Moelis looks increasingly built to last

May 24, 2010

Ken Moelis’ boutique is bulging. In just three years, his corporate finance advisory firm has swelled to 325 people — and counting. Such growth suggests the eponymous start-up has the revenue and backers it needs for now. But with all the equity the former UBS  executive is doling out, the pressure to go public will build before long.

The firm started in mid-2007 with some fortuitous timing. The upheaval in the financial sector and the economy which coincided with his endeavor turned out to be a blessing. It provided an opportunity to secure cheap rents, hire displaced and disillusioned bankers and snatch clients wanting advice removed from the maelstrom on Wall Street.

Grander ambitions clearly remain. Moelis just pulled off its first acquisition, buying a small Australian stock broker. And in the last six weeks alone, it has added more partners, bringing the firm’s managing director ranks to nearly 60. That’s on a par with Greenhill  and Evercore, both of which are more than a decade older.

Three basic elements are fueling Moelis’ growth. First, it’s bringing in deals and revenue to cover all its costs. Just last week it surfaced in a couple of high-profile transactions, including GLG’s  sale to Man Group and Dubai World’s $23.5 billion restructuring. Second, although the firm declines to comment, financial industry sources say Moelis has roughly $100 million in dry powder which it can deploy opportunistically, as it appears to have done Down Under.

Finally, to entice senior hires, Moelis has offered up equity in the firm. The joys of being private are many — throngs of Goldman Sachs partners doubtless wish now they could turn back the clock to the firm’s pre-IPO days. But on Wall Street those benefits are almost always overshadowed by the prospect of a big personal payday.

That’s not to say Moelis’ rapid expansion is risk-free. Conflicts of interest at banks like Goldman may be front and center in today’s highly charged political environment. History shows, however, that when the corporate clients Moelis and other independent advisers are targeting need capital again, such conflicts can be easily forgotten.

Of course, Moelis knows well how banking can end in tears. His three former employers all met sad fates — a scandalous collapse (Drexel Burnham), a decimating takeover (DLJ) and the crippling U.S. housing crisis (UBS). This time it must be different.

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