial to adverse senior management team, a couple of people will have a global mandate to help us continue to expand our business to client coverage, the recruitment and acquisition of new talent and the development of talent internally. Kevin and David both essentially grow up in our firm. They have been with us 10 and 17 years respectively. They [Indiscernible] the best of the Greenhill culture on collegiality team working excellence and they have broad experience in advising clients on a wide range of transactions across industries and regions. It’s particularly helpful given the global nature of our business that they each have significant experience in Greenhill offices outside New York, David in London and other European offices and Kevin in Chicago as well as our Australian offices. Their day job like my day job will continue to be building client relationships with important companies around the world and advising them on strategic transactions and in the new capacities I expect it will be even more effective with that. Alongside of their day job, they will play important roles in the management strategy and continue the development of our firm. I’ve always say that our firm strives to feel like a true partnerships. In other words we wanted to feel like a pretty flat nonhierarchical organization or many people think and act like owners and trying to build the business. Given that it’s important to have involved in senior management, a team of skill and respected individuals who collectively have many years with the firm and experience across all our key markets. At the highest confidence both Kevin and David will make meaningful contribution to this part of that team going forward. With that, we are happy to take any questions.

[Operator:]

[Operator Instructions] And our first question will come from Dan Paris of Goldman Sachs.

[Dan Paris:]

You spoke a little bit about non-comp cost being elevated related to some of the Cogent Integration, it sounds like something like a million and half in the run rate. I was just hoping you could help us frame some of the moving parts there and how quickly some of them might come as a run rate?

[Scott Bok:]

I think it will come up fairly, it’s pretty obvious stuff like [Indiscernible] office spaces. So it’s probably the big driver and it takes a little time to transition leases or subleases over and so in addition of the transaction costs, you have that kind of things in there.

[Dan Paris:]

Okay. That make sense. And I know you spent a lot of time in the last call talking about some of the moving parts around the deal, but curious maybe how things are tracking relative to expectations where synergies either on the revenue or the expense side had kind of coming better or worse than expected and any color you can give on kind of making more normalized revenue growth potential on the business now that you have a good run rate for the quarter?

[Scott Bok:]

Well, having it for a quarter, I do not want to make any five year predictions about growth rate, but I would say like everything we have seen about the acquisition has made us even more excited about it. The team is terrific, the fit is perfect. I have personally been involved in some of the bakeoffs that had to win business. They have a very strong market positions, more precedent than anybody else, more breadth the business, exposure and more different funds and limited partner and institutional investors than really anybody else out there has. So I feel like on their own they are wonderful business. As part of us, we are in the early days of this, but we certainly have found the kinds of synergies we were hoping for, we obviously have a very strong real estate primary capital raising business. In the secondary business real estate was almost a non-existent business just a few years ago and -- was making some real in-roads as that business started to develop when there is just more liquidity and more activity in real estate private equity funds, and our team clearly is going to help them do that. And there are also some other things that I wouldn’t quite want to sort of go public with yet, just for competitive reasons. But I think some of the things we do around fairness opinions and some of the other things we do on board advisory things are the kinds of activities that we may find more ways to work with institutional investors as opposed to our usual assignment we are working corporations or private equity funds. So in really every aspect, it's kind of exceeded expectations. And I still believe as we did it this time, we first agreed the deal several months ago that this is a business, it's in long-term growth. I mean just look at the shared number of private equity assets held by institutional investors. That's on a growth market for a very long period of time. I think if you think about any markets around the world, the more investors have access to liquidity, the more they want. There was a time when there wasn’t much liquidity at all on these private equity investments. But more people portfolio managers, chief investment officers of endowments, and so on, see the ability to manage their allocation, I think the more we will think to manage with that.

[Dan Paris:]

And maybe just last one for me. It look like MD headcount grew in the quarter, if I have these number right, I think it was 12 new hires in 1Q and now 17 as of 2Q. If that's right, how many of the 5 were new hires versus promote?

[Scott Bok:]

I think what you are taking, there was only one more new hire, besides Cogent, it was only one more new hire, a Houston Energy fellow in the quarter. When I made the reference 17 that was about how many in relation to the management issue. And now we have some promotions as well as the 13. So that's, having 13 plus 4 promotions gets us to the 17 you are referring to.

[Operator:]

The next question will come from Devin Ryan of JMP Securities.

