LETTER TO OUR CLIENTS, STOCKHOLDERS AND STAFF

2009 marked the beginning of a rebound from the most severe global financial crisis in decades. Looking back on two years of market turmoil, we are pleased with what our Firm has been able to accomplish. We remained focused on serving clients and advised on some of the most important transactions around the world. We nearly doubled our number of managing directors, by recruiting specialists in numerous new industry sectors, at the same time that nearly all our competitors were pulling back. We expanded from five to ten offices worldwide, adding several U.S. regional offices and also opening in Tokyo. We were named the “European Boutique of the Year” by the European publication Financial News. From a stockholder perspective, we achieved this dramatic expansion while producing strong financial results despite a steep decline in global transaction activity. We were also one of the few financial services firms that maintained its dividend through this difficult period. 

Focusing on 2009 in particular, our financial results were outstanding. Our revenue per person, a productivity measure that has been a key driver of much of our financial performance, was $1.14 million – substantially above that of our peers. Our total revenue increased 35% versus the prior year. Our advisory revenue declined only 1%, while global completed transaction volume declined 40%1. By continuing to control both our compensation and non-compensation costs, we achieved a pre-tax profit margin of 38%, well above that of our peers. Our earnings per share increased by 37%, and our return on equity was 33%. We continued to maintain a strong balance sheet, ending the year with no net debt.  

Our unique business model, along with our strong culture, has been the source of our success for the 14 years since our founding. We remain focused on advising major corporations, governments and other entities around the world on important transactions and other complex matters. The breadth of advice we can provide has grown considerably, and today we advise on mergers and acquisitions, restructuring, financing and capital raising in nearly every industry sector and in nearly every important region of the world. We do no lending, underwriting, trading or research, which means that in all cases we are fully aligned with our clients in helping them find the best solution to the challenges and opportunities they face. 

The benefits of our focused business model are many. From a client’s perspective, it means we can provide truly independent advice without conflicts of interest and without the distraction of trying to sell a variety of ancillary products. From a shareholder’s perspective, it has meant industry-leading productivity, profit margins and returns on equity, along with a simple, transparent and strong balance sheet. From the perspective of our employees, it means we are all united in the single objective of providing our clients with the best possible advice on every assignment, and thereby building a leading global firm centered on that one line of business. Our remarkably low employee turnover, combined with a steady flow of prospective recruits, is evidence of the strong culture we have built. 

CLIENT ADVISORY HIGHLIGHTS

We were involved in some of the largest and most important transactions around the world during 2009. Our M&A assignments included advising our Swiss pharmaceutical client Roche on its $46.9 billion acquisition of Genentech, advising the US oilfield services company BJ Services on its $5.5 billion sale to Baker Hughes, and advising Bermuda-based reinsurer Partner Re on its $2.0 billion acquisition of PARIS RE Holdings. Our restructuring assignments included advising Chrysler, BearingPoint and Quebecor World on their restructurings under Chapter 11 of the U.S. bankruptcy code. Our financing advisory assignments included advising Ladbrokes, Rexam, Inchcape and others in the UK market. And our fund placement team advised the venture fund New Enterprise Associates, the debt investment fund Tennenbaum Capital Partners and others in raising capital for new funds. 

EXPANSION OF ADVISORY CAPABILITIES

Our strategy for many years has been to continually enhance the Firm’s ability to serve clients by recruiting partners with new industry sector expertise or geographic reach, and we continued on that path in 2009. We recruited specialists in several important industry sectors: consumer, energy and power, gaming, industrials, infrastructure, insurance and

retail. And we opened offices in Houston and Los Angeles, having opened in Chicago, San Francisco and Tokyo only the year before.  

Each step of our expansion has been driven by the demands of clients for independent advice in their local markets and, equally important, by our finding bankers who are highly experienced in the relevant market and compatible with the Greenhill culture of integrity, excellence and teamwork. 

SEPARATION FROM MERCHANT BANKING

In comparison to both the large banks and securities firms and our smaller independent peers, Greenhill has always been the firm most focused on the client advisory business. We have no ambition to enter the lending, underwriting, trading or research businesses.

We have avoided such businesses in the belief that they inevitably create conflicts with clients. The only exception to our “pure client advisory” model has been our merchant banking fund management business, which was purposefully targeted at relatively small businesses so as to avoid any potential for conflicts with our advisory clients. 

In 2009 we announced the decision to separate from our merchant banking businesses, thereby becoming entirely focused on client advisory activities. Specifically, the right to launch successor funds was sold to a new entity formed by members of the investment team. Existing funds will continue to be managed by the existing team, all of whom are expected to remain Greenhill employees until transitioned to the new entity. Importantly, the Firm will retain its substantial portfolio of principal investments, with a view toward maximizing and realizing the value therefrom over time and returning the bulk of the proceeds thereof to Greenhill stockholders. 

This strategic transaction serves several purposes. First, it makes us the most client-focused firm of any of our competitors, with the highest degree of objective independence and the least potential for conflicts of interest. Second, it lets us focus all our resources on advising clients at a time when market observers believe that transaction activity is beginning what could be a significant cyclical upturn. Third, it substantially reduces the Firm’s need for capital, which means that more of the proceeds of our advisory business can be returned to stockholders in the form of dividends and share repurchases. 

CONCLUSION

The 14 year history of Greenhill has been one of extraordinary success, and 2009 was no exception. We have always remained focused on the business of advising clients on major transactions and other complex matters. We have been and remain committed to growth, and our strong culture has allowed us to continue to attract and retain outstanding bankers in a growing range of industries and regions. We have been committed to profitability and have demonstrated a strong discipline on compensation and other costs toward that end. By remaining true to these principles in the face of extraordinary market challenges, we believe we have positioned the Firm well to continue to grow and prosper as transaction activity rebounds. We are grateful to our clients, employees and stockholders for making 2009 another year of progress in building our firm. We look forward to 2010.

                                                             Robert F. Greenhill
                                                            Founder and Chairman 

Annual Meeting
Wednesday, April 21, 2010
at 11:00 a.m.
at the Waldorf Astoria Hotel
301 Park Avenue
New York, New York 10022