Greenhill & Co., Inc.

Christopher Thomas Grubb - Chief Financial Officer Scott L. Bok - Chief Executive Officer, President and Executive Director

Howard Chen - Crédit Suisse AG, Research Division Alexander Blostein - Goldman Sachs Group Inc., Research Division Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division Brennan Hawken - UBS Investment Bank, Research Division Steven Schuback Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division Michael Wong - Morningstar Inc., Research Division Jeffrey Harte - Sandler O'Neill + Partners, L.P., Research Division

Thank you. Good afternoon, and thank you all for joining us today for Greenhill's second quarter 2013 financial results conference call.

I am Chris Grubb, Greenhill's Chief Financial Officer; and joining me on the call today is Scott Bok, our Chief Executive Officer. Today's call may include forward-looking statements.

These statements are based on our current expectations regarding future events that, by their nature, are outside the firm's control and are subject to known and unknown risks, uncertainties and assumptions. The firm's actual results and financial condition may differ, possibly materially, from what is indicated in these forward-looking statements.

For a discussion of some of the risks and factors that could affect the firm's future results, please see our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements.

We should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date on which they are made.

I would now like to turn the call over to Scott Bok.

Thank you, Chris. Earlier this year, we were a bit of an outlier in articulating a fairly cautious view of the state of the M&A market.

At this point, there's no doubt that, that was an accurate view, at least for the year-to-date. However, there is equally no doubt that our firm is continuing to differentiate itself relative to our peers in terms of market share, productivity, profitability and cash flow generation.

Today, we'll discuss our quarterly and year-to-date results, as well as give you our updated view of how we're doing and how we expect to do with the full year, in both absolute and on relative terms. Focusing on our second quarter and year-to-date results, we're pleased with our performance, given the challenging transaction environment.

Our advisory revenue for the quarter was up very significantly compared to last year, with growth of 84%, or meaningfully, on a year-to-date basis our advisory revenue was also up significantly with growth of 39%. While our year-to-date growth in total revenue was impacted by a smaller gain on our stake in Iridium compared to last year, total revenue was also up substantially, showing growth of 28%, compared to the first half of 2012.

As quarterly results can be difficult to evaluate in isolation, on a rolling fourth quarter basis, our advisory revenue was just under $340 million, which is our highest rolling fourth quarter total in over 5 years. Our pre-tax profit margin for the second quarter is 29%, and we had earnings per share of $0.52.

On a year-to-date basis, our pre-tax profit margin was 28%, and we had earnings per share of $0.96. For both the quarter and on a year-to-date basis, our pre-tax profit margin and earnings per share were up very significantly compared to 2012.

You'll recall that we've consistently talked about having 4 main objectives for the firm: One, to increase our market share of the global pool of advisory fees; two, to consistently achieve the highest profit margin among our closest peers; three, to maintain a strong dividend policy; and four, to maintain a flat or even declining share count. I'll focus on the first of those and then turn it back to Chris for the others.

In order to put our year-to-date 39% increase in advisory revenue in context, as it relates to continued market share gain, let me make a few observations on the global market statistics and the results of the 9 large banks that are our primary competitors. Later on the call, I will discuss how we see this comparisons developing over the balance of the year.

During the first half of 2012, global completed M&A volume was up 4%. However, as was the case in the first quarter, much of this year's volume relates to a small number of very large transactions.

But it's probably more indicative of the broader level of activity is the number of completed transactions, which actually fell by 18% versus last year's first half, including a decrease of 14% per transaction of $1 billion or greater in size. The announced transaction statistics are more consistent year-to-date, between deal volume and number of transactions, with global announced transaction volume down by 15%, the number of total deals down by 14% and the number of announced transactions of $1 billion or greater in size, down by 18% compared to 2012.

However you analyze these metrics, it's clear that the pace of M&A activity has declined materially from 2012, which was itself a relatively slow period for transaction activity. Looking back a bit longer, despite regular discussions in the media and elsewhere, where we are in the M&A cycle, it's clear that there hasn't been yet any meaningful recovery, and the good news is that, that means all the upside associated with the cyclical recovery is still to come for us.

