Matthew Sweeney of Laughing Water Capital presented his in-depth investment thesis on Greenhill & Co. (NYSE: GHL) at Best Ideas 2018.
Greenhill is a boutique investment bank and an interesting special situation. The company has struggled to keep up with competition in recent years due to employee attrition and a less-than-ideal revenue mix. Believing their shares undervalued, management recently attempted to execute a levered recap, whereby it raised $350 million in debt to repurchase more than 50% of their outstanding shares through a tender offer and subsequent open market purchases. The CEO and chairman both concurrently invested $10 million in the company to gain exposure to the levered upside the recap would create, and the CEO volunteered to take a 90% pay cut in exchange for additional equity. The tender did not go through as envisioned, as there were not enough sellers. This creates a situation with few sellers in the near term, and a large buyer at prices only slightly below the recent market quotation. Greenhill is in a competitive business and faces some challenges. However, the two people who may know the most about the firm’s prospects recently voted with their wallets. Banking is ultimately a people business, and GHL has been aggressively recruiting new managing directors. The strong balance sheet and levered equity upside has strengthened the recruiting pipeline, which should drive revenue in the years to come. Much of the equity upside should be linked to management buying back stock, and the downside appears well-protected in the near to intermediate term. Multiple paths exist to the stock doubling (or more) in the coming years.
About the instructor:
Matthew Sweeney is the Founder and Managing Partner of Laughing Water Capital. The firm employs a concentrated equity strategy while focusing on companies that are dealing with some sort of structural or operational difficulty that is judged to be easily solved by an incentivized management team if given enough time. Matt began his career at Cantor Fitzgerald where he focused on equity idea generation for institutional clients. He received a Bachelor of Arts degree in History from the College of the Holy Cross, and a Masters degree in International Relations focused on the Middle East and Terrorism from Seton Hall University. Matt is a Chartered Financial Analyst (CFA), and former Vice Chair of the New York Society of Security Analysts (NYSSA) Value Investing Committee.
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