All right. I'll start with our disclosure. First, for important disclosures, please see the Morgan Stanley Research Disclosure website, www.morganstanley.com/researchdisclosures. If you have any questions, please feel free to reach out to your Morgan Stanley sales representative. All right. We are pleased to have with us John Weinberg, Chairman and CEO of Evercore. John, thanks so much for joining us.
Thank you for having me.
Just to start, Evercore has been a steady share gainer over time. It feels like every time that we go through a period of uncertainty, Evercore emerges stronger. What has contributed to Evercore's success, and what is really the playbook for navigating these periods of uncertainty?
I think it all starts with client coverage. Over the last several years, we've really invested in client coverage, both in terms of the people who are covering our clients, as well as the expectation of intensity and collaboration with clients. I think really our model is that we become very close to clients, not just for a transaction, but for all time, and that we're there as an advisor, whether there's a transaction or not. I think we've spent a tremendous amount of time making sure that we do that and that we measure how well we're doing in terms of building client relationships away from transactions. I think that really does help us when things really get difficult because basically we're talking to clients and in the room and really figuring out how to get through things, which can often lead to transactions.
I think the second piece is that we've done a tremendous amount of work to broaden and deepen our product set. We can do so much more for clients and give them so much more comprehensive advice, which allows us to spend more time with them and be with them longer and be, in effect, reinforcing what I said before, which is we're there for all time. It really does build the relationship. I think the third piece is diversification. I think we have diversified our model such that we have some businesses away from mergers. Actually, interestingly, our merger business has been extremely powerful, but our other non-merger businesses have really done very well. In fact, in the last quarter, 50% of our revenues came from non-merger businesses. Over the last four years, over 40% has come from non-merger businesses. We have diversified away.
Having said that, the merger business is resilient and doing quite well. We've been in three of the six biggest mergers this year, including the biggest one, which was Cox-Charter. Yesterday, we had somewhat of a mini merger Monday in that we had three consequential deals. One was Warner Brothers Discovery in separating the company. The second was Qualcomm, where we represented them on a significant acquisition. The third was Baker Hughes, where we did a divestiture. We've really built the franchise piece by piece, client by client, with an overview to be diversified, but at the same time have a real intensity with respect to the coverage and really the quality of what we bring to the clients.
When you think out forward over the next three years, five years, seven years, where's the next leg of growth for Evercore coming from? More the merger side, the non-merger side?
I think the next leg of growth is actually going to be that we really execute on what our plan is that we've really been pretty clear and consistent with, which is we're going to continue to expand and enhance our client coverage. We've been building out our client coverage across the board. For example, we've filled white space, and we've also looked at different other initiatives. For example, sponsor coverage, how we cover clients. We've really bulked up there. We've added people. We've put in new products. We've started to work on collaboration between our private capital advisory businesses and our general coverage of sponsors. We've really made sure that we've started to measure and think about how we cover big corporates, multinationals, and we've increased our coverage footprint there dramatically.
We have also looked a lot at the sell-side business and made sure that we are positioned to do real sell-sides. The second piece is we have taken product, and as I said this earlier, we have really worked hard to have more products for clients. We think that has really provided us with real growth. For example, debt advisory is a business that has been new to us, and it has been dramatically increasing its revenue content year over year now. We have several other businesses just like that. I think we have really done that.
The third thing, which I think has played very well for us, is that we have really picked out what we think are the most important and fastest growing sectors of the economy, whether it is healthcare and biotech, whether it is software and traditional technology, whether it is cleantech, or whether it is other technology-related businesses. We have really invested in those, and those have really paid dividends in terms of how that goes forward. If we look forward and think about what our strategy is and really what the runway is for growth, we see that the next three or four years are going to be very, very, very lucrative if we stay with our strategy. We do not think we run out of room. We think that we continue to add high-quality people.
