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Good morning and thank you for standing by. Welcome to Evercore's Fourth Quarter and Full-Year 2021 Financial Results Conference Call. During today's call, all parties will be in listen-only mode. Following the presentation, the conference call will open up for questions. [Operator Instructions] As a reminder, this conference call is being recorded today, Wednesday, February 2, 2022.
I would now like to turn the conference call over to your host, Evercore's Interim Head of Investor Relations, Jamie Easton. Please go ahead.
Thank you, Michelle. Good morning and thank you for joining us today for Evercore's fourth quarter and full-year 2021 financial results conference call. I'm Jamie Easton, Evercore's Interim Head of Investor Relations. Joining me on the call today are John Weinberg and Ralph Schlosstein, our Co-Chairmen and CEOs, and Celeste Mellet, our CFO. After our prepared remarks, we will open the call for questions.
Earlier today, we issued a press release announcing Evercore's fourth quarter and full-year 2021 financial results. A discussion of our results today is complementary to the press release, which is available on our website at evercore.com. This conference call is being webcast live in the For Investors section of our website, and an archive of it will be available for 30 days beginning approximately one hour after the conclusion of this call.
During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. I want to remind you that the company assumes no duty to update any forward-looking statements.
In our presentation today, unless otherwise indicated, we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and the GAAP reconciliations, you should refer to the financial data contained within our press release, which is posted on our website.
We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we have noted previously, our results for any particular quarter are influenced by the timing of transaction closings.
I'll now turn the call over to John.
Thank you, Jamie. And good morning, everyone. When we spoke this time last year, we never imagined that, a year later, we would still be wrestling with COVID, and yet here we are. And although these times continue to be trying and volatile, Evercore has continued to effectively serve its clients while sustaining our unique culture and fostering deep collaboration across our firm.
While we look forward to our return to office after Omicron subsides, our teams have successfully adjusted to the ebbs and flows of pandemic life and, importantly, remain intensely focused on advising our clients on their most pressing strategic priorities.
Before we go into results, I want to note that today is Ralph's final earnings call. It is hard to believe that this is his 51st quarterly call. There's no better way to salute his impressive leadership than with the successful quarter we've had and the year that we've all just announced. It is a year of records and 2021 was by far the best year in our firm's history.
We exceeded $3 billion and adjusted revenue for the first time ever and achieved record adjusted operating income, record adjusted net income and record adjusted EPS. We continued to invest in our future, adding more senior talent our team in 2021.
In Advisory, we recruited eight senior managing directors, had two additional SMD recruits join last month, and promoted our largest class ever. We also added two important coverage sectors in equity research, and expanded our capabilities and reach in most of our businesses. As a result, our firm is well positioned to begin 2022.
Celeste will discuss our financials in more detail later in the call. But as a preview, I would like to highlight a few important achievements. We reported our fifth straight quarter of advisory revenues greater than $500 million and our 2021 advisory revenues of more than $2.7 billion are nearly $1 billion more than in 2020.
Our underwriting business generated another solid quarter, booking more than $65 million in revenues. This is our second year with underwriting revenues well surpassing $200 million. Our equities business continued to perform well, while AUM in our Wealth Management business exceeded $12 billion for the first time.
As for our margins, we delivered a fourth quarter adjusted operating margin of 41%, while our fourth quarter adjusted EPS of $7.15 increased 26% from the year prior. For the full year, our adjusted operating margin was 34%, exceeding our long-term stated target. Full-year adjusted earnings per share of $17.50 increased 82% from 2020.
Also, in 2021, we returned over $850 million to shareholders through dividends and share repurchases, executing on our goal of returning all of our earnings not invested in the business to our shareholders, in addition to well more than offsetting compensation related shares issued to our employees.
Later in the call, I will provide more detail across our businesses in my first annual year-end review. But first, we will hear from Ralph. And before we do, I want to commend him for leading Evercore on a path of sustained growth, a path that we will continue to follow. 13 years ago, Ralph started to assemble the building blocks that would ultimately lead Evercore to what it is today, a large nimble firm that is diverse enough to be successful, but still grow in a variety of environments.
Ralph guided us with his vision, extraordinary leadership and management skills, building a firm of broad and deep capabilities with the highest quality talent on the Street. I've loved being Ralph's partner over these last five years and feel incredibly fortunate to also have him as my friend. Beyond being an extraordinary business leader, he is an extraordinary person. I will miss his active involvement in the running of the firm and know that his passion and support for Evercore will continue.
Let me now turn it over to Ralph.
Thank you, John. As John mentioned, this is my 51st and last earnings call. And as you may have seen in our earnings release this morning, another record in every respect, both for the quarter and for the year.
During my almost 13 years here, we have experienced both significant growth and very strong financial performance. Total net revenues adjusted have grown 17 fold from $194 million in 2008 to over $3.3 billion in 2021. And Advisory revenues have grown 15 fold from $178 million to well over $2.7 billion. Our adjusted operating income has grown from $9 million in 2008 to over $1.1 billion in 2021. Adjusted earnings per share has grown from $0.12 in 2008 to $17.50 in 2021. And adjusted operating margins have increased from 4.6% in 2008 to 34% in 2021.
