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Far away

23 October 2015 By Antony Currie

Greenhill’s stock slump puts its shareholders to shame. The merger and acquisition advisory firm’s shares plunged as much as 16 percent on Friday morning after its third-quarter earnings fell short of estimates by a wide margin late on Thursday. Some of Greenhill’s explanations ring hollow. But investors missed signals that would have made the weak report less of a surprise.

The boutique run by Scott Bok earned just $684,000 for the three months to September, a whopping 97 percent collapse from the same period last year. The cause was a 45 percent drop in revenue thanks to fewer deals closing during the quarter. A handful of transactions can make all the difference for a firm the size of Greenhill. Its $185 million of revenue in the first nine months of the year is, after all, just 7 percent of what Goldman Sachs M&A bankers raked in.

Greenhill seems to have suffered from a disproportionate share of its deals taking longer to close than similar combinations did last year. All but one of its U.S. rivals that have reported earnings – from Lazard to Goldman to JPMorgan – enjoyed double-digit top-line growth in advisory work. Citi’s revenue fell by 24 percent, but even that is only half of Greenhill’s dip.

Bok and his team consistently say they most often compete for business with big rivals in the so-called bulge bracket. That means either they were just unlucky in the third quarter or they’re not winning a decent portion of the business.

Either way, it looks as though shareholders relied too heavily on analysts’ estimates. On average, the sell side was predicting earnings of 28 cents a share for the three months to September, as opposed to the 2 cents Greenhill actually eked out.

But a quick glance at how few of Greenhill’s deals were completed over the summer would have warned investors that results were not going to be pretty. Just four closed, half the number a year ago. Whether complacent or lazy, shareholders missed a pretty simple trick.


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