Q3 2024 Earnings Summary
- Evercore's Equity Capital Markets (ECM) business is gaining momentum, aiming to enter the top 10 from its current position around 11. The firm has broadened its sector coverage beyond biotech and participated as a bookrunner in 5 out of the 8 U.S. tech IPOs over the past year, indicating potential growth as the IPO market picks up.
- Robust pipeline and high activity levels across all business lines, including large-cap M&A, with transactions over $1 billion up 26% year-to-date, positioning Evercore to benefit from the anticipated recovery in M&A activity.
- Strong performance and growth in the Private Capital Advisory and Restructuring businesses, with high activity levels expected to continue into 2025, driven by robust backlogs and increasing sponsor activity. This diversification supports revenue growth independent of traditional M&A cycles.
- High compensation expenses are limiting margin improvement despite revenue growth, with the compensation ratio improving only gradually and remaining elevated due to intense competition for talent and significant costs of hiring and retaining bankers.
- Uncertainty about the timing of transaction announcements and closings due to the gradual recovery and upcoming U.S. election may affect near-term revenue, as clients might hesitate to proceed until there is more clarity.
- Sponsor activity has not picked up as quickly as expected, and while activity levels have increased, they may not translate into results until 2025, delaying anticipated contributions to revenue growth.
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M&A Pipeline and Deal Sizes
Q: Are companies open to large cap M&A? Any uptick?
A: The pipeline is robust with deals of all sizes. We expect sizable deals despite regulatory uncertainties. Year-to-date, transactions over $1 billion are up 26%. -
Sponsor Activity Impact on M&A Recovery
Q: What's holding up sponsor-driven M&A activity?
A: Sponsor activity is gathering steam. There's pressure to deploy significant dry powder, and LPs are urging capital recirculation. The spread between buyers and sellers is narrowing, signaling increased activity leading into 2025. -
Advisory Recovery and Backlog
Q: Has the advisory backlog declined? Impact on Q4?
A: We believe recovery will be gradual, but backlogs are robust with high engagement levels. We're incredibly busy and optimistic for the balance of the year and into 2025. The election may cause short-term hesitation, but we don't see a medium-term impact. -
Restructuring Business Outlook
Q: Is restructuring momentum continuing into 2025?
A: The restructuring business is very busy with no slowdown, operating at high capacity. Rate cuts won't slow advisory assignments. We expect the business to perform well into 2025. -
Compensation Ratio Trajectory
Q: How are you thinking about comp leverage in '24 vs. '23?
A: Improvement in the comp ratio is gradual. Last year, our comp ratio was 67.6%; year-to-date, there's a 160 basis point improvement. We're balancing building the firm with achieving comp ratio improvements, focusing on long-term shareholder value. -
Equity Capital Markets Growth
Q: What's your ECM market share and growth outlook?
A: Our ECM business is gaining momentum; we aim to be in the top 10, currently around 11. We've expanded our reach, book-running 5 of 8 recent tech IPOs. We're optimistic about the business's growth. -
Private Capital Advisory Growth
Q: Is PCA still an up-and-to-the-right story?
A: Yes, it's performing very well and growing. Products like continuity funds continue at high levels. The LP stake business has expanded dramatically, and the overall ecosystem is building. -
European Expansion
Q: Are you investing to grow the European franchise?
A: Europe is a strategic investment. We've added strong talent in Paris and other regions, and we're systematically recruiting high-quality people. We're winning strong assignments, and Europe is a bright spot for us.