[Devin Ryan:]

Could you give the percentage of revenues in Europe in the quarter? I did not see that. And it seems like a small percentage is given the tax rate. So any color there would be helpful. And then how we should think about Europe contribution in the rest of the year. And following on that, just any commentary around the tone in Europe? It seems like we have been hearing a little better commentary on some of the other earnings calls here, so maybe just the tone between maybe the UK and continental Europe as well?

[Scott Bok:]

We only tend to break out our regional and industry sector revenue once the year in. Because if you can imagine on a quarterly basis this can be very lumpy based on one or two really big deals happening. But if you look at the list of the deals we closed during the quarter, it's in our press release. Obviously there is not a huge continental European component to that. I mean we see Europe a little bit right now as sort of a tail of two cities, really. And by the way their economies mirror this, which is that the UK economy is a lot more like the stronger U.S. economy and the continental Europe economy is quite a bit weaker. I mean similarly in M&A activity, I mean if you just look at the data statistic I have always referred to Devin of the number of deals, $500 million or greater in a market it is still very-very soft in Europe and where there is strength in Europe it tends to be UK. If you look at the U.S. market it is obviously, it still has a long way to go in that $500 million to $5 billion range, but it's quite a different story. I mean if you go back to just before the financial crisis, there were more $500 million deals that occurred in Europe than it occurred in the U.S., and today we are on track for something like 60% as many. So the share of Europe as part of the M&A market has just undeniably not bounced back the way the U.S. has, but well we are holding out. It's still a great franchise for us over there and in the UK it's not only a franchise, it's actually a pretty good business right now because there is more happening there. There is this multibillion dollar deals and we have been able to get in decent numbers. And so we are feeling quite good about the U.S. although I think the market will continue to broaden to sort of deals below the $10 billion size and we are feeling similarly pretty good about the UK, although clearly also has a long way to go to bounce back to historic levels. And the continent and other parts of the world I think will take obviously a little more time to fully recover.

[Devin Ryan:]

Great. Maybe top question, but what do you think, what do you see getting kind of that sub $10 billion deal activity going? And I guess what gives you comfort that maybe the prior cycle wasn’t the actual aberration and that now we are kind of in an okay period for that activity, even though the number of deal are down. So trying to get some additional perspective there?

[Scott Bok:]

Yes, I don’t think it's just the prior cycle. I think all past cycles tended to bubble up, after sort of an M&A crash like you had at the end of the 80s, or end of the 90s, you have tended to have companies reluctant to do M&A and they started with smaller safer deals and sort of slowly grew to be really big ones, by the time you got back to the next peak of 2000, and 2007. This one has gone a little bit backward. I think there is some reason for that I think very big companies have a hard time kind of moving the needle in a growth, respect so they need to do, not just an acquisition, but a really big one to make the difference. I think while credit is readily available for anybody. It's just remarkably cheap for the biggest companies. Share prices of the biggest companies have done very well so they have got strong currency to play with as well. So there are lot of reason I think maybe they were the first out of the gate and getting more aggressive this time. What gives me the confidence that you will see it filter down to see greater increases in deals of the $1 billion, $2 billion, $3 billion which are right deal by the way looks great opportunities for us. Simply the examples of these big deals are setting, but we continue to be in a market for maybe the last year and a half or so, were quite unusually the share price of acquirers going up on announcement. And I do not think that being unnoticed. I mean I also see companies across the market willing to take, maybe a little more any trust risk, than they would have taken in the past where people are settling in for a long review, but because I think they can find a way to get it done. So I think as the companies in the billion as opposed to the many $10s billion of size see acquirers continue to be rewarded and they see deals get done and they see growth coming out of it and earnings accretion, I think there is very little doubt that they want to follow down that strategic path.

[Devin Ryan:]

Great. Thanks for all the color Scott. And then maybe just lastly here. With respect to the comp ratio, 54% exactly the past two quarters, should we think that you guys are maybe -- to accrue more consistently and so 54 is your view for that or is that more just coincidence just based on revenues of the first two quarter?

[Scott Bok:]

That's more of a coincidence. I mean we tried to do it quarter by quarter, but we also try not send any sort of big signals. I mean it's fair for a first quarter. I think it would be crazy for us that kind of a way out of line at low comp ratio or way out of line high comp ratio. I mean we look at it on a yearly basis, that's how we really set comp. And so it's kind of just a function of revenue as the first couple of quarters go on and as we approach the end of the year obviously you get to whatever the full year looks like.