12 of those 13 full years have been records for revenues and earnings per share, with the only exception being 2019 when revenues were down 2% and earnings per share somewhat more. And our stock has risen roughly 8 fold from $16 a share when I joined to 126-and-a-fraction at yesterday's close. And I have to say it might even have been a little bit better if we didn't trade at a paltry 7.5 times trailing 12 months earnings.
There are also a number of things which I am extremely proud that are not necessarily evident from our financials or our stock price. And let me review a few of these.
First, we have globalized the firm. In 2008, roughly $5 million of our $178 million of Advisory revenues were from clients outside of North America. Over the last four years, roughly a third of our revenues have come from clients outside of this continent.
Second, we have dramatically expanded the matters on which we are able to advise our clients. When I joined, we were essentially an M&A and restructuring firm. Today, we have the number one activist defense practice; the number one corporate restructuring practice, split, spins, etc.; debt advisory; equity advisory; and a full range of additional advisory services.
We are the only independent firm with an equity underwriting capability and an equity research and trading business. As a result, we are able to advise our clients on almost anything that they want to do strategically or in the capital markets. And John and I can confidently sit in front of any recruit and assert, without challenge, that they can do significantly more business with their clients at Evercore than at any other independent firm.
Third, we have become a talent development machine. When I joined the firm, we had 35 advisory senior managing directors and only three of them were promoted internally. Last month, we promoted 17 new senior managing directors in our Advisory business and one in our Equities business. The number of internal promotions is almost double the number of external hires over the last year, the first year that that has been the case. Almost half of our advisory SMDs today have been internally promoted. And the internally promoted Advisory SMDs have essentially the same productivity as those who we have hired externally. And we are working hard and aspire to having the most diverse and inclusive firm in our business.
And finally, we have consistently emphasized the importance of our culture of putting clients first, excellence, integrity and teamwork. We collaborate more than ever, and our clients benefit from that collaboration. In fact, in each of the last four years, more than 80% of our Advisory revenues have had two or more SMDs working together to serve our client, and almost 60% have had three or more SMDs working with our clients.
As a result of all of these developments, our revenues come from a much wider array of capabilities, geographies, and sectors. They are meaningfully less volatile than they have been historically. And as we have proved over the last three years, we are much more of an all-weather firm than we were in 2008.
I also am very proud that we have installed next generation leaders in almost all of our important businesses and corporate leadership roles. Three of the four leaders of our US Advisory business, one of the leaders of our European Advisory business, the leader of our Asian Advisory business, the leader of our Equities business, our CFO and our General Counsel are all in their 40s or early 50s. So, the firm is extraordinarily well positioned to grow and succeed for many years to come.
Finally, I am thrilled that John will succeed me as sole chairman and CEO at the end of this month, as I had hoped, from the first day I met him almost seven years ago. He is deeply skilled at our business, a superbly fine human being, and fully trusted by both clients and our team. With him at the helm, I could not be more optimistic about the future prospects for Evercore. And I very much look forward to being part of that future success in my new role as Chairman Emeritus.
Before I turn the call back to John, let me conclude by saying that the single best thing about this job has been the people with whom I have interacted. Our Founder and Senior Chairman, Roger Altman, John, our management committee, our many talented senior managing directors, our employees, our board, our shareholders, and yes, even the analysts on this call. It has been for me a remarkably fulfilling almost 13 years, truly enhanced by my interactions with all of you.
Let me now turn it back to John.
Thank you, Ralph. Again, our firm, our clients and our shareholders all thank you deeply for your incredible dedication to Evercore, which we know will continue in your new role.
I want to now turn to a more detailed review of our past year, which I will do at the end of each calendar year going forward. I will also provide more context behind some of the biggest drivers of our future growth.
In Advisory, our sources of revenue in 2021 were broad, broad as defined by transaction size, geography, sector, capability, and client type. First, regarding transaction size, merger volume was up significantly across the board, which drove our high activity levels and strong fees.
For the market overall, looking at the largest deals, defined as those above $5 billion, dollar volume increased 42% globally and the number of these large deals increased 61% from 2020. We also saw increased year-over-year activity at Evercore.
Further, we advised on 3 of the top 10 largest global transactions in 2021, including advising GE Capital Aviation on its pending $30 billion sale to AerCap Holdings, advising the board of directors of Canadian Pacific on its $29 billion acquisition of Kansas City Southern, which notably was the largest transportation deal in 2021. And serving as the lead advisor to grab on its $40 billion SPAC merger, the largest SPAC deal ever.
While we remain active and advising on the largest M&A transactions globally, a significant portion of our business stems from deals defined as midcap in the $1 billion to $5 billion range. For the market, the $1 billion to $5 billion range doubled in both volume and number of deals. And corresponding with that, we saw an uptick in the volume and number of our completed deals in this range.
