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The Brain Drain Behind Greenhill's Deal Drought

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Could a brain drain at Greenhill & Co. Inc.'s be behind its recent struggles? Perhaps, but you wouldn't know it from listening to CEO Scott Bok.

During a recent earnings call following the firm's first quarterly loss since 2011, Bok made this statement: "We've obviously not had a problem with retention. We've really lost pretty much nobody in a very long period of time."

It's unclear what his definition of a "very long period of time is," but a Gadfly analysis shows that the turnover of managing directors -- the bankers tasked with the all-important role of generating revenue at advisory firms such as Greenhill -- is roughly 44 percent over the past five years. If we shrink the "very long period of time" definition to three years, turnover is a pretty significant 22 percent. In other words, since the start of 2015, more than one in five client-facing managing directors is a fresh face.

Comparable turnover figures across Wall Street aren't easily available, but Greenhill's certainly seems high. Exacerbating the issue is the fact that exits within the past three years have included heavy-hitters such as Brad Robins, former head of financing advisory and restructuring; Dhiren Shah, who was head of technology, media and telecommunications; and Luca Ferrari, former co-head of Europe Luca Ferrari. They're all now at competitors.

To be sure, while Greenhill upper management was likely disappointed by some of the departures, it might not have been too upset with others. And to combat the exits, the firm has been hiring aggressively, adding nine managing directors in the year to date alone. To maintain the heft of the group, it has also promoted internally, but those managing directors may not have the same depth of relationships as their predecessors.

Taken as a whole, the current roster of Greenhill management directors is projected to be the least productive crop of bankers since the firm went public in 2010. Assuming the firm ends 2017 with roughly $230 million in revenue as projected by Wall Street analysts, the firm's 77 managing directors will have delivered an average of less than $3 million apiece (the lowest level since 2010), which trails rivals by a wide margin:

Just how uninspired has Greenhill's activity been this year? The firm has sunk to 65th position on Bloomberg's league table that ranks mergers and acquisitions advisers by market share, placing it behind much smaller boutiques such as Allen & Company LLC, BDT & Co. LLC, Robey Warshaw LLP and LionTree Advisors LLC. That's well below its prior-decade average of 27th, and a far cry from the high of 14th reached in both 2007 and 2008.

Bok has said he plans to continue to bolster Greenhill's tally of pricey dealmakers. But as I've said before, he must ensure the firm is selective with its hires. Replacing longtime rainmakers with folks who can't help the firm snap out of its drought won't guarantee the revenue rebound that it so badly needs.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Like other advisory firms, Greenhill's risk factors include this disclosure: "Our ability to retain our managing directors and other professionals is critical to the success of our business ... In addition, if any of our managing directors were to join an existing competitor or form a competing company, some of our clients could choose to use the services of that competitor instead of our services or some of our managing directors or other professionals could choose to follow the departing managing director in joining an existing competitor or forming a competing company."

  2. Bok said on the October earnings call that he's hopeful that 2018 will be a "similarly good year" in terms of managing director recruitment, suggesting the targeted number of new hires wouldn't be "lots more" or "many less" than the 2017 total so far of nine.