[Operator:]

And next we have a question from Douglas Sipkin of Susquehanna.

[Douglas Sipkin:]

Too bad, a long day, and lot of earnings. Just want to drill down a little bit more on sort of advisory revenue. So as you guys have highlighted, good start to the year for announcements and bigger transactions, but it still feels like it's more sort of like the front end type of revenue. So I guess obviously it's impossible to predict and I am not asking you to do that, I am just trying to get a sense. When do you guys expect maybe a greater percentage of the closing type of revenues to happen, is it a second half then or is it even in early '16 of that for some of the larger deals that you have I think in the pipeline?

[Scott Bok:]

That's the kind of thing that's just out of our control, any given deal and obviously there is no way to sort of lump sum altogether and make a general statement. Every transaction is different. You can close a substantial size private deal, sometimes in a matter of a month or two. You can close some public deals in the UK in a couple of months, in the US in four months. If you got a lot of regulatory review, you think some deals take what Comcast got shutdown after lot more than a year. So every deal is different. What we're focused on and what we’re pleased with about the year-to-date as we are seeing a lot more announcement, there tending to be a bigger deal, eventually I think deals get done and revenue is generated and that's great for shareholder. So we’re going to focus on what we can control which is building relationships with clients we think are in need of strategic advice, who want to do something and I don't have a lot of doubt with the revenue that it will find its way into our coppers in due course.

[Douglas Sipkin:]

Great and then just shifting gears on Cogent again, I mean I know you mentioned real estate I mean, are you actually seeing real secondary transactions in real estate yet develop or is it still kind of a market that feels like it's probably close, but not quite there yet. I mean I have read some stuff that the market is really starting to develop, so I’m just curious maybe for a little bit more color perspective digging a little deeper there?

[Scott Bok:]

We absolutely are seeing meaningful activity in real estate private equity transactions and a secondary basis and that really makes us feel great about one of the key synergies because we really do think we have the top primary real estate capital raising business. If they're not number one, they are number two, I mean it's a pretty clear that who the top firms are. So I think to marry that with the top secondary fund cross private equity alternative assets I think it's a great thing for assets moment or suddenly they are appears to be a lot more interest in liquidity and the real estate private equity world.

[Operator:]

And our next question will come from Jeff Harte of Sandler O'Neill.

[Jeff Harte:]

A couple of from me. First is we’re looking at co-gen and we’re looking at the tax rate being up, I mean to the extent that co-gen is more US based should we be maybe thinking your tax rate could be higher kind of sustainably going forward as opposed to going back to historically it was?

[Scott Bok:]

No I wouldn’t read anything the tax rate from co-gen, they have a very international business, as a matter of fact and summer back and maybe more international our historic business, they do work and all the client and the all the places we work for, but they also do things for client from the Middle East more than we certainly have our corporate side for clients and in Japan and Asian countries and number of more than we’ve had a presence in, so and they have got a very significant presence in Europe, the people on the ground, so it's a very international business and I’m sure they are mix regionally will [indiscernible] flow just like our reserve from the M&A side, but I wouldn’t expect it’s going to be any significant difference between them in the rest of the firm.

[Jeff Harte:]

Okay. And just thinking about kind of sure [indiscernible] cash went to paying down the debt, you [indiscernible] on a lot of debt, you suppose to buybacks, looking forward I’m assuming you are going to try pay down that first [indiscernible] that comes to next year pretty quickly before you dialup a buyback, the other half of the debt is got kind of longer life too, and a fairly attractive interest rate how are you thinking about the need to pay that down versus maybe accelerating buybacks?

[Scott Bok:]

I’m not feeling right need to not for certainly pay that down before we start some buyback, I grew like I [indiscernible] financing and will kind of think about that as quarters and opportunities roll on but clearly we’ve signal when we did the deal that normally we would do like this is all stock and then you just buyback simply the market like we did after the Australian deal. Here we did some cash and so we’re directing at least at the first bit to sort of knock off that first term loan that doing a year, so we’re not got half of that just in the first quarter but it certainly, we’re not so conservative that we would to feel we had to pay off all the debt completely before we could buy back stock, we will try to be as always quite opportunistic both and looking at the revenue pipeline and the current balance and what we think the near term look like and try to there will somewhat of buying back stock as we try to be in the past.