Next, in terms of geography, the US drove 44% of the market's global deal volume in 2021. In the US, the M&A market saw 82% dollar volume growth and 23% increase in the number of deals year-over-year. While a larger percentage of our business came from the US versus the overall market in 2021, we are very much a global business and we continue to see geographic revenue diversity.
As for sector diversity, we saw activity in every major sector. For the market overall, technology was the most active in 2021. Similar to the market, we were also very active here. Yet we were also very active in healthcare, energy, industrials, consumer, financial services, and real estate. Sector diversity in our fee pool was evident.
Within Advisory, we've gained prominence in multiple capabilities outside of traditional M&A, such as activism defense, restructuring, and importantly, capital advisory. Capital advisory, in particular, has become a growing revenue stream, and we've seen our private capital advisory, our private funds group and our real estate capital advisory revenues combined grow at over a 45% compounded annual growth rate over the past three years. Having diverse strategic and capital raising capabilities gives us more ways to serve our clients and more opportunities to transact with them.
Let's turn now to review a subset of our capabilities. As we've highlighted, we built a preeminent activist defense practice and are continuing to grow as activism activity does, particularly in the US as it is at record highs. Not only did activism activity help drive 2021 to a record year, market activity here is showing no signs of decelerating. Large cap companies are increasingly targeted; and in 2021, it represented 27% of all campaigns.
Further, activists are more often including ESG-related attacks in their campaigns. Evercore is currently advising companies representing approximately $1.5 trillion in market value in activism defense.
Our restructuring practice is also better positioned now than ever before. Several years ago, our business was almost exclusively debtor mandates at 90%. But as our firm's creditor advisory practice has grown, the overall mix has shifted to become a more balanced and diverse practice.
Today, in addition to creditor assignments, we have a broad array of liability management engagements, out-of-court restructurings, and we increasingly work with our debt advisory team in private financing activity. Even with a less than 1% default rate in 2021, our team was active and busy. We've built a business that is proven. It can perform in a varied market environment.
We also continue to build and evolve our equity capital markets business. We've executed on our plan to increase sector diversity and saw activity across a broad range of sectors outside of our historical strength in healthcare, including TMT, consumer retail financials and industrials. We also invested in expanding our capabilities, adding to or enhancing convertibles, pipes, private placements and direct listing expertise, while also adding members to our team across virtually every sector and product.
Further, we've been able to increase our position in underwriting deals, as we continue to add value and gain recognition from our issuer and institutional clients. Notably, we are bookrunner on over 90% of all of our equity and equity-linked underwriting transactions in 2021 and executed 97 equity and equity-linked bookrunner transactions in 2021 versus 85 in 2020, a 14% increase. We participated in 6 of the 25 largest IPOs of 2021, and we once again ranked in the top 20 for equity underwriting fees as estimated by Dealogic for the latest 12-month period for deals listed on US exchanges, excluding block deals and ATMs. We remain focused on making our way towards the top 10 in equity new issue market share.
Outside of Advisory, we also had great success in 2021 and are seeing the impact of our dedication to excellence. In Equities, we continue to focus intensely on highest quality research and client service. Our work was formally recognized by institutional investor, with 43 individual analysts ranked, our highest mark ever. We also added six new industry coverage sectors and increased the number of companies we cover by nearly 10% over 2020.
Finally, and of utmost importance, let's talk about our clients. Our focus on our clients, corporate, institutional and financial sponsor clients are the heart and soul of what drives our culture. While one can discern our activity levels with our corporate and institutional clients by assessing publicly available data, it is harder to estimate the percentage of revenue that comes from financial sponsors, especially given our prominence outside of traditional M&A.
Over the past three years, approximately 30% to 45% of our advisory revenue has been sponsored related, meaning we advise the sponsor or sponsor-related company. In 2021, we were at the top end of this range.
Let me give you some additional background on this and also highlight the growth and potential ahead. Early on, we identified that the opportunity to serve financial sponsors extended well beyond just buying and selling portfolio companies. In that effort, we were an early leader in establishing capabilities and expertise in fast growing areas of secondary investments, GP stakes, capital raising and continuation fund initiatives.
These capabilities have deepened our connectivity with important and growing sponsor clients and will serve us well as we continue to focus on growing our market share in more traditional sponsor-driven M&A assignments. While our activity with sponsors is already very healthy, we believe the opportunity ahead is vast, given the depth of the relationships combined with $3.4 trillion in global private equity dry powder and the talent we've added to our team.
Turning to the future. Let's review our roadmap for growth. First, we will fill in the areas of sector and geographic whitespace, of which there is plenty to expand. Some of our focus will be in the fastest growing segments of the economy, the four techs – fintech, green tech, biotech and technology.
Next, we will continue to invest in A plus talent, both externally and by focusing intensely on cultivating talent from within. As I mentioned, with the addition of new SMDs who joined and were recently promoted, we begin 2022 with the most robust pipeline of ramping advisory SMDs ever, with over 35, positioning us for continued growth.
Through external hiring in 2021, we've continued to build our ECM, debt advisory and sponsor-focused capabilities, expanded our geographic reach in Spain and broadened our sector reach to include fintech.
