Greenhill/Mizuho: 2010s business boom left M&A pioneer behind

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Greenhill & Co’s management liked to boast that its stock price hit an all-time high of nearly $100 a share in 2009 after the failures of Wall Street brutes like Lehman Brothers and Bear Stearns. Unfortunately, others had also noticed a changing of the guard.

Over the next decade, several Greenhill imitators emerged as the boutique investment bank reined in its growth. Amid the business boom of 2010, that caution proved wrong. Greenhill’s independence ended after 27 years on Monday when it announced its sale to Japanese financial group Mizuho for an enterprise value of $550 million

The listing of Greenhill in 2004 was a watershed event. Lazard, Evercore, Moelis, Houlihan Lokey and Perella Weinberg will follow. Those IPOs allowed the founders to make fortunes and theoretically create a currency for bankers’ payrolls and buyouts.

But Greenhill’s one-off conclusion demonstrates the shortcomings of a publicly traded model for a company ultimately led by a handful of superstars. In a hyper-competitive and cyclical market, his stock was a poor investment for mutual funds.

Trading fees are usually paid as a percentage of the dollar value of the trades. In theory, the fee pool should expand as share prices rise. However, share price appreciation is erratic and any trading adviser can quickly lose his or her market position.

In 2007, Greenhill had annual revenues of $400 million when the S&P 500 was around 1,500. Today the index is above 4,000. Yet Greenhill never again exceeded $330 million in annual revenue. As a private company, consistently generating $200 million to $300 million would pay bankers handsomely. But that hardly works when public investors seek steady growth.

Other rivals such as Evercore and Moelis expanded, profitably adding new business lines and bankers. They could, however, hit their ceilings and sell out to larger institutions. Maintaining the uniqueness of Greenhill will be a difficult challenge for Mizuho. As the financial crisis has shown, even Wall Street’s most legendary brands don’t have an inalienable right to avoid showdown.