Overview
Greenhill is a leading independent investment bank focused on providing financial advice related to significant mergers, acquisitions, restructurings, financings and capital raising to corporations, partnerships, institutions and governments. We act for clients located throughout the world from our offices in the United States, United Kingdom, Germany, Canada, Japan, Australia and Sweden. Our revenues are principally derived from advisory services on mergers and acquisitions, or M&A, financings and restructurings and are primarily driven by total deal volume and size of individual transactions. Additionally, our private capital and real estate capital advisory group provides fund placement and other capital raising advisory services, where revenues are driven primarily by the amount of capital raised.
Greenhill was established in 1996 by Robert F. Greenhill, the former President of Morgan Stanley and former Chairman and Chief Executive Officer of Smith Barney. Since our founding, Greenhill has grown steadily, recruiting a number of managing directors from major investment banks (as well as senior professionals from other institutions), with a range of geographic, industry and transaction specialties as well as different sets of corporate management and other relationships. As part of this expansion, we opened a London office in 1998, opened a Frankfurt office in 2000 and began offering financial restructuring advice in 2001. On May 11, 2004, we converted from a limited liability company to a corporation, and completed an initial public offering of our common stock. We opened our second U.S. office in 2005 and we currently have five offices in the U.S. We opened a Canadian office in 2006. In 2008, we opened an office in Tokyo, and we entered the capital advisory business, which provides capital raising advice and related services to private equity and real estate funds. In 2010, we acquired the Australian advisory firm, Caliburn, which has two Australian offices. In 2012, we opened our Stockholm office.
As we have expanded, we have recruited new managing directors to increase our industry sector and geographic coverage. Since January 1, 2008 we have increased the number of client facing managing directors, mostly through outside hires, by 2.5 times from 28 to 66 as of January 1, 2013. We have added managing directors with sector experience in Consumer Goods, Energy, Financial Services, Forest Products, Gaming and Hospitality, Healthcare, Industrials, Infrastructure, Pharmaceutical, and Telecommunications as well as a team of managing directors focused on private equity capital advisory and another team focused on real estate capital advisory. Additionally, over the past five years we have significantly increased our geographic reach by adding offices in the United States, Japan, Australia and Sweden. Although we recruited fewer managing directors over the past two years as compared to the period from 2008 through 2010, we intend to continue our efforts to recruit new managing directors with industry sector experience and to increase our geographic reach.
Prior to 2011, we also managed merchant banking funds and similar vehicles. We raised our first private equity fund in 2000, our first venture capital fund in 2006 and our first European merchant banking fund in 2007. We completed the initial public offering of our special purpose acquisition company, GHL Acquisition Corp., in 2008, and that entity merged with Iridium in 2009. Effective December 31, 2010, we exited the merchant banking business in order to focus entirely on our advisory business.
Following our exit from the merchant banking business, we began the monetization of our investments in both our previously sponsored merchant banking funds and Iridium. In 2011, we sold substantially all of our interests in GCP II and GSAVP for $49.4 million, which represented their total book value. In December 2012, the purchasers of GCP II exercised their put rights requiring us to repurchase substantially all of our original interests in two portfolio companies for $15.5 million. Also, in 2012, we sold our entire interest in GCP Europe for $27.2 million, which represented approximately 90% of its book value. In October 2011, we initiated a plan to sell our entire interest in Iridium systematically over a period of two or more years.
In aggregate, we generated net proceeds of $61.1 million from the sale of certain of investments in our merchant banking funds during the past two years. Additionally, through the period from October 2011, when we initiated our plan, to December 31, 2012, we sold 48% of our holdings in Iridium for proceeds of $36.3 million. The proceeds of the merchant banking fund and Iridium sales were used to repurchase our common stock and reduce the outstanding amount of our revolving loan facility. We intend to use future net proceeds from the sale of our investments in Iridium and any further sales or distributions from merchant banking funds to repurchase our common stock. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources".
At December 31, 2012, we owned 5,084,016 shares of Iridium with a quoted market value of $34.2 million and held remaining investments in merchant banking funds with an estimated fair value of $16.8 million.
At December 31, 2012, we employed 324 people. We strive to maintain a work environment that fosters professionalism, excellence, diversity and cooperation among our employees worldwide.