In the fourth quarter, we announced three additional SMDs. Jonathon Kaufman and Ted Michaels who focus on power and renewables, and Ben Eldredge, who will bolster our industrials practice in basic materials. And recently, in the first month of 2022, we welcomed Takeshi Inoue to further build our advisory footprint in Asia, and David Lischer, who will enhance our debt advisory practice.
In regards to our large class of internal promotes to senior managing director, they were selected not only for their talent and ability to serve clients and generate revenue, but of equal importance, each one is outstanding in what they do and embodies our core values. We look forward to their continuing and increasing impact to our firm, which will enhance our capabilities across M&A, capital advisory and equities.
Furthermore, we continue to have meaningful conversations with potential recruits in areas of strategic significance. And in addition to hiring at the most senior levels, we are adding talent at all levels to continue to meet the needs of our clients and to support the elevated pace of activity.
Before I turn the call over to Celeste to review our financials, I want to take a moment to comment on our ESG and sustainability efforts. We're proud to announce that, as part of the firm's focus on social responsibility, we formed the Evercore Foundation, a global foundation to serve as a vehicle for some of the firm's philanthropic activities.
The Evercore Foundation was capitalized with an initial contribution of $10 million at the end of last year, and will be focused on a narrow set of important areas that are of particular interest to our employees and our communities. This focus will include an emphasis on organizations that address diversity, equity and inclusion. We are committed to giving back to and having a positive lasting impact on our communities in which we live and work. The Foundation will be an important vehicle from which to execute on this commitment, and it is part of our pledge to be more socially responsible as a firm.
In addition, we published our inaugural sustainability report last spring, and we look forward to providing more updates this coming spring and in subsequent years.
Now, let me turn the call over to Celeste.
Thank you, John. For the fourth quarter of 2021, net revenues, net income and EPS on a GAAP basis were a record $1.1 billion, $296 million and $6.96 respectively. For the full year, record net revenues, net income, EPS and EPS on a GAAP basis were $3.3 billion, $740 million and $17.08 respectively.
My comments from here will focus on non-GAAP metrics, which we believe are useful when evaluating our results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release, which is on our website.
Fourth quarter adjusted net revenues of $1.1 billion grew 16% year-over-year. On a full year basis, adjusted net revenues of $3.3 billion increased 43% compared to 2020.
Fourth quarter Advisory revenues of $971 million grew 23% year-over-year and were $2.8 billion for the full year, a 57% increase compared to 2020. This represents our best quarter and best year ever, and the first time adjusted net revenue surpassed $3.3 billion for the 12 months.
Our revenue includes approximately $21 million from transactions that closed in early January and/or had other conditions pending at period-end and according with relevant accounting principles. Along those lines, we recognized $93 million in the third quarter of 2021 and $32 million in the fourth quarter of 2020.
Given our record results and based on current consensus estimates, we expect to maintain our number 4 ranking in advisory fees among all publicly traded investment banks and maintain our number 1 position among independent banks.
Fourth quarter underwriting fees of $65 million were down 32% compared to Q4 2020. For the full year, underwriting fees were $247 million, down 11% year-over-year. The decrease for the year is attributed to the fact that we had two very significant fees in 2020. And in 2021, there was less activity in one of our largest sectors.
Commissions and related revenue of $55 million in the fourth quarter were up 4% year-over-year. For the full year, commissions and related fees of $206 million were flat compared to 2020.
Lastly, fourth quarter asset management and administration fees of $22 million increased 8% year-over-year and full-year asset management and administration fees of $79 million increased 17% compared to 2020.
Turning to expenses. Our adjusted compensation ratio for the fourth quarter was 49.7% and our full-year comp ratio was 55.7%. Fourth quarter non-compensation costs of $101 million were driven by higher travel and entertainment and the $10 million funding of the Evercore Foundation that John discussed earlier. For the full year, non-compensation costs of $330 million were up 4%.
Fourth quarter adjusted operating income and adjusted net income of $464 million and $338 million increased 23% and 22%, respectively, and adjusted earnings per share of $7.15 increased 26% versus the fourth quarter of 2020. For the full year, adjusted operating income and adjusted net income, $1.1 million and $843 million, increased 78% and 83%, respectively, and adjusted earnings per share of $17.50 increased 82% versus the full year of 2020.
We produced a quarterly adjusted operating margin of 41.3%, 251 basis points of margin expansion compared to the fourth quarter of 2020. Our full-year adjusted operating margin of 34% reflects 685 basis points of margin expansion compared to 2020.
As John mentioned, we remain committed to returning excess capital to our shareholders and returned a record $852 million to shareholders through dividends and repurchases of 5.5 million shares at an average price of $132 or 3.3 million shares net of issuance.
For the full year, while we bought back substantially more shares than we issued, including now those for the net settlement of RSUs, our adjusted weighted average share count increased due the timing of buybacks and upward pressure on share count from the treasury stock method, driven by a substantially higher share price. However, our adjusted period-end share count for the fourth quarter decline compared to the fourth quarter of 2020 from 48.9 million to 47.3 million, principally reflecting our buyback program net of issuance, partially offset by the impact of the aforementioned treasury stock method.
