Moelis says Sumitomo relationship going “extremely well”

In January this year, Sumitomo Mitsui Banking Corporation (SMBC) paid $93 million for a 5% stake in Moelis & Company, an advisory firm. The deal came with a strategic alliance agreement under which Moelis would provide global advice for Japanese clients of SMBC and its securities arm SMBC Nikko. In return, SMBC and SMBC Nikko would provide Moelis access to their Japanese clients.

Nearly five months on and the deal has led to a rapid escalation of two-way business, according to Rick Leaman, managing partner of Moelis, although there are no deals yet that can be specifically said to have been borne from the alliance. In particular, it would appear strange that Moelis was not on Sumitomo Mitsui’s acquisition of RBS’s aviation finance business in March.

Even so, the alliance has proven to be a cheap and effective way to bridge a coverage gap, which other banks have found excessively time-consuming and expensive. “You need a global footprint to serve our clients,” said Leaman at the firm’s New York office. “But trying to work your way into Japan is tough and it is time consuming for them to build global coverage ... it is a lower risk way of pursuing coverage than others.”

From the outside, the alliance looks like a clever way of riding the trend of Japanese companies looking to buy overseas assets. And Leaman does agree that this is a feature of the deal.

“Japanese companies have enormous cash balances, a strong currency and a need for growth,” he said. “Asia has been a priority but we are seeing an increasing focus on investment opportunities in Europe and the US.”

In particular, the firm can focus on letting the Japanese know what US private equity firms are selling.

The alliance is one of three different strategies that Moelis has undertaken in Asia to expand its footprint. In Hong Kong and China, it bought Richard Orders’ Asia Pacific Advisors, while in Australia it formed a joint venture. The partnership with SMBC has also given it extra capital with which to expand its asset management business.

“This does give us flexibility to look at asset management platforms,” said Leaman. “We are looking to grow our asset management business and we can now look at additional geographic growth.”

The firm already owns Moelis Capital Partners, a $2 billion mid-market private equity firm, and Gracie Asset Management, a $2 billion family of credit hedge funds.