Global announced transaction volume looks on track to be the lowest since 2004, with the 6 years since the peak of 2007, all looking fairly similar. Transaction volume per deal, for the U.S., acquirer or target looked particularly flat, with announced volume fluctuating between $900 billion $1.3 trillion in each of the last 6 years.

Europe brings down the global statistics with 2013, if the current pace continues, looking on track to be the worst for announced transaction volume since 1997. The impact of the current market statistics is evident in the year-to-date advisory revenue reported by our 9 large bank competitors.

In the first quarter 2013 results, this group showed a 10% decline in aggregate advisory revenue. Based on data from the 4 banks that have reported second quarter results so far, year-to-date, advisory revenue comparisons for the first half looks set to show an even larger decline for this group.

Coming into 2013, we had grown our advisory revenue 34% over the preceding 4 years, while the advisory revenue with the big bank group actually fell 27%, in aggregate, with not a single bank showing a gain. For the year-to-date, it looks like our advisory revenue improvement will exceed that of our peers even more than it has in recent years, thus, indicating further significant market share gains.

As we think about the key drivers of our strong relative performance compared to the 9 large global investment banks, we believe our client-focused and conflict-free advisory model continues to differentiate us and to enable us to attract new clients away from our large competitors. The structural challenges and regulatory constraints faced by our large bank competitors are only becoming more intense, and none of the restrictions proposed have mitigated the inherent conflicts that are negatively impacting their client advisory businesses.

Building on this advantage, we continue to focus on developing the strength and breadth of our client relationships, then developing a business that is diversified by geography, by industry sector and by type of advice. In terms of geographic diversity, North America, and specifically, the U.S.

M&A business continues to be the strongest performing area for us, consistent with the global markets statistics by region. Our European business showed modest improvement in the first half of the year compared to 2012, in the face of what continues to be a difficult economic transaction environment in that market.

Our Australian revenue was flat year-over-year, in what has become a more challenging environment than in recent years. During the second half of the year, we expect continued relative strength in the North American business, but also some very important transaction announcements in the other regions.

By industry, we are showing very good breadth and diversity. As listed in our press release, we completed 10 transactions in the second quarter, across a range of industries.

In the year-to-date, 7 of our 8 industry classifications contributed 10% or more of our aggregate revenues with healthcare being the strongest industry for us. Looking at our pipeline of transaction activity, moving forward, we expect to see continued strong diversity of revenue by industry.

As we commented on the last call, 2012 highlighted our ability to generate significant revenues from sources other than traditional M&A completion fees, with Financing and Restructuring Advisory, special committee assignments, Fund Placement assignments and a record level of retainer fees, all contributing meaningfully. In contrast, year-to-date 2013 results continued to be driven by higher proportion of M&A revenue compared to other sources of revenue, with restructuring and financing advisory, and fund placement fees both lower during the first half of the year.

Within M&A, a particularly large portion of the revenue was driven by completion fees, with announcement fees lowers consistent with the level of the market activity noted earlier. Touching further on our capital advisory, business, as we commented during our first quarter call, we are seeing encouraging signs and after relatively flat results the last 2 years, and a slightly slower start to this year, we should see growth in that business for the full year 2013.

And we expect to see increased restructuring activity if the recent trends toward higher interest rates and tighter financing markets continues. Notably, retainer revenue was approximately flat compared to the first half of last year, indicating that we remain as actively engaged with clients as we were last year, even if there had been fewer transactions announcements to show for that.

Importantly, we've been able to achieve better results despite fewer transaction announcements because we've had more leading roles on major transactions with commensurately higher fees. Let me close with a few thoughts on our expectations for the full year for us, as well as the market as a whole.

Personal, it's almost uncertainly unavoidable that significant year-to-date declines and announced transactions and transaction volume will lead to reduced advisory revenue in the second half of the year for the industry as a whole. Accordingly, for the full year, we expect double-digit declines in advisory revenue per the 9 bank competitors, with year-to-date declines growing somewhat larger during the second half.

[indiscernible] compared to the full year 2012, with our performance for the second half of the year likely to be weighted more heavily to the fourth quarter. This suggests that our revenue outperformance, relative to our main competitors, should be in the middle to high end of the range of the 8 to 26 percentage points that we have outperformed in each of the prior 4 years.