As of December 31, our cash and investment securities totaled $2.4 billion. Our excess cash as a percentage of our total cash and investment securities was in the low-double digits, up from the previous quarter when the same number was in the single digit. The increase is attributed to our strong fourth quarter operating results, and particularly strong inflows at the end of the quarter. In addition, we generally deploy excess cash on a one-quarter lag. That said, we did act aggressively to buy back our stock when the market sold off in November and December, taking advantage of our robust cash position.
As a reminder, our cash generation and needs are dynamic and are heavily influenced by our business needs. Expected compensation obligations and timing of capital return can result in fluctuations of our relative excess cash position.
Turning to 2022. As you saw in the fourth quarter, non-comp expenses that were depressed by COVID are beginning to increase. And while we still expect travel to long term remain below historical levels, absent another significant COVID interruption, T&E and related expenses will likely be up in 2022. As the firm grows, we will also continue to see certain expenses increase, like occupancy and equipment, related depreciation and amortization and certain per head tech-related expenses along with several other items increase. And as you know, most companies are facing inflationary increases, including from vendors and suppliers, after only minimal increases in 2021 due to COVID. We are very proud of what we achieved in 2021.
As we enter 2022, our pipelines are strong. But as always, our visibility is limited to three to six months. Our forward indicators including risked and unrisked backlogs, engagement letters, and conflict checks, which are our most forward looking, are all strong.
Before we open up the line for questions, let me turn the call back over to John.
Thank you, Celeste. We feel very good about the future and believe that a strong underlying global economy, coupled with rapidly evolving technology, and further growth in the financial sponsor community will continue to drive high activity levels in the market. While economic conditions today are strong, we continue to monitor issues which could impact activity levels, including equity market volatility, inflation, set actions, interest rates, the regulatory environment, and credit availability, as well as the competition for talent and, of course, pandemic relation issues.
As proven by our financial results, we have the scale, tools, intellectual capital, intelligent teams to advise our clients holistically across strategic and capital needs, and we are positioned better than ever before to address those needs in almost any environment. Our business continues to perform extremely well, and the prospects for Evercore's long-term growth are exciting. We see a huge opportunity ahead of us to strengthen our franchise even further.
With that, we are pleased to answer questions. Operator, please open the lines.
[Operator Instructions]. Our first question comes from Steven Chubak with Wolfe Research.
Celeste, I was hoping to start off with a question actually on the expense outlook. One of your competitors did hint that significant expansion in non-comps in addition to some of the inflationary pressures on the comp side. You guys did a really nice job of managing expenses this year. You did allude to some of the inflationary pressures. But to what extent can you flex expenses if the revenue backdrop remains a little bit more challenged beyond the next six months where visibility is a bit more limited?
On non-comps, as I said, we'd expect T&E to normalize as the world hopefully gets back to normal. In the fourth quarter, T&E or travel was around a third of what we saw sort of pre-pandemic with a bigger increase in November and then tailing off a bit. But we would expect those to increase as people start to do business in ways they used to.
And then, as the firm and our headcount grows, we will see the expense growth from occupancy and equipment. You saw some of that this year. That will continue to increase next year – in 2022 – and then the cost associated with that.
And then, as you know, every time you hire a person, you have tech-related expenses, like licenses and things like that. So, those will grow with our headcount growth, which was about 9% last year. And we'll continue to have headcount growth this year, at least based on where we are today. And then, as you mentioned, the inflationary pressures.
So, obviously, if the revenue environment isn't great, we'll do what we can to manage our expenses and we will be very careful with them. We have great cost controls in place that Bob implemented, and we will continue to have those in place.
As it relates to comp, that is much more related to revenue. And the bulk of our comp is driven by our revenue performance. Our SMDs are based on performance – are paid based on their revenue performance. And below SMD, bonuses are paid based on firm performance as well as individual performance. So, that's where we would have the most flex from an expense perspective and, obviously, over the overwhelming percentage of our expenses for the firm.
First off, shame on me, Ralph, you've accomplished a great deal over the last 13 years. I should have started with that. So, wishing you the best in the new role.
And maybe just for my follow-up, just a question for John. Given the recent market volatility, the market cap declines, the investors have indicated some growing aversion to companies with heavier capital markets gearing or just higher beta sensitivity, just at large, and many of your primary businesses are certainly strongly correlated to equity market levels, traditional M&A and ECM, in particular. I was hoping you could just speak to how the market cap declines are impacting a willingness to transact for both sponsors and strategics. And to what extent were the higher fee rates on transactions that we've been seeing over the last couple of years? How much of that was a function of the recent bull market that may not be sustainable?
Steve, as we look out and look at our backlog, it continues to be strong and very diverse. It's really across the board. At high beta companies, low beta companies, financial sponsor portfolio companies, we're really seeing that diversity really be impactful, in that as we look at what we expect, we just expect that there will be continuing momentum from this strong backlog.
