Moelis and Company 4Q15 Earnings Call Notes

posted in: Notes | 0

Ken Moelis

Markets are catching on to what management teams already knew-that this is a slow growth deflationary environment

“I have been saying for a while that I think we are in a slow growth deflationary environment and I believe corporate management teams have had a sense of this for some time and have been adjusting for it. And that has served pretty much as the catalyst for much of the M&A activity in the past year as companies sought growth or cost savings through mergers. And while this is not a new phenomenon to boardrooms and managements, I do believe that the capital markets are now catching on to that level of slow growth and low interest rates and possibly deflation and readjusting to this environment. And this is undoubtedly causing volatility in the markets and re-pricing of assets.”

We feel good about our business, but volatility is a concern

“we feel good about our business. Our teams remain very busy. We are in active dialogue with our clients. At the same time I want to acknowledge that the long-term volatility that we are seeing and the slowing of world economies are of a concern and we remain vigilant in ensuring that our company is well positioned in any environment.”

The financing market is almost completely shut down

“Look, the financing market is very difficult. I think in certain industries it is almost completely shut down in the non-investment grade market and I think the lower end, triple C lower single B rating market is very difficult to access than the public markets. Or let’s put it this way, it is also getting much more expensive. And we do see that, look it is creating problems in financing and it is also creating the opportunities in the restructuring market. But we are seeing it, it is starting to go, for a while there it felt like it was only going to be in the commodity based sectors but it has leaked across the board and financing is tougher in almost all transactions that are less than investment grade right now.”

We still see a lot of interest in M&A but I worry that the volatility could affect M&A

“Our conversation levels continue to be very high. We are still seeing a lot of interest in M&A. I just worry that at some point volatility does become a problem in the market. I wanted to say that because I think there is extreme volatility right now and depending on how it shakes out it could get, you know, if it got a lot worse I think it would affect M&A.”

Financial sponsors have been sidelined but have buying power

“But the other think to think about is I know everybody is trying to figure out if the financial sponsor is out, I don’t think they are. I think they’ve actually been further sidelined then people think the last two years because strategics were out bidding them. It was very hard for them in the market we were in 12 months ago to actually win an asset. The strategics just had stock values and had access to investment grade public debt that made it very difficult for them to compete. ”

Restructuring activity will probably spread to retailing and restaurants

“And when the availability of capital goes down and a slight decrease in revenues, because of the economy, I do think you are seeing some of that in retailing, and restaurants are slowing down. You are starting to see some of that. The people with too much leverage in that end of the economy are going to have to do something as well. And it hasn’t spread as wide as it did in 2008 but I think it will continue to spread.’

I think you’re going to see financial sponsors become very active

” when assets are trading at values that they just can’t see a way to make money on, that’s been the problem for them for the last two or three years. And so I think you are going to see them become very active. They may not be able to get seven times leverage but if an asset is trading at 50% discount to where it used to, I don’t think they are going to care.”

Joseph Simon

The volatility is stirring up as many conversations as it is hurting

“I did specifically point out that these markets — this last two months of markets have the opportunity to change rather quickly and we’re keeping our eye on that as well. But for now I actually think the volatility in the market is stirring up as many conversations as is it is hurting and/or maybe more. I think some parts of the market I think, the volatility has started to stir up even more conversations around restructuring and things like that.”