As a caveat, let me state the obvious: that the pace of transaction announcements and timing of completions are uncertain by their nature, and can change suddenly, so what I've said, represents only our best current view of the outlook for us and the competitors. While we feel very good about our prospects for attractive relative performance again in the current year, we feel even more confident in our market share gains and our absolute level of performance in the medium- and long-term.

We continue to believe the advisory business is an attractive business with long-term growth, and we believe we can continue to expand our share of this business over an extended period. Our brand and global team has never been stronger, the demand by management teams and boards for independent advice continues to grow.

The building blocks for a recovery in the M&A business have been in place for some time now, and many of the factors delaying a recovery appear to have stabilized or abated. Market where buyers continue to be generally conservative and sellers expectations have risen with their improved market valuations, following recent strength in the equity markets, it's not surprising that activity levels have not more quickly accelerated to more robust levels.

But over time, we do expect, by our confidence, to trend upward as economies end markets continue the healing process, and corporations inevitably look to the M&A market to achieve some of their strategic objectives. In fact, given the length of the current period of weakness in transaction activity and given continuing improvement in economic conditions, corporate balance sheets, and equity valuations, it would be surprising if transaction activity did not increase meaningfully next year.

Now, I'll turn it over to Chris.

Thank you. As Scott introduced early in the call, we remain focused on 4 main objectives for the firm.

While we can't control the overall level of market activity, we continue to stay very focused on the elements of the business that we are able to impact, to help us achieve these objectives, and thereby, drive shareholder value. Specifically, I'm going to address compensation cost, non-compensation cost, dividend and share repurchases, and finally, I will provide an update on the continuing liquidation of our remaining principal investments.

Starting with compensation. As we've commented previously, our goal is to achieve a compensation ratio that is the lowest among our close peers, and there is no doubt we have done that, again, in the year-to-date.

In addition, in absolute terms, we aim to be below 50%, consistent with our first several years as a public company, and driven by revenue productivity per employee, that continues to be easily the highest among our peer group. For the year-to-date, we had a 53% ratio, of compensation to revenue, consistent with our full year ratio for 2012.

We expect this will be, by far, the lowest GAAP compensation ratio among our closest peers. If we can achieve full year total revenue, materially above last year, we may increase our out-performance in this regard, by bringing the ratio somewhat lower.

That decision is one we'll make in the fourth quarter. For now, suffice it to say that we want to be conservative in the current environment.

One thing that has helped us keep our compensation ratio so much lower than our peers is that following a period of rapid expansion in the early years of the financial crisis, we have very intentionally kept headcount essentially flat for about 3 years now, given our view that the transaction environment remained quite difficult. We believe we have significantly upgraded our team in this period, and we believe our continuing market share gains demonstrate that.

But we have accomplished those gains without adding to overall headcount in a way that would drive our cost ratio higher. Turning to our noncompetition cost.

Our second quarter non-comp cost were $15.3 million, a slight decrease from the first quarter and consistent with a run rate achieved over the last several quarters of 2012. There are obviously some differences each quarter, but as we commented on the last call, we do not expect the full year 2013 non-comp cost to be up meaningfully, if at all, over 2012 levels, and on a year-to-date basis we're actually showing a slight decline.

Moving to dividend and share repurchases. Our dividend this quarter was again $0.45 per share, consistent with the quarterly distribution, made over the last several years.

As many of you will have seen our recent investor presentations, our annual dividend only requires approximately half of our cash flow generated from operations. Given the very modest capital needs inherent in our business model, we use much of the remainder of our cash flow to repurchase shares.

During the second quarter, we repurchased approximately 530,000 shares, at an average cost of $47.07 per share, for a total cost of $25.1 million. On a year-to-date basis, we have repurchased almost 880,000 shares at an average cost of $51.73 per share for a total cost of $45.6 million.

Looking at the impact of a recent share repurchase activity, you'll note that our second quarter 2013 average diluted shares outstanding are approximately 600,000 shares lower than a year ago. Despite the amortization of stock-based compensation, and the dilutive impact of the issuance of nearly 660,000 shares related to the first tranche of the earnout from our Australian acquisition being achieved over the same period.

We continue to maintain a share count that is effectively flat with our 2004 IPO, despite stock-based compensation and the acquisition in Australia, which compares very favorably to both our large and small competitors. After our dividend and share repurchases, we again ended the quarter with a net cash position, with cash of $33.5 million exceeding that of $32.3 million.