Business Environment
Economic and global financial market conditions can materially affect our financial performance. See "Risk Factors." Revenues and net income in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter. Advisory revenues were $291.5 million in the year ended December 31, 2012 compared to $302.8 million in the year ended December 31, 2011, which represents a decrease of 4%. At the same time, worldwide completed M&A volume decreased by 14%, from $2,424 billion in 2011 to $2,077 billion in 2012(1).
As has been the case since 2007, in 2012 we continued to experience adverse market and economic conditions which impact the number, size and timing of merger and acquisition and capital raising activity. Concerns over the rate of economic recovery, capital market volatility, unemployment, the availability of credit, geopolitical issues and other matters have contributed to a volatile and uncertain environment for evaluating many assets, securities and companies, which has created a more difficult environment for merger and acquisition and capital raising activity. Because we earn a majority of our advisory revenue from fees that are dependent on the successful completion of a merger, acquisition, restructuring or similar transaction or the closing of a fund, our advisory business has been negatively impacted and may be further impacted by a reduction in merger and acquisition and capital raising activity.
Yet despite these market conditions, we were encouraged by an increase in global announced and completed M&A transaction volumes in the second half 2012, which increased by 19% and 10%(2), respectively, compared to the second half of 2011. Further, we believe that our simple business model as an independent, unconflicted adviser will create opportunities for us to attract new clients and provide us with excellent recruiting opportunities to further expand our industry expertise and geographic reach.
By geography, in 2012 our advisory revenues were relatively well dispersed throughout our global locations. North America, and specifically our merger and acquisition activities in this region, where we generated in excess of 60% of our revenues, remained our strongest performer in 2012. Most of our other 2012 advisory revenues were generated in Europe, where we derived approximately 20% of our revenues consistent with 2011, and in Australia, where we derived approximately 15% of our revenues, which is a decline from strong prior years' levels but consistent with local M&A market trends. However, despite the challenging year, in 2012 our Australian business met its first revenue performance target for the three year period ending March 31, 2013, demonstrating the continued strength of that franchise as it integrates into our global organization.
By industry, most of our sectors contributed well in 2012, particularly industrials, technology, energy and healthcare, although activity in the financial sector declined in 2012 relative to its strong contribution throughout most of our history. Further, we generated 9% of our advisory revenue for the second consecutive year from our relatively new capital advisory business, which primarily provides capital raising advice for private equity and real estate funds.
After a significant increase in headcount from the time of our IPO through 2009, our headcount has remained relatively constant for the past three years. During the past three years our compensation costs, which we measure as a percentage of revenues, have ranged from 53% to 57% of revenues, and have declined as a percentage of revenues in each of the last two years from the prior year. In 2012, our ratio of compensation and benefits expense to revenues was 53% and while down from the two preceding years, and significantly below our closest peers, it was still above our historic levels and policy goal of maintaining a ratio not to exceed 50%. Our non-compensation costs over the past three years have remained essentially flat in absolute dollars consistent with our stable headcount and the inclusion of the Australian operating costs since the April 2010 acquisition of Caliburn. As a percentage of revenues, our non-compensation costs have ranged from 21% to 22% over the past three years. Our pre-tax margin over the past three years has ranged from 21% to 25%, and was 25% in 2012. Over the longer term our pre-tax margin has ranged from 35% to 44% during the period from 2005 to 2009. As transaction activity rebounds, we will seek to return towards our historic cost ratios, and as a result, we will seek to achieve our historic profitability ratios.

(1) Source: Global M&A completed transaction volume for the year ended December 31, 2012 as compared to the year ended December 31, 2011. Source:

(2) Source: Global M&A announced and completed transaction volume for the six month period ended December 31, 2012 as compared to the six month period ended December 31, 2011. Source: Thompson Financial as of February 12, 2013.