I would say, anecdotally, the conversations that we're seeing and transactions that are coming in are quite full. So, we don't really see three to six months out any change as to what we're really dealing with right now. Clearly, things could change and the market could turn down more dramatically, there could be even more instability. And of course, one of the things that we always look at when we're thinking about the merger businesses, CEO confidence and the stability of the markets, which gives companies the confidence to really be aspirational and strategic way.
Right now, we don't see that impacting where we are right now or our merger business. But we clearly are watching it carefully.
Next question comes from Manan Gosalia with Morgan Stanley.
I was wondering how are you advising clients on the interest rate environment here? I know we've gone through this in the past, but we could have four, maybe five rate hikes along with the Fed shrinking its balance sheet this year. What do you think that this means for the back half of the year? Is this sort of pulling forward the activity as companies try to get in while cheap financing is still widely available? Or do you think that four hikes with a stock point of zero still not enough to impact deal activity, provided the economy is pretty robust as it is right now?
Well, I think we would say that because rates are so low right now, four hikes clearly are nothing to discount. We do believe that rates will still be relatively low historically. There's no question, though, that clients who need to do financings are really leaning on doing financings because they really understand that the rates will be going up.
Transactions, though, as we're really dealing with clients, are really still on tap to be moving forward. And we don't see anybody desperately thinking that they have to get things done. Having said that, one of the things that we are seeing is that there is a very healthy activity level of financial sponsors wanting to get deals done now. Obviously, when they're buying the rates in which they borrow, impact their returns, but also they believe that selling is advantaged by lower rates also. So, you see sponsor activity very much focused on the rates and the levels.
But I would say that, as we really look at our backlog and we look at what we see ahead, we don't think that that is going to be impacted materially. Although I would say that everybody is aware, everybody's watching both the rate hikes and inflation. And I'd say that there's no question that boards and CEOs are focused.
John, I appreciate all the thoughts on midsize deal activity, the activist defense practice and the restructuring business in your opening comments. Is there any color you can give on how much those businesses contributed to revenues over the last year? Or how we should think about them contributing to total revenues over the next couple of years?
We really can't give that kind of detail. But what I would say, we did say in the call that, in our sponsor business, it's 30% to 45% of our revenues in Advisory. And I would just say that these businesses are very healthy, and they continue to have real upside potential.
Ralph, congrats on a great tenure. And all the very best.
Thank you very much. And John is going to continue the tradition of not giving business line by business line revenues. And it's not that we don't want to be transparent. It's that the lines between some of these are very blurred. And so, it's really hard to give you the kind of granularity that you're asking for.
Next question comes from Jim Mitchell with Seaport Research.
Maybe we can speak to sort of intermediate long-term growth opportunities with more detail. You guys continue to put up strong growth. But as Ralph pointed out, the low multiple on your stock kind of implies the market doesn't believe this level of revenue can continue. So, can you speak to that disconnect, where you see the most growth from current levels of the intermediate long term, what can be a counterweight if M&A slows down? I think it's just key for shareholders to get a sense of – you guys seem very optimistic about growth, shareholders don't.
We'll do our best in talking a little bit about our growth. As we've articulated before, we really think about growth in several different ways. One is that that we continue to invest in areas where we see whitespace, whether those be geographic or whether they're sectors that we think are important sectors that we can invest in. So, for example, sectors like fin tech, biotech, clean tech, there are definitely large whitespaces in those sectors where we can really grow.
In addition, and very importantly, we have a number of client coverage initiatives that we are very excited about, whether those are financial sponsors where we think we can cover these sponsors more holistically and leverage off of the very strong relationships we have, buying and selling stakes for GP and LP, raising funds, or in addition driving continuity funds, but then using those strong relationships, really, to the basic M&A side. That's a very strong, important investment area for us, and we feel very good about that.
In addition, there's so much dry powder there that the more we invest there, the more we're seeing that it's happening. And we hired a Brad David out in the West Coast already, and we continue to look for opportunities to invest there.
In addition, geographically, we think there is a lot of opportunity in Europe. And we are looking closely at those opportunities, whether those be in places like investing in France or Germany, but we really feel like there's great whitespace there.
In addition, we are investing in our relationships with multinationals. We have an effort to really increase our coverage for some of those multinationals, and we are doubling down in terms of investing in that client franchise.
Also, we are looking at our capabilities. One of the things you say is, well, where could you see opportunities. One of the things we've really invested in, as we said, is restructuring. And even though the default rate is very, very low right now, our capabilities have grown there and we are doing more and more liability management there and creating real value for clients. And so, that's a real stream that has developed over time and we feel really good about it.
In addition, as we described, our business was a debtor mandate business, but our creditor practice has grown dramatically and we really think that we are able to provide service there.
ECM is an area that you've heard us talk about for quite some time. And we're really excited about building out that capability. We added converts. And though that area is growing, we have direct listings as a strength now and an opportunity set. We have basically invested in pipes and stacks.