Our Board of Directors has authorized the repurchase of up to $100 million of our common stock through the end of 2013, of which approximately $54 million remains available. We plan to continue our open-market repurchases in the second half of the year, with the amount of these purchases dependent on our earnings, as well as the results of the continuing liquidation our investment portfolio.

Next, let me comment on our remaining principal investments. We ended the second quarter with investments valued at $39.2 million, which includes both our limited partner investments and our previously sponsored and other merchant banking funds of $39.1 million, and our remaining Iridium stake valued at approximately $26.1 million.

Our principal investments generated a second quarter gain of the $3.6 million resulting from an increase in the share price of Iridium, being partially offset by a loss on our merchant banking fund investment. We continue to methodically sell our Iridium shares.

During the second quarter, we sold 885,000 shares at an average price of $6.93 per share, for total proceeds of $6.1 million. As we have stated before, it is our intention that proceeds from these sales will be returned to shareholders in the form of dividends and/or additional share repurchases.

In addition, in our continuing efforts to accelerate the realization of value from our exit several years ago from the merchant banking business, we sold our small interest in Greenhill Capital Partners III, in early July, for $2 million, representing the current value of the investment. Importantly, this sale also limited our last remaining commitment to fund merchant banking investments going forward.

As part of that sale process, we also booked a small loss but obtained some immediate tax benefit by selling, for a nominal amount, an investment we retained in Greenhill Capital Partners II. Finally, and given that this is a quarter when analyst estimates were generally close to the mark, it seems like an opportune time to comment briefly on a topic we're often asked about, which is how to forecast our earnings.

First of all, we think the quarterly estimates are always going to be very difficult, given the fact that published transaction statistics don't accurately reflect all the ways we can generate revenue and also given that transaction timing is out of our control and can be highly predictable. And in any event, we don't believe quarterly results are a good measure of the quality and growth of our business.

However, if our results are viewed on an annual basis, we believe our 9-plus years as a public company provides useful guidance in forecasting results. Our largest cost is compensation, and the annual ratio of compensation to revenue has varied in a fairly narrow range, from a few points below 50% in periods of robust transaction activity to a few points above 50% in less active transaction markets, like we have seen for the last several years.

Our other costs have been more predictable and are roughly flat over the last 2 years in absolute dollar terms. Importantly, we do not eliminate any kind of cost in a pro forma adjustment to our reported GAAP financials and our capitalized expenditures have been fairly trivial.

Our tax rate has also been, generally, in a fairly narrow range, a bit higher in years like this when revenue is more heavily weighted to the U.S., with its higher relative corporate tax rates, and a bit lower when revenue is more balance globally. And as mentioned previously, our share count has been flat to slightly declining for several years now.

That leaves our annual revenue as the only line item that has been more unpredictable, and in recent years, anyone who could forecast the pool of global advisory fees could have forecast our advisory revenue reasonably well. As noted earlier, our annual advisory revenue growth each year has been between 8 and 26 percentage points better than the aggregate advisory revenue growth of the 9 large banks, and we've indicated we're on track for another year of similar outperformance this year.

So, in sum, we believe the only really challenging part of forecasting our annual results has been forecasting the size of the global pool of advisory fees for which we compete. Now let me turn it back over to Scott.

Let me close with a very brief update on personnel and recruiting opportunities. As I commented on our first quarter call, our team remains focused on clients and highly motivated despite the market challenges, and our very high rate of employee retention demonstrates that.

In terms of recruiting, we continue to see a flow of strong candidates from the large banks, and we believe that will continue for a long time to come, but we're being cautious about expanding our headcount too much in the current environment. However, we do expect to continue to add talented and experienced bankers who fit our culture of teamwork, collegiality and excellence, and you'll likely see some news on that in the remainder of the year.

With that, we're happy to take some questions.

Scott, you've been appropriately measured about the current year and now you were speaking a bit about growth into next year. So could you just remind us, what exactly do you think changes into '14, and are you doing anything incremental, whether it be on the client front, compensation, hiring, to really just best position the franchise so that you maximize this when the up-cycle comes?

