Collapse of Publicis-Omnicom deal hits Moelis, other advisers

NEW YORK Fri May 9, 2014 11:42am EDT

NEW YORK (Reuters) - Newly public investment bank Moelis & Co (MC.N) took a hit on Friday when the $35 billion merger of Publicis Groupe SA (PUBP.PA) and Moelis client Omnicom Group Inc (OMC.N) fell through, costing an estimated tens of millions of dollars in fees to advisers who had worked on the deal more than a year.

Moelis acted as lead financial adviser to U.S. advertising agency Omnicom while Rothschild advised its French rival Publicis. On Thursday, the companies announced their abandonment of a deal that would have created the world's largest advertising agency.

Shareholders bought into the Moelis initial public offering in April banking on its ability to generate revenue from such marquee transactions. Still, one large transaction does not really move the needle for firms like Moelis, which generated $411.4 million in revenue last year.

Hours after the deal collapsed, shares of Moelis were largely flat, down 0.6 percent to $26.13 on the New York Stock Exchange.

Consulting firm Freeman & Co LLC estimates that banks led by Moelis and Rothschild would have split around $70 million in advisory fees, but people familiar with the matter said the actual fee arrangement was substantially lower. Representatives for Moelis and Rothschild declined to comment.

Other banks -- Morgan Stanley (MS.N), Bank of America Merrill Lynch (BAC.N), BNP Paribas SA (BNPP.PA), Citigroup (C.N), Deutsche Bank (DBKGn.DE) and JPMorgan Chase (JPM.N) -- joined the advisory team after the deal was announced in July.

The now-dead merger was the largest transaction for Moelis in 2013 and its third-largest ever since veteran Wall Street banker Ken Moelis set up his namesake advisory in 2007. Last year it also worked on Warren Buffett and Brazilian private-equity firm 3G Capital's $23 billion acquisition of H.J. Heinz Co.

These deals were a key selling point in the run-up to Moelis' public offering, as the bank relies on a limited number of significant transactions to generate the bulk of revenue.

Moelis advised on nearly $104 billion worth of deals in 2013, ranking 22nd in the league tables of merger advisers, according to Thomson Reuters data. Rothschild was in the 12th place with $250 billion worth of transactions.

Moelis had warned in its IPO filings that its revenue and profits are "highly volatile", because it relies on advisory fees for most of its business unlike larger, more diversified Wall Street banks.

"Because in many cases we are not paid until the successful consummation of the underlying transaction, our revenue is highly dependent on market conditions and the decisions and actions of our clients, interested third parties and governmental authorities," Moelis said in regulatory filings in connection with the IPO.

(Reporting by Soyoung Kim in New York)

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