[Jeff Harte:]

Okay. And I can finally stick with share count, the alluded share count wasn’t quite as high as I was expecting it to be and its even without kind of any of much of a buyback impacting at all, to what extent till the shares factored in and I am thinking kind of specifically about some of earn-off shares as opposed to the upfront ones, so there is kind of a delta we're going to see there, overtime?

[Scott Bok:]

There shouldn’t be, I mean the quarterly number will take up the full 780 into account if you look at the year-to-date fully diluted share count it's going to include half of that because its time weighted. But there is nothing related to the earn-offs that's going to distort that. And there is nothing else that happened in terms of anything else that impact the short time either, so I think if you can look at the quarterly number you’ve got the right number and there is nothing you are missing.

[Operator:]

And the next question is from Brennan Hawken of UBS.

[Brennan Hawken:]

Can you let us know where MD headcounts stood as of middle of the year?

[Scott Bok:]

79 -- 77 client base.

[Brennan Hawken:]

Great. Thanks for that and then quick one on balance sheet. Given the big -- few different calls that you have got to talk talked about a little bit here, with the debt and then buyback and such, is there any different way we should think about cash building as we approach year-end this year?

[Scott Bok:]

No I think it's kind of the same for us. I think you want to think about our business, we always have the view that want to have net cash; we manage cash for globally so we’re going to have a better revolver. We’re going to have more cash hopefully than what outstanding that revolver. We’re going to take all the rest of cash flow, we have to go to pay the dividend; we’re going to buy back stock. And that's why we don’t for some years. The one kind of interruption to that effectively is by doing cogent partly for cash. We’re going to have a short term blip both in share count, just like we did after Australia as we paid cogent in shares and in debt by taking on these term loans. I think exactly it’s happened with Australia as Chris said in his prepared remarks. We have every objective and we actually think we will get back to where we were not long at all after the Australian deal where because this has never happened, if we repurchases everything single share we spend, and our goal is to obviously pay down the term debt to get to that point of net cash again and to get the share count back to where it was in May 2004 when we went public which has always been our goal.

[Brennan Hawken:]

Okay. All right then and then last one from me. Is there any kind of seasonality we should think about to the cogent revenue base?

[Scott Bok:]

I don't think so in their business, I mean if anything maybe there is a little more at the beginning and the end, just because people tend to maybe be do some more things around at but it's not worth thinking about your models frankly. They tend to have a lot of business closes of kind of in the last day in the quarter because whoever the fund is like to take the sellers name off their books and put the buyers name on their books is typical on the fund interest. It can sometimes slip into the first day or days of the next quarter, but I don't think there is a lot of seasonality I would look at there.

[Operator:]

And the next question is from Ashley Serrao of Credit Suisse.

[Ashley Serrao:]

I was curious what was organic growth ex-cogent?

[Scott Bok:]

Well, as I said we're not going to give a quarterly, I mean Cogent is, think about what cogent is. It's a very important piece of one piece of our business. It's part of our capital advisory business and in even overtime to separate out who gets credit for what kind of thing particularly as we plan things to work on between our M&A bankers or real estate primary fund raising bankers and then so we’re not, we never gone in the point of sort of allocating revenue quite that publically, because again it can be sort of lumpy quarter-to-quarter. So what we want once a year we will probably going to lot more detail just like we do about fund placement in general and regions and factors, but not every quarter.

[Ashley Serrao:]

Okay. That how big is your European franchise today? How many MDs you have dedicated region?

[Scott Bok:]

I don't, let me just sort of count that as we, I think it sort of 17, 18 may be, you could call it. I mean no real change from where we've been. We haven't had any MDs leave since sort of bonus time. So it's been a very stable group obviously with recruits and the cogent people being added. But I think it were 17 people in Europe, probably significant group of them focused on the UK and some continental and some are Pan European because they're industry sector experts.

[Ashley Serrao:]

And how you're thinking about hiring in the region because several of your peers are ramping up efforts there?

