Breakingviews: Restructuring gurus face embarrassment of riches

There’s not much money to be made advising on mergers during a pandemic. That prospect is already hurting smaller investment banks like Lazard and Evercore, whose shares have fallen a third this year compared with a one-fifth drop for Goldman Sachs and Morgan Stanley. But the crisis will bring an embarrassment of riches for these boutique-like firms: helping companies navigate cash crunches, debt problems and bankruptcy. Being a restructuring adviser will be a huge money-spinner, though the beneficiaries are likely to be coy about the details.

Ralph Schlosstein, $2.3 billion Evercore’s boss, told investors last week that his turnaround bankers are working “flat out.” His Lazard counterpart, Ken Jacobs, said on Thursday that the $3 billion firm is working with more than 75 companies or creditors. On the same day Scott Bok stated that at the advisory firm he runs, Greenhill, restructuring retainer fees are “running at the highest they have ever been.”

Neither Schlosstein nor Ken Moelis, head of the eponymous investment bank, reckons restructuring will fully replace lost M&A fees given how big those became in recent years. Yet Moelis also expects the business’s revenue to at least double – and be bigger than in the wake of the meltdown a dozen years ago.

That would be quite a haul. Lazard more than tripled its restructuring top line between 2008 and 2009 to $377 million, accounting for 38% of advisory revenue, up from 11%. That mostly offset a $288 million fall in M&A fees. Overall, the gross value of restructuring deals sextupled in the immediate aftermath of the financial crisis to $469 billion globally in 2009, according to Refinitiv data, and remained elevated for the next three years. This time round, more industries are hurting. Government aid will keep some running for longer, which could bring a second wave of business down the road.

Quantifying the spoils will be hard. Most don’t break out restructuring revenue, including, since 2018, Lazard. A traditional restructuring may involve around a $300,000-a-month retainer and then a success fee – the latter often two-thirds of the overall fee, according to Moelis finance chief Joseph Simon. But that can vary wildly. Besides, a mandate that starts as strict restructuring work might morph into an acquisition or a capital raising, changing how and where it’s reported.

The opacity may be partly intentional. Nobody wants to be seen making hay from others’ suffering.

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