And we really see the opportunity to grow also through sectors. We always had a strong biotech business. But we're now able to really invest and actually add value in other sectors too. And we talked about those on the call.
And then finally, just to go back to what I would call as some of the great capital growth areas, whether it's fintech or biotech or clean tech, we have real opportunity as we build out those coverages to really use all of our product set in those sectors. And we are seeing that happen right now.
As I said, a good example of that would be clean tech, where we hired Jonathon Kaufman and Ted Michaels. We basically see a tremendous opportunity in a sector like that, as well as the other sectors. And those are generating real opportunities through all of our capabilities. And so, we see that, looking at all of these factors, we see really great, broad, diverse opportunity.
I would just add that we're not number one in advisory revenues. We're number four. So we have plenty of room to grow. John identified a lot of whitespace, and there definitely is that. And if you look at our largest business, the Advisory business, which is well over 80% of our revenues, revenues in that business are driven by multiplying the number of senior managing directors we have by our industry leading productivity. And as John said in his opening remarks, through our internal promotes and new hires, we have roughly 40 senior managing directors who are still ramping up in their activity. So, with that, and all of the whitespace that John identified, it certainly feels to me that our investors have consistently underestimated our growth opportunities.
That's a good point. And, by the way, one of the things that you didn't ask, but one of the questions that I think is an important one, which is how do we feel about recruiting and the discussions that we're having. We're continuing to be out in the market talking to very talented people in areas where they think they could be additive. And those conversations are fulsome and going well. And so, we're going to continue that aspect of growth also.
Maybe if I had one follow-up just on the restructuring comments since that's been one area that's quite weak right now and not firing on all cylinders. How do you think about restructuring? It has been a very positive environment. But as rates go up, do you feel like that's a business that could start to grow in the next year or two? How do you think about the outlook there?
Well, as history would point, as rates go up, companies do become more distressed. For restructuring to really kick into full blast, it would mean there would be some distress in the system, sector by sector. We're well positioned. I think we have the best restructuring business on Wall Street. I think we've got outstanding professionals there. They're finding ways to really add value to clients now.
I think that as the environment becomes even more uncertain and there's more risk in the environment, I think their activity levels are going to pick up. But even now, they're really finding ways to add value to clients and they're quite busy.
Our next question comes from Devin Ryan with JMP securities.
Echo the comments, best wishes to you and you've really set a high bar in the industry. So it's been a pleasure.
In terms of the, I guess, first question, want to maybe hone in a little bit more on kind of the banker productivity comments. Your productivity has roughly doubled over the past five years. You are kind of leading the industry by a number of metrics. And I think when we take a step back, it makes sense. Valuations have more than doubled over the past five years. You're having kind of bigger deals. You've added more resources per deal. And then maybe the greater efficiency in this new Zoom economy. And so, I'm curious kind of how you would frame some of the puts and takes on kind of the baseline for productivity. Also appreciating you have a lot of bankers that are still ramping on the platform.
And kind of connected to that, just the opportunity actually to drive more fees per transaction. Are there other situations where you're still kind of missing on opportunity in transactions where you can actually get more fees out of the deals?
As we look at our capabilities, we think that as we've broadened our capabilities, that is an opportunity to do two very important things. Number one, to bring more advisory capacity to every transaction and every client relationship, but also to be more fulsome in what we're able to provide the clients longer in transactions and, therefore, we are able to go longer as the exclusive advisor in transactions and, therefore, take a larger fee because we're adding more value through the whole life of the transaction.
I think what we really believe is that we have a number of capabilities that are just being built out now. For example, in equity capital markets, we have a long way to go in terms of what we can do. We've made tremendous progress. But we feel really good about the momentum of that business. And I think we can really build out and leverage those capabilities and grow the volume that comes through ECM. And as we add resources and we really begin to build out our reach in terms of sectors, I think you're going to see that build.
In debt capital markets, we're continuing to build out that area. And we continue to have real opportunities there to to add value to clients and really be really helpful in terms of both their day-to-day managing of their business, but also when they're in transactions.
In activism, one of the key things that you'll see is that activism and activism defense has really been a tremendous marketing vehicle for us. And we've been able to really expand relationships and drive even further capabilities into those relationships by using the activism defense group, which has really given us access to many, many more clients.
So, I think our productivity ratios can continue at these high levels. Now to say that we could double them from here, I think, is quite a stretch. I think, clearly, that would be something that would be hard to do. But I think we really have upside here. And I think that, as we add more capable people in our whitespaces, we will continue to have real possibilities in terms of growing that.
In addition, if you look at the financial sponsor business, as you know, the financial sponsor business has tremendous upside. There's just so much dry powder, and there's so many portfolio companies and the activity levels of financial sponsors are extremely high. So, as we continue to add resources and get momentum there and make inroads, I think you'll see that that will also be a very large contributor to really what we're able to do in bringing in revenue.