I don't think we're changing much about what we do. I mean, we just think the passage of time is going to inevitably lead to the rebound in M&A activity.

We can all debate when exactly, and we've computed that for a number of years already. But it will happen.

As you often hear, there's a good degree of dialogue between our clients and potential counter-parties, including on very substantial transactions. So we think, by the time we get to -- this year, we're going to look very good, certainly, in relative terms and okay in absolute terms, and we are hopeful that next year will be a stronger market.

And if it does, we just think all the market share gain we've had and continue to show will be enough to ensure that we get more than our share of that rebound.

Okay. And then I know the output is off of a lower base than you'd hope.

But I was hoping you'd just provide us a sense and progress on traction of recent year's hires and maybe the balance of revenue contribution of newer versus more seasoned partners at the firm.

It's, obviously, a very granular data, to sort of really discuss that in a matter of a few sentences. But I would say this, we have absolutely the highest confidence in the people we've hired over the last few years.

And some of our biggest wins, in a client sense and a revenue sense, have come from people who have joined us, literally, in the last 12 months. And I don't think there's really -- if you really analyze that, I don't think there's really any difference on productivity between people who joined us the last 2 or 3 years versus during the early days of the financial crisis versus even pre our IPO.

I think it's a pretty consistent group across the whole set of managing directors.

Okay. And just final, broader question for me.

We just continue to see more stringent rules and proposals for the large global banks. The latest round being on tightening leverage standards.

I realize this is something that you've been talking about for a few years, but just curious if you can comment. Have you seen any changes in terms of financing markets and the financing role on large transaction when you compete with more of the large dealers?

I would say not. We continue to find our lack of a balance sheet to be kind of a non-issue, really.

I mean, clearly there are deals out there where big banks win business because they offer full stop shopping, but frankly, we think the trend is even more on the other direction, where clients kind of choose different bankers for different roles. One for financing, one for maybe, who knows, hedging or currency or interest rate or whatever kind of hedging they're going to do and somebody else for advice.

So I don't think -- really, we've seen all kind of financing markets in recent years. We've seen the depths of the financial crisis when you might have thought clients would become incredibly beholden to their lending banks, but in fact they became very concerned about conflicts.

We've seen much better financing markets recently and I think we've proven we've gained market share in both those periods.

So just to pick up on where we left off discussion with a broader M&A environment. Scott, curious to hear how you guys are thinking the impact of higher interest rates will -- what kind of impact it's going to have on activity.

Granted, I guess, on the one hand we've been in a lower end environment for some time and that didn't really help M&A volumes. So maybe it won't matter at all, but just kind of curious to hear, how does that play into your thinking for 2014 and the comments you made about the broader environment?

I mean, I think our view is we really don't expect much of an impact from that. It's kind of like -- same as you have sometimes with currencies.

I mean, for years people waited for the Japanese corporates to get more active in M&A when the yen was very strong. Are they going to be less active now at the end of the week?

I really don't think so. And I think, likewise, with interest rates, maybe the only group that might be somewhat impacted would be the private equity buyers, but frankly, they've been very quiet throughout the whole period of very strong financing market, the least quiet on the buy side anyway.

So I don't think we expect a big impact. And, remember, most of our clients, just given the nature of our client base, tend to be the bigger, better capitalized companies where, frankly, very often they have the cash on the balance sheet or certainly they can borrow at what are still very, very low rates.

Got it. And then on the recruiting environment.

You mentioned you guys might add a couple more senior folks that haven't been announced yet. But, again, thinking about this space broadly, over the last few years we've obviously seen significant changes to deferrals at a lot of the larger banks and a lot of those banks with more stringent deferrals had a more significant, I guess, stock price depreciation.

So I guess, on the one hand it's getting more expensive to lift-out folks from those institutions. Can you talk us through how your ability, I guess, willingness to take on higher deferred packages, given the most you've seen in prices?

I don't think that's going to be a big obstacle for us. I mean, certainly there are some firms that have done that.

Sometimes we'll hire people who are fully vested, just based on how many years they've spent. I mean, a lot of the people we tend to hire laterally are very, very senior and they spend -- they're well beyond any requirement of a full career where you vest in everything, and we find enough special situations where I think -- we've always been fine in that regard and I think we'll continue to be.