[Scott Bok:]

We feel the same I think about Europe that we do everywhere else. We've a very opportunistic approach to hiring the bulk of our expansion in the early years post crisis. It was kind of in the U.S. or elsewhere we obviously have quite a lot of people here, we built at Chicago and LA and Houston and various sector groups and elsewhere places like Australia and Japan and that clearly turned out to be the right thing to do because Europe had a much slower recovery than the U.S. I think going forward, we're very opportunistic to try to sort of catch the moment when European activity is going to pick up, but I think we're not maybe in as a big hurry as some other firms might be, because we know frankly we have a really good franchise there. We're not necessarily trying to sort of get to having a great franchise there. We've been in London for something like 18 years now. We just had our 15th anniversary celebration in Frankfurt. I mean we got pretty deep roots over there. So we're not talking about creating a business, we're talking about just like we're in the U.S. sort of adding onto when we find the right person who can bring something new.

[Ashley Serrao:]

I guess then based on your current pipeline and what you can see, do you feel that you will be able to deliver year-over-year revenue growth?

[Scott Bok:]

Well I'm not -- we never been in the sort of the business of making predictions. It's a lumpy business one or two deals can make a significant difference. One or two deals that can still come and the weeks and months to come could make a significant difference for this year. I think if you look at the trends in our business to meet costs I'm going to say everything looks very positive. We're up in revenue; we're substantially up in announcements. We've told you we think that increased pace of announcements is going to continue and we'll count it all up in December 31 and you'll be among the first to know what it added up to.

[Ashley Serrao:]

Maybe just a little bit of a tough question, but if I just look at your revenues over the past few years and I think about the M&A cycle, they've kind of decoupled. So why are you so confident that a recovery in Europe or any pick up in transactions will actually translate into revenue growth?

[Scott Bok:]

Well look you're asking a long term question there, but I'll try to give you sort of a long term answer. I mean first of all I don’t think the market if you just look again at the stat I talked about a lot $500 million or greater transaction. It really hasn’t even come close to recovering in the globe and if you look at particular regions there's even more so I mean I'd just give you a data point that I look at the figure every Monday morning. When I looked at it last Monday morning I remember $500 million deals annualizing year-to-date in Europe all the way through July 20th. We're on track for 329 of those in Europe this year. And four of the last five years it was between 381 and 411. So the fact that we have a substantial European presence, we just talked about the number of people, we talked about the history and the investment there. We love our business over there. We think it has tremendous long term value. But if those guys are in a market or even this year we're on track for 329 of those deals and in 2007 there were 726 of those deals. Obviously that's going to impact how our revenue evolves over time. And likewise in some other markets I mean Australia had some really boom times when the U.S. and Europe were kind of going into the crisis. Now the China is pulling back commodity prices falling, the Aussie dollar falling et cetera, it's obviously a more difficult market over there. But I think you have to look at the mix of business regionally. You have to look at the investment that's been made. We have the same number of shares we had outstanding many years ago. We have paid a very large dividend. We have a very high rate of profitability. Obviously there is a different strategy that some firms have chosen and you have to measure strategies on short, medium and long term basis. We could have grown a lot more, hired a lot more people, put on a lot more shares, diluted a lot of near term profitability and we probably have better revenue but worst profitability today. So we've taken a bit of a different tact which we still believe in which is to build the firm kind of slowly and methodically and opportunistically as we have over the last almost 20 years now and try to make it a global firm even though not every minute of the cycle is a great to be in every market around the world and to focus very much on profitability and cash generation and that’s why we have able to pay of full dividend and may able to keep our share count low and at the same time that we are investing and growing the business for the long-term.

[Operator:]

And the next question comes from Joel Jeffrey of KBW.

[Joel Jeffrey:]

So most of my questions have been asked, but just and thinking about Europe a bit. I know you reference side of the UK market it’s been a bit exception there. I mean are there any other markets there that you think our sort of employees for our near-term rebound or once that are particularly along way I guess outside of Greece?

[Scott Bok:]

We unfortunately don’t have a big presence in Greece that’s probably in a good strategic decision overtime. I mean obviously historically here is kind of the way Europe is. I think the UK have always been the most important M&A market within Europe, it was when I left 25 years ago and still today it’s kind of, there is an angle or American deal making culture that you see on Australia, you see in the U.S., you see there, so they’re pretty active. And then I would say the other two historically quite strong markets will be Germany, which is much less oriented toward M&A than the UK with still a pretty good market. And Nordic region, and the Nordic has a lot of big global industrial company depend to be in our very strategic and how they think about the development of our businesses. So historically those have been quite good, I would say in recent years it’s been Germany and the Nordic region it’s been quite or quite a bit quite than usual and I think you add that all Southern Europe, which were reasons we can all get easily has been remarkably slow. And you add all like together and so the total European numbers still what that good at all I just ramp through or some of that basically more than having in terms of number of $500 million deals even today versus 2007. And what’s underneath that is a recently good UK market a slower German and Nordic market unusual and a very quite Southern European market, which only makes me glad I mean never open at all it’s price of explain in Italy or along Greece.

