by Hilary Kramer | May 16, 2011 12:28 pm
After the 2008 financial crisis, merger and acquisition activity plunged. But recently, things have perked-up. Just look at Microsoft (NASDAQ: MSFT) last week, which paid a hefty $8.5 billion for Skype.
But this is only one of many recent deals. Others include AT&T’s (NYSE:T) $39 billion acquisition of T-Mobile from Deutsche Telekom, the Nasdaq OMX Group (NASDAQ:NDAQ)- IntercontinentalExchange (NYSE:ICE) joint $11.1 billion bid for the NYSE (NYSE:NYX) and Berkshire Hathaway’s (NYSE:BRK-B) $9.2 billion purchase of Lubrizol (NYSE:LZ).
No doubt, the dealmaking has boosted the fortunes of investment banks, such as Evercore Partners (NYSE:EVR). In fact, the firm is the advisor on the three deals mentioned. While Evercore is still a small firm, it has been able to compete effectively against giants like Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS).
How is this possible? There are several key reasons. First of all, Evercore has a top-notch team. At the helm is Roger Altman, who is a legend in M&A.
But the firm has been aggressive in recruiting talent as well. This became much easier during the past couple years because layoffs on Wall Street and restructurings.
Next, Evercore has a laser-focus on M&A services. That is, it does not have a trading operation which can result in conflicts of interests. As a result, clients often feel more confident with Evercore’s counsel.
All in all, the strategy is paying off. In the latest quarter, Evercore posted earnings of $11.4 million, up 9.6% for the past year. Investment banking revenues hit $80.6 million, which was an all-time high.
So far, it looks like the M&A boom is still in the early stages, with perhaps four to five years left in the cycle. Consider that Altman thinks that transaction volume will be higher than the $4 trillion reached in 2007. Some of the drivers include an improving economy, cheap credit, large cash positions and globalization.
Despite all this, the shares of Evercore are up only about 8% this year, to $36.47. Yet based on the deals in the pipeline as well as the likelihood of snagging other substantial transactions, I think the shares are fairly valued at $50.
As of this writing, Hilary Kramer was recommending Evercore to her GameChanger newsletter subscribers.
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