We're certainly not one that sort of writes huge tracks to try to cover very, very large unvested amounts people have. But we found plenty of opportunities where that's not the case and I think we will continue to see that.

Got you. And then just on the last question, just kind of on numbers.

So you mentioned the Capital Advisory business potentially growing. I don't recall if you guys sized the business, so I was wondering if you could help us understand how big of a contributor this is for you guys.

Yes. I think for each of the last years, I believe we've said in our year-end release, when we give a bit more detail, that it was 9% our revenue.

So call that roughly $300 million of revenue. So call it, basically, $27 million, roughly, of revenue each year, and we are hopeful for a materially higher number this year.

And then, frankly, much more as time goes on. We think it's a very good business.

We've just been through a period where, just like M&A market was fairly slow, institutions were reluctant to make very large, long-term private equity and real estate commitments. But we do see that improving quite a bit right now.

I appreciate all the color you gave, particularly on the repurchase activity. Just wondering, again, with the share count now below sort of where it was at the end of the year, is there any scenario you guys can foresee where you sort of slow the repurchase activity and either accumulate the cash or look to do something else with it?

I can't imagine what we would do with it, in any meaningful way, other than buy back shares and pay dividends. We're not going to do big cash acquisitions or anything like that.

So, no, I think the money comes back to shareholders. I mean, clearly, there would come a point when you would shift from buybacks toward dividend increases.

And clearly, there would be, maybe, times when you'd want to build up a little more cash reserve. If you were in another '06, '07 period, preparing for whenever the next downturn might be.

But I think, certainly, at the kind of share prices we see now and have seen, we still think it's very good value for our shareholders to have us buying back stock with our excess cash.

And then in terms of the M&A activity we're seeing, certainly coming out of the Europe, and it being at relatively depressed levels, it sounds like you may be seeing some signs of the life. Is there anything other than just a general improvement in the economy there that's going to get that going?

I think Europe is facing a lot of factors. It's not just the economy, it's the questions around the currency, it's just kind of a general negative view toward risk-taking and high-profile corporate activity and things like that.

I mean, clearly, there are exceptions to that. But at the same time, it's true that if you just look at the overall data, it's dramatically lower than it has been for, frankly, most of my career.

Time will heal that, I don't doubt that. I mean, the major companies in Europe don't think of their competitors as being fellow Europeans or fellow countrymen, whatever country they're in, they're really are in global businesses and they're not going to stand by and watch American companies and Japanese to some extent, and Australian and Chinese to some extent, buy up and consolidate their industries and leave them behind.

So we do believe that Europe, in due course, will come back and be a major contributor to the M&A market again.

Okay. And then just lastly for me.

I think you mentioned earlier that, sort of this year, you're seeing more leading roles in terms of M&A activity. Is there anything to account for that other than just the specific company relationships you have?

I think it's probably that, it's probably equally just the maturing of the firm. We've been around 17 years.

We've got a lot of partners who are 45, 50 years old, have 25 years of experience, and frankly, we have the industry expertise, the transaction expertise and the geographic reach to play a lead role on a very, very large transactions. So it seems like we're winning a lot of those.

I think we talked, at the year-end, about getting more sell-side roles. It seems like, again, this year we're having more sell-side roles.

So I love the quality of the business we're getting and I think that trend will continue.

So, kind of curious to expand, maybe on your comments on the equity market and the impact on deal activity. It seems like you're implying that sort of higher equity market values is basically a constraint.

And I guess I could see how that would impact private equity activity, but public buyers and strategic buyers basically would have a currency that would be bid up as well. So could you maybe walk me through your logic on how that would be a negative for strategic buyers, too?

Well, I just think there is a sense. And, again, there are exceptions.

We're trying to speak more generally about the market. I think many companies that we talk to have the sense that their share price are fairly fully value.

I mean, I was meeting with one senior executive the other day and commented, congratulated him on his share price performance, and his reaction kind of shrugged it off, hey, thank Ben Bernanke not us. And, certainly, in certain sectors in particular, you'd be familiar with the very, very low interest rates, the chasing of yield, et cetera, has driven share prices very high.

You're right, the companies could use that currency but it's still the case that most acquisitions or cash acquisitions, a lot of sellers want cash, a lot of buyers are sitting with cash on the balance sheet, they'd prefer to use cash. So I think you have to look at it relative to using cash as the transaction currency.