I think the other thing that I think is really important in our strategy, which is going to help us really grow, is that we've been recruiting really top-notch, high-quality people to add to our high-quality team. I think as we grow those high-quality producing people, what we're going to see is we're going to see that growth come really out of people generating more business. We've basically hired about 60 new people over the last three years. I mean, we've added 60 new SMDs. We've hired 30 new people laterally, and we've also promoted 30 new people who have come up through the ranks. There are 60 people. There are at least 30 people ramping right now. What that does is it just adds real activity to our footprint. I think we're feeling quite good. We're covering more and more clients.
I think there's still more clients to cover. As we look out over three, four, five years, we feel really good about the growth that we're going to be able to engender if we execute the way we think we can.
It sounds like a lot of growth opportunities. Let's turn to the environment. That's part of the function of growth. There's still uncertainty on tariffs, but it does feel like worst-case scenario is lower probability where the administration is flexing. Have recent events in the last few weeks improved the client sentiment at all since April?
Still early to tell. I would say anecdotally what I'm seeing is that clients are, I think, gaining some confidence. But I think if you really look at the CEO confidence numbers, they're not dramatically jumping. So I think clients are still wary. I do think that there's a whole component of demand that has been waiting for an opportunity. And so I think there is real opportunity ahead, and it's loaded. I think that both strategics as well as sponsors, they're really looking at this as an opportunity. And I think that when people start to see more certainty and more predictability and maybe hopefully less volatility, I think you'll see things pretty much convert relatively quickly.
One thing I should say, though, is that as we talk about the merger business and really the recent spate of mergers, certainly that we've seen, those take time to work their way through the system. They will not necessarily hit our P&L immediately. It will take time to get through, but clearly it is a good indication. I think people are starting to feel a little bit better, but I think it is going to take time before it is all the way. I think that we really do not know exactly where it is going to play out. There is just still too much uncertainty.
What are clients really looking for as the trigger to get more clarity on making that announcement? Do you need tariffs to be done in every country? Do you need just the major economies done? Do you just need the higher tariff bar is lower? What's really the trigger?
I think it's, number one, it's some level of predictability and certainty. What I think the market doesn't like is volatility and uncertainty and things jumping around and not being predictable. I think that some level of intention that there will be a recognition that tariffs should be at a place that are relatively lower so that people can actually feel like they have businesses that are legitimate when they do mergers or think about those. I think that's important. It's especially important for sponsors because I think sponsors really have a lot more of a fine line when they're looking at these mergers and acquisitions. I think that what you really will see is the more certain, the more predictable, the less volatility you'll see the activity will really jump.
When we look industry by industry, some of the growth areas you mentioned in the first couple of questions, like healthcare and technology, some areas where you've been really strong historically, in addition to that, like financials, energy, these aren't industries that are directly impacted by tariffs. How would you think through the current uncertainty, how it's impacting deals in these industries that are not really directly touched by tariffs?
I think you hit it on the head. There are certain industries that actually are still somewhat unleashed and able to go forward. For example, energy and power, we've seen real activity in that area. Software, we've seen real activity in that area. Healthcare and biotech, we're seeing real activity. You hit it on the road. Infrastructure, all of those are areas that we've invested in. As I said, one of our big key initiatives is that we've invested in certain areas that we think are growth. I'm happy to say that really in terms of the recruiting we've done and adding talent, we've really populated each of those areas. That, I think, is paying off over time and paying off now. I think that those are the areas that are going to start to be unaffected.
I do think that some of the areas that are more affected by the tariffs will take longer. As I said, those are going to need some level of predictability so people can understand really what the merger or what the acquisition they're doing really is worth.
What about interest rates? The long end of the curve has seen a couple of days of volatility this quarter. The short end of the curve, there's a debate of the Fed going to cut this year. There are two cuts currently priced into the curve. How are clients thinking about interest rates? Is there any waiting for the Fed to cut to get moving?