Devin, my perspective on this is really, if you look at the productivity growth, which has been – I think has exceeded all of our expectations, there are a number of secular factors. And John hit on the fact that we're doing – that we have so much broader capabilities and we're doing more with clients is important in two respects. Number one, it allows us to get additional fee opportunities on the same transactions. And very importantly, it allows us to be the sole advisor or the lead advisor and, therefore, to capture all or the majority of the fees on a transaction. That's a secular trend that I think continues.
The second is our brand. The brand of Evercore today versus five years is just stronger. And what that means is that the same SMD is going to get in, any given year, a few more at bats and the batting average is going to be a little bit higher just because of the brand of the firm. So, those two things are secular trends which we see continuing.
What we can't predict is the cyclical element of it. And, obviously, last year was a record year in M&A activity, the only year that there was more than $5 trillion of announced activity, and that certainly also contributed to productivity last year. So, the secular trends definitely continue. And then there's the cyclical overlay, which we can't predict.
I'm going to squeeze one more quick one in for Celeste just coming back to compensation and the comp ratio. Obviously, some nice operating leverage there this quarter and in really year, 42% revenue increase, 35% comp increase in aggregate. How much did deferrals [indiscernible] the percentage change, obviously, coming off of huge revenue years. Want to be thoughtful about kind of what that sets up for future years. So I'm curious if you guys manage deferrals and what that percentage did on a relative basis to prior years?
So, we generally try to really balance recognizing expense in current year when we know our revenue with retention. And given the strong revenue environment, we tried to recognize as much expenses made possible, trying to balance those two things. So, we do think about that and the various environments.
Our next question comes from Richard Ramsden with Goldman Sachs.
Ralph, just to add to the chorus, all the best for the next chapter in your life. I really hope it's as successful as the last one. So, my question is around the environment for large cap M&A in the US. And it does seem, at least anecdotally, that a growing number of transactions across a broad number of sectors are getting flagged for competition review. Can you just talk a little bit about the impact you think that's having on the willingness for corporate boards to transact? And is it something that's coming up more in discussions? And do you think it could lead to a slowdown in activity?
I'll answer it. I'm sure Ralph will want to say something about this also. This is not new. We've known for quite some time that there would be more regulatory oversight with respect to transactions. And I think this has been part of the dialogue in boards for some time now. It clearly is louder now in terms of the volume of it, but it's clearly been around for some time.
Basically, companies are looking at growth. And some of the very large cap deals could be focused on and we're very focused on that as something that could put a dampener on those.
I would say right now, as we look at the transactions in the boardrooms and the ones that I'm having also, I would say people are looking at this certainly with an eye toward what could happen. But I think the transactions are still being developed and thought about. Depending on how it plays out, it could have some impact. Clearly, the law would have to change for it to have a major impact. And that hasn't happened yet. But I think we're all watching it.
One of the things you're seeing, though, is that in things like sponsors, the competition element is not a big issue with respect to buying and selling companies. So that sector alone is not going to be impacted at all. In fact, it may be strengthened by the fact that there's just a lot of opportunity out there to really buy and sell.
So, I think as we look at it, number one, we clearly know that it's something to be focused on, and we're focused on it, and boards I think are talking about it. I think that there's still a need to drive growth. And in this market where there continues to be opportunity, you're seeing boards and companies really aggressive. CEO confidence continues to be quite high. And therefore, as we see the transactions play through the system, they're actually being developed and they're being thought about very aggressively.
It remains to be seen how much it'll dilute the atmosphere and whether the deals will be put on hold. But right now, as we look out three to six months, we don't see a major overlay in terms of the dampening.
I think John hit it. It's definitely discussed. But it has really not had an effect on many, if any, transactions that we've been involved with. And I think the point that John made about – to really have a sea change in anti-trust regulation, you need law change. And there's no talk of that at this point in time. So, it's definitely something to be monitored, but it certainly has not yet had an effect on all of the indicators that we look at for forward activity.
As a follow-up, can you just talk a little bit about geographic skews that are emerging in the business? And, John, I think you said on the last call that you've seen a pickup in your European activity in particular. Has that continued? Or has some of the geopolitical uncertainty and concerns around elections in, say, France impacted pipelines in Europe?
Well, our European business has done well. And we see that having real momentum. And so, as I look at it from our lens, we are really optimistic because we really see that those dialogues and the transactions being developed and coming out of Europe are quite strong. And so, as we look at it and as we experience it, we are really finding it to be quite a powerful vehicle going forward.
Having said that, our US business is larger than our European business, as you know. And so, we're going to watch carefully. But we really feel like it's a real growth area for us and we see momentum in that business. And so, from our perspective, we think those patterns continue.
We have reached the end of the allotted time. I would now like to turn the floor to John Weinberg and Ralph Schlosstein for any closing comments.
Thank you, operator. Thank you all for joining us today. We are obviously around. If you have other questions, you can call us. Ralph, thank you for everything.
Thank you. Richard, I look forward to interviewing you next year at the Goldman Sachs financial institutions conference.
Thank you all.
This concludes today's Evercore first quarter and full-year 2021 financial results conference call. You may now disconnect. Everyone, have a great day.