This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Moelis & Co. Seeks to Avoid Activists in IPO

NEW YORK (TheStreet) - Moelis & Co., the boutique investment bank founded by longtime UBS (UBS - Get Report) rainmaker Ken Moelis, is seeking to avoid activist investors as it moves towards an initial public offering of its shares on the New York Stock Exchange. Ken Moelis will own controlling voting rights in the company's shares after they are listed, in a move that will likely avert activist investors, who have taken on competitors such as Lazard (LAZ).

Moelis & Co. will sell limited partnership interests in the investment banking boutique through its IPO, which has a $100 million placeholder and is expected to be listed as "MC." Ken Moelis will retain general partner interests in the company and, as a result, will have full control over the company's decision making, incuding dividend payments and business strategy.

That level of control will be an important issue for investors to weigh.

Dual Class Stock

For Ken Moelis, who founded the company in 2007 with a team of UBS investment bankers, Moelis & Co.'s organizational structure will guarantee he retains control of the company. He will hold Class B general partner units, while public stockholders will own Class A limited partner units.

Group LP will issue Class A partnership units to Moelis & Company and to the existing holders of Old Holdings units who are to become Group LP Class A unit holders. In addition, Group LP will issue Class B partnership units to Moelis & Co. The Group LP Class B partnership units will correspond with the economic rights of shares of Moelis & Co.'s Class B common stock.

Must Read: Numericable, Altice Vie for Vivendi's SFR

"Following the consummation of this offering, Partner Holdings will hold all shares of Moelis & Company Class B common stock, enabling it to exercise majority voting control over Moelis & Company and, indirectly, over Group LP," the company states in its S-1 filing with the Securities and Exchange Commission.

The relationship between general partner Class B interests held by Ken Moelis and Class A shares held by public stockholders will present a risk for investors.

"Control by Mr. Moelis of the voting power in Moelis & Company may give rise to actual or perceived conflicts of interests," the company states in its risk factors.

"As a result, because Mr. Moelis will have a majority of the voting power in Moelis & Company and our amended and restated certificate of incorporation to be in effect upon consummation of this offering will not provide for cumulative voting, he will have the ability to elect all of the members of our board of directors and thereby to control our management and affairs, including determinations with respect to acquisitions, dispositions, borrowings, issuances of Class A common stock or other securities, and the declaration and payment of dividends."

Lazard, Evercore Partners (EVR) and Greenhill & Co. (GHL) have different organizational structures that give a single class of voting rights to shareholders. 

Post Crisis Wall Street

The company's organizational structure aside, Moelis & Co.'s IPO is a major story about how the financial sector has evolved in the years after the financial crisis.

As UBS and other major banks saw giant losses when the subprime mortgage market went up in flames in 2007 and 2008, some top bankers left Wall Street conglomerates and struck out on their own. Moelis & Co. was one of the most audacious examples of investment bankers freeing themselves from zombie conglomerates, bogged down by trading losses.

Famously, Warren Buffett's banker at Goldman Sachs (GS - Get Report), Byron Trott, also struck out on his own shortly after orchestrating a live-saving investment from the 'Oracle of Omaha' in the fall of 2008.

Those businesses, as it turns out, are doing quite well.

Moelis & Co. has grown its revenue at a compound annual growth rate of 45% since 2007. In 2013, the company booked $411 million in revenue and net income of $70 million.

Furthermore, boutiques have succeeded where many investment banking conglomerates have failed: client trust. Given the various conflicts and so-called "Chinese walls" housed within investment banking giants, the growth of boutique firms indicates that corporate clients value independence.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
GS $164.11 0.00%
UBS $17.27 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs