Letter to Our Shareholders
Letter to our Clients, Stockholders and Colleagues
Greenhill is a leading independent advisory firm. Our objective is to provide high quality, unconflicted advice to corporations, partnerships, institutions and governments globally on a wide range of transactions, including mergers & acquisitions, restructuring, financing, capital raising and other strategic transactions. Over 21 years we have built significant scale, with more than 70 client-facing Managing Directors now in place, as well as a large, highly skilled group of professionals supporting them. We have also built significant global reach with 14 offices across 9 countries. Typically, nearly half of our revenue comes from clients outside the United States.
2016 was an outstanding year for our Firm in all respects. Our consistent goal over time has been to provide our stockholders with prudent growth, robust profitability and strong return of capital. We accomplished all three of those objectives in 2016 despite volatile markets, reduced M&A activity globally, a strong dollar that diminished the value of advisory fees in other currencies, and the outcome of the Brexit referendum.
Our 29% increase in advisory revenue was the best reported by any firm in our industry, whether a large lending bank or an independent advisory firm like ours. In fact, the entire group of publicly traded firms with which we compete for advisory work reported essentially no change in aggregate advisory revenue for the year. Our 2016 revenue performance continues a long history of strong performance in both absolute and relative terms. Using the full 17 years of data available on our Firm and key competitors, our advisory revenue grew 3.9 times over that period – triple the growth of the largest advisory firm (Goldman Sachs) and roughly double the growth of the largest independent advisory firm (Lazard). We achieved that outperformance, both in 2016 and over time, through a mix of new clients that are added every year and longstanding clients who have come to us repeatedly for advice on important strategic transactions. You can find case studies of some of our most significant transactions of the year throughout this annual report.
Strong revenue growth, coupled with continued discipline on expenses, allowed us to achieve a 26% pre-tax profit margin in 2016. This marked the 7th time in the past 10 years we achieved at least a 25% pre-tax margin. By comparison, on a GAAP basis, only one of our independent advisory peers has ever reported a pre-tax margin of 25% or more. Through a combination of impressive revenue growth and our high profit margin, our net income and our earnings per share each more than doubled in 2016 from 2015.
As has always been the case with Greenhill, high profitability translated into strong cash flow, which translated into a strong return of capital to stockholders. In every year since our 2004 initial public offering, we have returned more than 100% of our net income to stockholders through a combination of dividends and share repurchases, and 2016 was no exception. This year we repurchased 1.2 million shares or share equivalents in addition to paying our substantial dividend.
In addition to seeking to produce strong financial results each year, we seek to continually expand the longer term potential of our Firm. In 2016, we recruited 6 Managing Directors from other firms, adding to our capabilities in Canada, Latin America, the United Kingdom and in the energy and chemicals sectors in the United States. Internal promotions of “homegrown” talent have become another important means of expanding our team of senior bankers. In addition, 2016 was the first full calendar year we owned Cogent Partners, a leading global advisor to pension funds and other institutional investors on the secondary market for alternative assets. The Greenhill Cogent team now represents a core part of our business globally, and we increasingly find opportunities for synergies between that business and our other advisory businesses.
LOOKING AHEAD TO 2017
2017 promises to be an interesting year in many respects, with potentially significant changes coming in regard to U.S. tax policy, the regulation of many industries and trade policy. In general, we believe a “pro-business” government should lead to more transaction activity in the U.S., and European deal activity should begin to recover from a year that was negatively impacted by the Brexit vote. Regardless of what happens with transaction activity in the near term, we see significant opportunities to expand the long term capabilities of our Firm in 2017. Our strong outperformance relative to peers in 2016 will help in that regard, as will the continuing challenges faced by many large banks. We continually look to expand our business in three ways: geographic reach, industry sector coverage and the range of advisory services offered. We will look to capitalize on the momentum we built in 2016 by recruiting additional talent that will enhance our capabilities in most or all of those ways.
In closing, we are grateful to our clients, employees and stockholders for making 2016 another year of progress in building our Firm. We look forward to 2017.
Robert F. Greenhill
Founder and Chairman
Scott L. Bok
Chief Executive Officer
Wednesday, July 26, 2017,
at 10:30 am ET,
300 Park Avenue,
New York, NY 10022