Six years ago, Ken Moelis predicted he would hand the reins of his namesake firm to someone else by the time he turned 65. That birthday came and went in July.
Instead of stepping back, the chief executive officer of Moelis & Co. is diving in deeper. No stranger to capitalizing on disruption, he’s jumping on what he’s called one of the best opportunities in his career to beef up his company’s ranks. A wave of talent was unleashed after Silicon Valley Bank and Credit Suisse collapsed in March. Meantime, larger rivals are retrenching amid a dealmaking slump.
“We took advantage of that,” Moelis said earlier this month. “You can’t create these franchises when you want to — you have to create them when you can.”
So Moelis, who in 2015 named two co-presidents as part of his succession preparation, is doubling down in the downturn. The firm has hired 27 managing directors in the past 12 months — boosting those ranks by about 20% — and plans to recruit even more as it readies for a long-awaited rebound in mergers and acquisitions.
Many of the hires came from SVB Securities, whose parent filed for bankruptcy after the failure of tech-focused lender Silicon Valley Bank. The hiring effort was led by one of Moelis’s key dealmakers and a co-president — Navid Mahmoodzadegan, who has helped build the firm’s media and communications business. The executive is increasingly viewed as the front-runner for the top job, colleagues say, even as Moelis himself jettisons any timetable for his own departure.
Mahmoodzadegan is known as a hard-charging banker who has been a critical part of many Moelis growth initiatives, including forging into sports transactions and deals with alternative-asset managers. He helped companies such as Expedia Group Inc. raise money from investors including Apollo Global Management Inc. during the Covid-19 meltdown, and was involved in transactions including the purchase of Chelsea FC by a consortium led by Todd Boehly and Clearlake Capital, the combination of World Wrestling Entertainment and UFC, as well as the sale of Robert Sarver’s stake in the Phoenix Suns and Mercury basketball teams.
In 2021, Mahmoodzadegan out-earned Moelis, with total compensation of $20 million compared with the CEO’s $15.4 million haul, according to securities filings. That year, the co-president was awarded an $11.26 million bonus, which is calculated in part based on direct contributions to revenue, including the number and size of client mandates that he was directly involved in. Moelis holds a far larger percentage of the firm’s equity, however.
The co-president’s ascent also comes as another Moelis co-founder, Elizabeth Crain, prepares to depart.
Moelis set up his firm with co-founders including Mahmoodzadegan and Jeff Raich in 2007, after quitting as the top Americas dealmaker at UBS Group AG and just before the subprime mortgage meltdown plunged the global financial system into crisis. Moelis & Co. went on to aggressively build out its ranks — capitalizing as other lenders retrenched — and established outposts from London to Chicago and Mumbai to Dubai. It went public in 2014 and had some 1,180 employees at the end of September, of which 161 were managing directors.
The aggressive hiring strategy is a bet the sluggish M&A market will bounce back sometime soon. But the gambit isn’t without risks. Moelis’s firm has lost money for the past two quarters as deal revenue slumped. And, since dealmaking generally doesn’t happen overnight, the new managing directors — none of whom come cheap — won’t immediately generate significant revenue. Moelis & Co. reported an adjusted loss per share for the third quarter that missed analysts’ estimates.
More broadly, Wall Street’s certainty about signs of green shoots has faded as M&A limps toward one of its worst years since the depths of the financial crisis.
Still, Moelis says he’s confident the strategy is the right move in what he deemed one of the four best hiring moments of the last 40 years.
“I think that it will pay back extremely well over time — and always has in every past cycle,” he said on the company’s third-quarter earnings call. “We’ve repositioned the firm on the move to do it without having to incur M&A-type expenses. The bad news is we don’t get to capitalize the cost.”
A representative for the company didn’t have a comment.
In June, Mahmoodzadegan said things felt “a little better,” though he didn’t want to predict a turning point. “There are many reasons why transactional activity will return and will return in a major way,” he said at a Morgan Stanley conference. “What’s difficult to predict is whether that’s going to happen now, a couple quarters from now or even further out.”
Next Cycle
Moelis ranks 18th so far this year among global M&A advisory firms, with 76 deals totaling $65.6 billion, according to data compiled by Bloomberg. It advised on restructurings totaling $57.5 billion in the first half of 2023, according to its website, including one for Hertz Global Holdings Inc. totaling $24 billion.
“The Credit Suisse debacle freed up some exceptional talent in industrials, and we took advantage of that,” Moelis said earlier this month. “And prior to that we had been very aggressive in health care going back 12 months ago. So I think we’ve done a very good job in the sector in that we really wanted to turn the firm to address coming to the next M&A cycle.”
Despite his intentions six years ago to drop the CEO role, Moelis has never said he would disappear from the firm entirely, and is likely to remain in a chairman role when he relinquishes the chief executive job. And while the firm’s shares are up this year, Moelis may prefer to step aside once the stock climbs nearer its peak about two years ago, when it was more than 45% higher.
He stressed in a 2017 interview that he would be actively involved in transactions for many years after he turned 65. But even then he understood the need to bring in a new crop of leaders to keep the firm at the cutting edge.
“What drives culture is the ability for people to see a career path,” Moelis said in the interview. “If they’re excellent, they have to see a career path. And so I need to get out of the way and let people run the company.”
--With assistance from Dinesh Nair.
(Updates with Moelis share performance in final paragraphs of the story.)