And it's true, almost anything is accretive because your yield on the cash is so small, even if you have to borrow the money it's so low that almost any acquisition is accretive, but that doesn't move that many companies to do deals. I think, more often, they look at fundamental value and they think, hey, I love my own share price, I think I'm a little fully valued right now, but I'm certainly not going to go out and double down by somebody else who I think is more than fully valued.

Okay. And then, just a quick one.

Is there a meaningful difference or do you expect that there will be a meaningful difference between the GAAP and awarded comp ratios? And how has that relationship worked out over the last couple of years?

I don't think we've have a significant change in policy, and I don't expect we'll have one. I think we've been easily able to manage the amortization of our, whatever, restricted stock we give out, for 9 years now, without it really driving our compensation ratio to any kind of inappropriate level, and I don't foresee any change in that.

So I think we'll continue to focus on GAAP numbers and I think we'll have, certainly, a very, very attractive relative GAAP compensation ratio. And I think, as the market finally does rebound, which we we're all talking about here, I think you'll see our number come considerably lower.

My first question is regarding your outlook for bank M&A. I know you've provided some cautious commentary at investor conference, I believe it was last month, which you attributed to regulatory headwinds, or more specifically, the lack of regulatory clarity.

And now that the Fed has, I guess, voted through some of the Basel III rules and I guess we have some increased visibility on the regulatory outlook, I didn't know if your view have changed on the potential for bank M&A going forward.

I would say not. I would say that is still the sector we're probably the most cautious on in terms of M&A activity.

Within financials, we think there'll be other areas, like insurance, that are active. And, certainly, in a lot of the other sectors, like health care and industrials and energy, we see plenty of opportunity.

But in banks, there still is a tremendous uncertainty. I mean, it was only a matter days ago that the question of these leverage ratios was raised, and obviously, that's been asked in all the conference calls for those banks for whom it matters.

And you can see people are both grappling with that, but also I think hoping to fend off that notion, at least to some degree. So I think that is yet one more rule that is going to cause banks to just kind of stick to their knitting, stick to operating their existing business rather than trying to buy neighboring banks and things like that.

That's very helpful. And I guess just one final one for me.

I suppose looking at, I guess, the commentary you provided on your outlook for M&A, both in the second half and in 2014. If I look at the individual components or just highlight [ph]the individual components , it sounds like the building blocks are still there for M&A, but they have been there for some time.

The valuations, probably since the last update you provided last quarter, have only gotten frothier for some of the corporates. And the economic growth outlook, while we're certainly seeing some improvement, it's still fairly slow or at least, I guess, the less -- it's not particularly robust.

And I'm trying to reconcile that with the commentary you provided, or at least the guidance you provided on 2014, where you would expect a meaningful ramp in activity. What's the catalyst for the meaningful ramp versus a more gradual build?

Well, I mean, I don't think I was that specific on exactly what we expect for the market as a whole. But I would say this, it's been a long, quiet period in transaction, literally twice as long as any other period over the last 25, 30 years.

I think time heals the wounds, even of something as bad as what the financial crisis was. So I think that's going to pass and people will get back to doing deals.

Interestingly, and I think very importantly, a lot of the deals that you're seeing announced these days -- the acquire RORs [ph] share price is going up meaningfully in the announcement. That, to me, is the market voting that these deals, in many cases, are making a lot of sense, they're accretive, they're synergistic.

And I think as more companies watch that, they're going to realize that it's not only the right thing to do strategically, to make the right acquisitions, but that their shareholders will reward them almost immediately for doing so.

So just a couple other questions. First, really, just wanted to throw a question out at you Scott, and I think I'm going to know your answer.

But it seems like based on your conversations with the CEOs and stock price and things like that, almost feels like QE is a real impediment for doing transactions, and if ever were to go away, it may actually be very positive for M&A. I mean, we don't know that for sure, but is that your thought process?

I think it is. I mean, we don't have a great firm view on monetary policy, certainly.

But I do think it has been a negative factor, both for the M&A market and probably even more so for the restructuring market. So I think when that does start to wind down, I think, frankly, that we'll see restructuring activity pick up and I think we'll have companies have more confidence in the market valuation of their targets and lead to more M&A.

