Raising private equity in today's market isn't necessarily an Olympic event. But finding such capital and unconflicted advice from some of Wall Street's top guns-who are putting their own dough on the line-isn't all that commonplace. "From the time we opened our doors in 1996, this has been a trust-based advisory and investment business-we don't do research, we don't underwrite stocks and bonds. Therefore, we have no conflicts," explains Robert F. Greenhill, New York-based chairman and founder of Greenhill & Co. The global merchant-banking boutique also has offices in London and Frankfurt. The current public headlines about conflicts on Wall Street-including whether the research arms of major market-makers are biased toward the investment-banking side of those firms-have caused Greenhill & Co.'s business to rocket, he says. But the real reason for this surge may simply be that the firm has a lot of savvy when it comes to advising on mergers and acquisitions, leveraged buyouts, restructurings, recapitalizations, takeover defenses and general corporate finance. During the past two years, within the M&A arena, the firm represented Nestle on its purchase of Ralston Purina, Pillsbury on its sale to General Mills, and Dresdner Bank on its purchase of Wasserstein Perella Group. In the restructuring arena, it advised Bethlehem Steel in connection with its Chapter 11 proceedings, and Regal Cinemas-the largest U.S. theater chain-on its prepackaged bankruptcy plan and sale to The Anschutz Corp. Most recently, it has been advising Dynegy on a wide array of strategic options. Overall, since 2000, the firm has handled more than $100 billion worth of M&A, restructuring and recapitalization advisories. The firm also specializes in private-equity investments-in real estate through its Barrow Street Capital LLC fund and in other industries such as energy through its $425-million Greenhill Capital Partners LLC fund. None of this savvy and specialization is particularly surprising. A 40-year Wall Street veteran, Greenhill started the M&A practice at Morgan Stanley, became head of investment banking there, then the company's president. Subsequently, he was chairman and chief executive officer of Smith Barney before that firm's amalgam with Salomon Brothers. Greenhill jokes that, in the case of assisting Dynegy, he didn't have much trouble getting up to speed on the company. "That's because Morgan Stanley was the owner of Dynegy's predecessor company, Natural Gas Clearinghouse." Greenhill & Co.'s lineup of Wall Street veterans also includes Robert H. Niehaus, Greenhill Capital Partners' chairman. He was one of the founders of the private-equity business at Morgan Stanley. Another Greenhill partner, Scott Bok, helped run the M&A and restructuring department at Morgan Stanley. Richard Morse, a managing director in Greenhill's London office, ran the energy practice at the investment-banking firm of Kleinwort Benson. And Harvey R. Miller, one of the best-known bankruptcy lawyers in the U.S., recently left the law firm of Weil, Gotshal & Manges in New York to lend his expertise to Greenhill. "What's important to note about our $425-million private-equity fund-started 2.5 years ago when Bob Niehaus joined us-is that we have $80 million of our own money in this fund," says Greenhill. "So this is by no means a theoretical exercise for us. Our interests are directly aligned with those of the companies we help. We'll never do a deal unless it's going to make money for the client and ourselves." To launch Greenhill Capital Partners' private-equity investments in energy, the firm this summer brought on board as a managing director and partner V. Frank Pottow, who had previously handled energy private-equity investments for SG Capital Partners in New York. "We have an appetite to invest up to 25%, or around $100 million, of that $425-million fund in energy companies-both upstream and midstream," says Pottow. "The size of our individual investments will be $10- to $50 million, with the sweet spot being $15- to $25-million." Not wasting any time, the fund has already negotiated three such investments-two in E&P companies and one in a gas-gathering and -processing company. In the case of the midstream operator, Greenhill Capital Partners, as part of a group of private-equity investors, is providing $10 million toward the purchase of gas-processing assets from a major utility. In the case of the two producers, it's providing $15 million to one and $15- to $30 million to the other, depending upon how many oil and gas properties the latter finally buys. "Right now, there's a crisis within the energy sector among some very large companies that have fundamentally very good businesses, but very poor balance sheets," says Pottow. "Even though commodity prices are high, these companies are having a hard time gaining access to capital because of the dislocations created by Enron and others that got heavily into energy trading and away from their more historical, steadier, cash-flow-producing businesses." The result: many of these companies are looking to sell midstream and upstream assets at lucrative prices to preserve their investment-grade credit ratings, he says. "In such an environment, clever operators like Steve Durrett, the former head of Ballard Petroleum LLC, and smart investors like Warren Buffett-and hopefully ourselves-are going to be able to structure some very attractive transactions." The guidelines the fund uses in its energy investments are several. First, it looks for managers with a proven track record of success-known veterans like Bargo Energy Co. founder Tim Goff-and for quality asset bases with attractive reinvestment economics. "In the case of upstream assets, we want to invest in fundamentally sound producing properties with some proven undeveloped reserve potential-where there's an opportunity to cut costs; do low-risk workovers, recompletions or development drilling; increase production; and sell those assets down the road at an attractive rate of return," says Pottow. In line with this view, the price at which the fund will get into an investment is a critical consideration. "Typically, we look to acquire stakes in assets-whether that's properties or companies-at multiples of five to seven times EBITDA (earnings before interest, taxes, depreciation and amortization). Today, we see investment opportunities in the range of four to six times that multiple. "To put this in perspective, publicly traded E&P companies-if one were to factor in next year's futures prices on the Nymex-are trading at roughly five times 2003 EBITDA. Historically, the range of that multiple has been four to 10. So this is a relatively attractive time to go out and purchase oil and gas properties or companies, or make investments in those companies." Another factor affecting Greenhill Capital's investment appetite: a deal structure where there is an equitable sharing of risk and reward between the financial and operating partner. Says Pottow, "We're not petroleum engineers or geologists looking to run a company. But we do want to be a true partner with the kind of management that understands and appreciates the value of a well-positioned financier." Looking ahead, Greenhill Capital sees continued investment opportunities within the energy sector in 2003. "Whether it's an Enron, an Aquila or a Reliant Energy, there are a number of very large energy companies with overleveraged, multibillion-dollar balance sheets that are still going to have to sell assets," says Niehaus. "That's going to present more opportunities for experienced management teams, particularly if they know the assets well." Also, operators will be turning increasingly to private equity sources simply because of the credit crunch currently under way in the banking system, says Niehaus. "The banks have taken some unexpected losses in energy and seem to be pulling back, in terms of their lending exposure to that sector." In addition, there are many now-troubled midstream companies that didn't just create energy-trading subsidiaries-they also created energy-finance subsidiaries that displaced the traditional providers of mezzanine capital to oil and gas companies, observes Pottow. "The vast majority of those latter subsidiaries, however, are now out of business. That has created a void-one that will prompt many operators to consider private equity as a stable source of capital that is more likely to be around for future transactions." But make no mistake. Greenhill Capital is looking for returns of 20% to 30%, unlike a mezzanine lender that generally seeks returns in the midteens.. There's something else to bear in mind, says Greenhill, "An energy management team looking to raise private equity should recognize there are other things we can bring to the table besides money. Since this firm is integrated, we're also very well positioned to help companies with issues regarding their level of leverage or their capital structure."