Sponsors really are affected by this. That will certainly impact sponsors, although there are other dynamics in sponsors that are pushing them to try and do transactions. The bottom line is that the interest rates are not particularly onerous, I think, for clients that are wanting to do deals. I just think that what clients really want to understand is what's the predictability, what's the certainty, what is the opportunity to understand where things are going. I do not think interest rates are going to hold back the deal business particularly. I do think it will actually have some impact on the sponsor business going forward, but I do think that people are just wanting to see some certainty. The biggest thing about interest rates really is what's the underlying economy going to be.
I think that what rate cuts do is it really makes people think that the economy could really start to move forward and go up. I think if they see a recession coming, that may have an impact on how people think about deals. That may be even more influential, I think, than interest rates.
Rates coming down because growth is slowing might be a headwind, but rates coming down because inflation is slowing is positive. Is that fair?
Yeah. I think generally that the underlying economy is really the name of the game. I think boards, advisors, managements, they're looking to see what is the economy going to do. To the extent they have some view that the economy is stable and maybe starting to improve, that's going to be what does it.
All right. Great. Super clear. What about antitrust? We've heard new officials at FTC and DOJ, there was just a DOJ speech last week, talk about how they want to encourage innovation and growth. If a deal does not rise to the threshold of where they feel they will win in court, they will get out of the way, was the quote. Are you seeing that? Does it sound like FTC and DOJ are approaching transactions in a less onerous and more predictable way?
I would say that for the most part, it's still too early to tell. But the Capital One Discover was a good fact. I think that you're hearing some rumblings that the DOJ and the FTC really are thinking that they want business to be somewhat supple and to be moving. And so that would be good. But I think it's really hard at this point to predict exactly where they're going to end up. I'm optimistic, though.
Okay. Great. So you need to see some of the larger deals come through in order to test out the waters a bit.
Yeah. That'll be important. I mean, I think the confidence level in making a shot, taking a shot at those deals is going to be important. If you have a couple of these deals start to go through, I think that'll be bursting open the doors. I think everybody's waiting and watching. The big deals, I think you'll still see big tech have issues with doing big deals. I think beyond that, I think that there are a lot of people who think that things could get more actionable.
What about Europe? You are a global investment bank. One of your priorities has been to take share in Europe. We know it is a very competitive market. Can you update us on how that is going and where do you really want your market share in Europe to ultimately go to?
Ultimately, we'd like our market share in Europe to match our market share in the U.S. We have a ways to go to get there. We've continued to hire very high-quality people. As you've seen, we've populated into Spain. We've done a recent relatively large group of people into France. We just hired a very high-quality person in Italy. We are populating, but we are doing it slowly with what we think are A-plus level people. We are going to continue to do that. We are going to build where we see we can. We do have ambition and aspiration to grow, as I said, in Europe, and we will continue to do it.
We're looking really across the board in Europe, but also making sure that in the markets that really are very instrumental, that we are trying to make sure that we have a significant group of outstanding bankers who could really assist clients both going into those markets and coming out of those markets and doing some cross-border things.
What about client sentiment in Europe? Is it any different than in the U.S.?
I think it's about the same, in my opinion. I think that they're waiting and watching. I think that there is clearly some reticence with respect to the U.S. from Europe in terms of understanding exactly how that's going to play out. For the most part, I think everybody's waiting to see the market really start to pick up.
What about cross-border?
I think cross-border remains to be seen. We have to see some of those deals start to happen.
All right. Let's shift to private capital advisory. So it's been a key driver of Evercore's growth. You mentioned the contributions of first quarter earnings. It's driving revenue diversification. So where do you really see the most growth from here in private capital advisory?
I think that the current business is the GP business continues to be very strong. They had a record quarter in the first quarter. They continue to see tremendous activity. The LP business, which is all about stakes, continues to be very strong also. The growth in that is that the existing businesses are, number one, relevant to this period in time. I think they're going to continue to be an important source of liquidity for LPs and GPs. I think it's going to continue to pick up. I just think it's a really strong business. I think there is secular strength as well as cyclical strengths. Clearly, they've been in a good part of the cycle, but I do think there's secular strength. We have a very good market share there and very high-quality people. I think that'll continue to go forward.