Great. Just want to expand a little on the guidance for 2013.

It sounds like you guys are banking on a very strong second half for the Fund Placement, to sort of fill the gap with the weaker second half closings. Is that correct?

I wouldn't necessarily say that. I mean, I didn't want to sort of try to break down what I think our next 6 months look like.

But I think, on the whole, it'll be, as it always is, a package of a wide variety of activity, some of which are going to be an obvious to you and some of which aren't, but will add up to a good full year result for us.

Great. And then third question, and I appreciate it if you don't want to disclose, but what are some of the areas where you think you can still muscle up?

I guess, you guys aren't really interested in doing any sort of boutique deals like you did with Caliburn. So what sort of sectors or geographies do you feel like, still, maybe you can muscle up in?

I mean, to be honest, almost all them. I feel like there are a couple of sectors where we've advanced pretty far, in terms of having really global coverage and pretty deep coverage.

I would say health care is one I feel quite good about there. I would say industrial is one I feel quite good about.

And all the others, I think, literally, we've only scratched the surface of how big this firm can be. So it's going to be a lot of years of growing our own talent but also recruiting more talent to get where we want to go.

Great. And then just final one, any update on Bob's tenure?

Obviously, he continues to play a role, you've expressed that. Any change in that view over the next year, 2 years, 3 years or is it really just like he's continuing to do it because he loves it, and that's sort of where we stand?

Bob's role is largely unchanged from the day I joined this firm 17 years ago. Still loves the business, still very active, still flies himself to the meetings in the U.S.

and Europe, and so I certainly don't foresee any change there.

I believe you mentioned that restructuring may pick up after interest rates, since interest rates have headed higher. But have you actually been engaged in more restructuring dialogue in the last month or 2?

We actually have. And I would want to draw some grand conclusion because it's a few weeks of data since, maybe, the debt markets got a little bit spooked there.

But, yes, we actually have seen more increase, more bake-offs, more clients looking to hire advisors, et cetera, on the restructuring side. So we're hopeful that's a sign of much more to come if we do see financing markets tighten some more.

I mean, obviously, we're still in a wonderful financing market. But, clearly, over time, that will tighten up some and that should lead to more restructuring.

Okay. And in general, I'm sorry if I missed it, but I believe you said your second half revenue would be more weighted towards fourth quarter.

But, in general, did you say if you believe that your second half for 2013, advisory revenue, will be stronger than the first half, which has actually held up quite well?

I think what we said was we expect to do better for the full year 2013 than we did for the full year 2012, in terms of full year advisory revenue. And, in comparison, we think our main competitors, as a group, will be down well into double digits.

So there's going to be a big differential there and ours, as I said, will be a modestly higher number. Let's for hope for better of course.

But I think, right now, the best way to put it is a modest improvement year-over-year.

Nice quarter. Can you maybe compare and contrast a bit, client attitudes and even conversations in 2013 versus the last couple years?

I'm kind of looking at -- we got our dose of volatility in the markets this year, like we got the last 2 years. I'm wondering if the reaction you're getting from clients is different now than it was in, say, 2012 or 2011.

No. I think it's hard to draw any particular conclusions from that.

I mean, I do think the further -- no, this year's number sort of go against this, but I do think companies are more open to M&A ideas the further we get from the financial crisis and the more economic growth we have. But, clearly, we've had a bit of a pullback this year, which is not that easy to explain, other than perhaps valuations getting a bit ahead of where acquirers think they should be.

Okay. And as far as activity within sectors, I mean, is it kind of as it was last time you talked about it, the kind of areas we're seeing the strength, areas like health care?

Has there been any change kind of in sector directions?

No, it's pretty broad. I mean, as I noted, it's pretty remarkable actually, that 7 of the 8 industry classifications we use, just for our internal calculations, all were more than 10% of our first half revenues.

So it's incredibly widespread. Health care being the big standout on the positive side.

And I think energy and industrial, we still feel really good about and we'll see with financial services. Again, I think there's plenty to do outside the bank sector, and over time, hopefully the regulation will clarify things there as well.

Okay, I think that's our final question. Thank you all for your time and we'll speak again soon, I'm sure.