Moelis and Company 1Q16 Earnings Call Notes

Kenneth Moelis

M&A dialogue remains healthy

“Our M&A dialog remains healthy and the desire for interesting ideas and creative solutions for companies is the highest I have witnessed in a while”

We did witness an air pocket in Q1

“However, it’s important to note that during the first quarter we really did witness what amounted to an air pocket in M&A across Wall Street. M&A announcements were down significantly given market volatility and the sharp widening of credit spreads in January and February, as well as the increased level of government and political risk to transactions as both antitrust and tax authorities become more aggressive in their stands on deals. Since the first quarter, the market has recovered and credit markets are probably passed half way back to their mid-2015 levels, but the political and regulatory overhang has really not dissipated.”

If oil prices didn’t get down into the 30s you wouldn’t be so happy about 45

“Remember the levels at which you’re talking about materials, prices or energy prices, if we didn’t take a short trip down into low 30s you would think this was a very distress level of oil, let’s say oil price relative to the debt levels in the companies are out there. So yes there has been a recovery, but it’s still at a price that’s going to cause many companies to have to focus on restructuring their balance sheet and the same in the commodities part of the cycle, and we’re starting to see it in other parts of the consumer areas like retail. So I believe that we’ll continue to accelerate.”

Credit markets have been a little bit slower to come back than the stock market

“Yeah the financing market is a part I think the stock market has rebounded 95%, 99% of the way back to where it was. And the credit markets are a little slower the spreads are still wide, there is still caution in the market, deals are still being more diligent on covenants and structure. So it’s a little different in the middle market, it’s a little slower on the comeback.”

It’s a low growth environment and companies are looking to M&A as a way to increase growth

“Look as you remember my call on the fourth quarter I was pretty — I try to give a warning that if that volatility stayed where it was we’d have a problem. It was short, it was sharp and outside of credit spreads still by the way the credit spreads are still different than they were. So that’s having an impact. But I think corporates are back and looking and how they can improve their business. It’s a very low growth environment out there, they still have to look at M&A as a way to either take out cost or increase growth.”

Let me remind you that we still only see a few percent of the deal market

“Let me say this, one of the things is I think I would say I see about 2%, 3%, 4% of the deal environment. So when I say I’m optimistic I’m very optimistic about where Moelis & Company is positioned. It’s really actually hard we all pretend to speak for the other 96% of the market that we don’t see or whatever given our market share. But and I’m very bullish about where we’re positioned on this. If I had to say on revenue growth, I would pick restructuring because where you came off a low base. If you were to ask me where the absolute dollars of growth would come from I think I’d say M&A.”