I think that that group is really thinking about all kinds of new products also, whether it's collateralized fund obligations, whether it's thinking about how to play retail. They're thinking about all the different pieces and really trying to put together the engineering to be prepared to really be able to play those.
When we think about the stake side, there seems to be a lot of players looking for liquidity right now. We've seen news reports of university endowments looking for liquidity and adjusting their exposure to private equity. Is the investor group, is this investor group an emerging client set here or a growing client set?
I think there will be much more flow of stakes. Stakes are going to start to get more and more liquid. I think that that will be a growing thing. I mean, one of the things is that I think that right now we're seeing a lot of flow back and forth, and we're in the middle of some of those dialogues. I think what we would say is that this is something that will be here to stay because I think a lot of these LPs have really decided they really want liquidity. One of the ways to get liquidity is doing it through the market rather than waiting. I think that what they're seeing is that the more it happens, the more values may come to a place where people are willing to trade.
Private capital advisory overall, it's clearly an attractive business. Your peers are leaning in. What's really Evercore's edge, and how do you gain market share as the competition picks up?
We have a good market share now, and we have outstanding people. I mean, we got there early. We hired extraordinary people. They have a very high level of experience. We've done a lot of the very big important deals, and I think we are continuing to do that. One of the leading edges we have is that we've been there. We've been a successful player, and we have very good people doing it. I think the other part is that the leadership of our private capital advisory group, they're very ambitious, and they continue to look at new products. We, I think, are a leading edge in terms of coming up with creative solutions for those clients.
As you continue to grow in private capital advisory, does that give you relationships with sponsors that helps take share in the sponsor M&A side?
We've spent a lot of time on building the synergy between our private capital advisory businesses, our fundraising businesses, and our general M&A businesses with sponsors. I think we've made really extraordinary progress in terms of making sure that we really work to leverage off of the different pieces of goodwill throughout the system. I think increasingly our relationships with sponsors have become more holistic, more comprehensive, and our dialogues and our access have gone up pretty materially. I think we've done a lot of work, and I think we've been quite successful at building momentum in terms of taking advantage of the great relationships we have across the firm and populating them elsewhere.
What about the restructuring, the liability management and restructuring side of the business? Are you still seeing a pickup in client activity there?
It's a very strong business right now. In the old days, we all waited for when there was going to be a high default rate and when there was going to be lots of pain in the system. Now there's a lot of liability management where businesses like ours and people like us are able to give advice for people who are highly levered. There's a lot of activity that is going into these restructuring businesses, and our business is running at a very high rate with very high-quality business. I think as much as anything, it's really that these restructuring businesses and our restructuring business has become a lot more clued into how we can create value for different clients. For example, sponsors, we have very good relationships with a number of the sponsors.
I think a number of the sponsors, when they have a question or they want to work through a capital structure with one of their portfolio companies, they come to us. The better we do and the better we are able to provide them service, the more they come back to us. As you know, there are so many portfolio companies out there. It is a very good source of activity for us. We also spend a lot of time with debtors, and we spend a lot of time with creditors, and we are actually looking at all different angles of the business. I think the activity level that we have in the business really, in effect, it feeds more activity.
Is the momentum in client conversations more coming from the private equity side? Is it more coming from corporate clients, private credit clients?
I think it's coming from all. I think certainly on the leverage finance side or the sponsor side, there's just a lot of activity and looking at things. I think that our ability to help them is just being recognized and appreciated more and more. I think it comes from all sides. I think that that's really, if you establish yourselves as highly capable, really disciplined, and tough-minded for your client, you're able to draw some very material, high-quality business.
All right. On equity capital markets, we have seen a few IPOs that have priced well over the last few weeks. Do you think that we can see a sustainable pickup in IPOs this year, or is the pipeline more a 2026 story?