[Operator:]

And the next question is from Vincent Hung of Autonomous.

[Vincent Hung:]

First question is what’s the main push back, you get from corporate. Why they’re not going to pull the trigger on a transaction is any sales distinction between my side, it’s your side?

[Scott Bok:]

No, I would say, I mean every [indiscernible] it’s a good question, I understand why in Investor Analyst once to understand question. Each when you’re in the business as I’ve been rolling in time income realized every deal is unique. You need really to have start the line whether it’s personality that the CEO or Chairmen level whether it’s financing market, whether it’s relative valuation of buyer and seller how they feel about that, You can go through this location like right now your energy prices sell a lot. So I think nobody’s I’m excited about selling in energy assets today probably a lot of people we’ll be excited about buying and energy asset at the best prices. But so there is no one thing you can point too, I think you can always be more conservative so I’m not going to do a deal. But I think today most particularly American companies and I think hopefully overtime the rest of the world look that in economy that’s fairly the nine, it’s not growing fast, but no recession is really inside I think most of the yields I would say financing markets are great, stock prices are up, it’s hard to get organic growth. So it’s a good time to buy something, I think that’s what pushing the buyers to do something and I think overtime those same reasons will drive more people to buy.

[Vincent Hung:]

And just on your hiring process. Now, in terms of hiring this impressive hires, do you compete with these firms for the same color?

[Scott Bok:]

I mean in very kind of weak in general terms yes. And we’ve hired 13 people this year Cogent since five in various industry and regional specialties around the world. But historically I would say that is quite rare that we interview and higher somebody, who is also interviewing with some of our main competitors, so you will be very familiar with, if equally unusual for me to see them higher somebody that we were talking too. I mean I would say, I’m sure hard to see this from a shareholder analyst point of view, but from a personal point of view all these firm has a little bit different personality and very often a person will come here not just because he want to leave but they band to our for an independent firm. He’ll come here because this work with some of us, he probably know some of us, maybe he use to work with one of us on the New York at Morgan Stanley or Goldman Sachs or Credit Suisse or whatever his former friend, his friend with the former firm came from. So this kind of an infinity with develops or people make a decision number one I want to leave my big bank and number two which firm would I rather go to. It's not I think on a free firm I think it was going to pay me the most money. I think that's pretty unusual. So it tends to be more of a very selective recruiting process. It's really about somebody who already has an affinity in the relationship with our firms like I like to take the next step and actually join that firm, not just put myself off for a bit for everyone for buying.

[Operator:]

The next question is from Michael Wong with Morningstar.

[Michael Wong:]

So we generally I guess contemplate a rebound in European M&A activity to kind of add little more activity to the growth in general, but how much more growth do you think the U.S. market can sustain before maybe peaking out.

[Chris Grubb:]

I believe we are in the very early days of M&A cycle. I mean again the volume numbers look terrific because you are seeing deals that are $25 billion and $35 billion, occasionally getting done. And so I will not -- as I would expect that the U.S. market will have higher deal volumes here than any other history. But if you look at the number of again, $500 million deals to sort of keep it to the similar seen. If I look at what's happened in the U.S. we are on track to share for about 515 of those. And when I think that this is a target for the acquirers American, just like when I talked about Europe, I mean either the target or the acquirer was European. So there is a bit of double counting obviously. That number's on track for 515 as of few days ago. It was for four years to sort of 400 to 450, last year went for 555, this year it is on track to be down in sort of 515. So it's not been huge growth it is still down considerably from 2007. Again kind of the earliest rebound in M&A is that these very, very large deals, but I think there is a lot of room in deals of $500 million, $1 billion, $2 billion, $3 billion, $4 billion that can provide a lot more growth in the U.S. as well as obviously in Europe and elsewhere in the world.

[Chris Grubb:]

Okay. And I think that's our last question, had a lot of them today. So thank you all for your time and I wish you happy end of summer and we will speak in next quarter.

[Operator:]

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