We've done nine equity or equity-related deals in the second quarter. I think that we think that it's an episodic business, but we think that there is clearly strength in the pipeline. We're working on a few things in our pipeline, and we have some opportunities coming down the road that we think we have a very good chance for. We think that that activity level will start. One of the things that everybody's looking for is what's going to happen in the summer, and then maybe even more importantly, what's the post-Labor Day business going to look like? Traditionally, it's always been post-Labor Day has been kind of the starting gun for fall, and people really look at it. We're going into corporate earnings in a few weeks. That may stop people for a little while. We think that that business can be healthy.
I think once again, it's one of these businesses that if there is some level of certainty and there is not a lot of volatility, you will see that business really start to take off. We're optimistic, though, that over the next period, it will continue to be open. As you know, the first quarter was, beginning of the first quarter was good. Then we had April 2nd. Things got really slow. We think there's a recovery coming, but we don't really know for sure. It's just we're going to have to watch.
What about sales and trading? What's the strategy in equity sales and trading?
Really, our strategy is that we want to be there for our clients, and we want to serve them. As you know, we have an equity research group that is rated number one. We are there from a macro and micro basis to basically help our clients, in effect, navigate whatever markets come. Sometimes when there is real volatility, we are there to help them with their trading, and that really helps. That drives revenues. Even when things get slow, but there is a lot going on in the market, we are there to kind of help people interpret things. Our strategy is to add real value to clients. Our strategy is to be there for clients no matter what. Our strategy is to be giving solutions and having creative answers for some of the things that they are trying to deal with.
All right. Let's turn to expenses and hiring. On talent, is the hiring environment more or less competitive this year? You've already announced several important hires this year to date. What are your expectations for talent hiring remainder of the year?
We've hired four people who are up and running so far, and we have three who are not announced yet or announced but have not been identified yet, have not started with us yet, but are going to be starting imminently. Our pipeline is good. I think it's more competitive. I definitely think that there are more people out there competing for talent. We're seeing it, and I think we are aware of it. We continue to be a place that I think people want to come. I think that where we have a real passion for a group of people or a person, we've been pretty successful. I would not be overconfident. I think it's a very competitive market because most firms are out there right now. Everybody's out there competing for talent.
I think that also if the market begins to pick up, talent does not like to leave in the middle of a boom. If things really pick up, you will see talent start to be resident to move. We feel really good about our pipeline. We have a real pipeline in addition to what I just told you, and I think we are going to continue on that path.
On comp ratio, I have to ask a question here. For Q1, you accrued at 65.7%. You said you'll adjust appropriately as we progress through the year. Any updates on this front?
No, we have earnings coming up in several weeks, and we'll clearly be putting out a number then. I'd say that when we set that, we believed that that was the right number at that time. We are really just going to see how things play at this point. As you know, when revenue really starts to drive up, it helps a little bit with respect to taking the comp ratio down. We're trying to be very disciplined about expenses. We continue to manage our business as best as we can, but we want to make sure that we are out there really working hard for clients and that we have the capacity to do that.
On the non-comp expense side, how nimble can you be if revenues are slower than expected?
We can be reasonably nimble. I think that for the most part, we've been disciplined, and we're going to continue to be disciplined on non-comp expenses.
All right. Before we wrap up, it sounds like there's quite a runway ahead for Evercore. You've outlined many growth areas. Are there any aspects of the business that you really think that the street is underappreciating?
I think there are two things that I would really want to mention. One is diversification. We really do have a diversified model. We have some very strong non-M&A businesses. I think our M&A franchise is excellent, but I think we've got a really nicely diversified set, and we're going to continue to build that. It is our intention and ambition to continue to diversify while growing our merger business. That is the first thing. I think the second thing is that we really do have a very good visible view for growth. We really do have ambition and also confidence that we will continue to grow. We're hiring really top-notch people. We have a very strong group of people who are ramping right now, and we think our growth is really going to continue to kick in and actually accrue to shareholders.
Great. John, thank you so much for your time.
Thank you very much. Really appreciate it.