Our historically strong profit margin and operating cash flow has allowed us to maintain an attractive dividend policy while also allowing us to repurchase a significant number of shares of our common stock. Our annual dividend payout has been $1.80 per common share since 2008. In 2012, we repurchased 1,714,614 shares of our common stock in open market repurchases and, in addition, repurchased from employees 181,820 restricted stock units at the time of vesting to settle tax liabilities. In aggregate in 2012, we repurchased 1,896,434 shares of our common stock and common stock equivalents at an average price of $43.85 for a total purchase cost of $83.2 million. Our board has authorized up to $100 million of additional share repurchases in 2013.
We generally experience significant variations in revenues during each quarterly period. These variations can generally be attributed to the fact that our revenues are usually earned in large amounts throughout the year upon the successful completion of a transaction or restructuring or closing of a fund, the timing of which is uncertain and is not subject to our control. Moreover, the value of our principal investments may vary significantly from period to period and depends on a number of factors beyond our control, including most notably credit and public equity markets and general economic conditions. As a result, our quarterly results vary and our results in one period may not be indicative of our results in any future period.

                         Historical Revenues by Source

                               For the Year Ended December 31,
                      2012        2011        2010       2009       2008
                                        (in millions)
Advisory revenues   $ 291.5     $ 302.8     $ 252.2    $ 216.0    $ 218.2
Investment revenues    (6.4 )      (8.8 )      26.1       82.6        3.7
Total revenues      $ 285.1     $ 294.0     $ 278.3    $ 298.6    $ 221.9

Advisory Revenues
                Historical Advisory Revenues by Client Location

                                   For the Year Ended December 31,
                             2012       2011       2010      2009    2008
North America                 60 %       48 %       57 %      65 %    53 %
Europe                        22 %       22 %       20 %      34 %    44 %
Australia                     14 %       22 %       15 %       -       -
Asia, Latin America & Other    4 %        8 %        8 %       1 %     3 %

                    Historical Advisory Revenues by Industry

                                      For the Year Ended December 31,
                                2012       2011       2010      2009    2008
Communications & Media            7 %        7 %        7 %       1 %    11 %
Consumer Goods & Retail           8 %       13 %        6 %       8 %     7 %
Energy & Utilities               11 %        8 %       14 %       8 %    13 %
Financial Services                7 %       22 %       17 %      19 %    18 %
Healthcare                        9 %       12 %        7 %      16 %     8 %
Real Estate, Lodging & Leisure    5 %        6 %        6 %       2 %     8 %
Technology                       13 %        2 %        4 %      10 %     1 %
General Industrial & Other       31 %       21 %       38 %      34 %    34 %
Fund Placement                    9 %        9 %        1 %       2 %     -

We operate in a highly competitive environment where there are no long-term contracted sources of revenue. Each revenue-generating engagement is separately awarded and negotiated. Our list of clients with whom there is an active revenue-generating engagement changes continually. To develop new client relationships, and to develop new engagements from historic client relationships, we maintain an active business dialogue with a large number of clients and potential clients, as well as with their financial and legal advisors, on an ongoing basis. We have gained a significant number of new clients each year through our business development initiatives, through recruiting additional senior investment banking professionals who bring with them client relationships and through referrals from members of boards of directors, attorneys and other parties with whom we have relationships. At the same time, we lose clients each year as a result of the sale or merger of a client, a change in a client's senior management team, competition from other investment banks and other causes.
A majority of our advisory revenue is contingent upon the closing of a merger, acquisition, financing, restructuring, fund or similar transaction. A transaction can fail to be completed for many reasons, including failure to agree upon final terms with the counterparty, failure to secure necessary board or shareholder approvals, failure to secure necessary financing, failure to achieve necessary regulatory approvals and adverse market conditions. While fees payable upon the successful conclusion of a transaction generally represent the largest portion of our advisory fees, we also earn on-going retainer and strategic advisory fees, and fees

payable upon the commencement of an engagement or upon the achievement of certain milestones, such as the announcement of a transaction or the rendering of a fairness opinion and, in our capital advisory business, upon our client's acceptance of capital commitments before the final closing of the fund. We do not allocate our advisory revenue by type of advice rendered (M&A, financing advisory and restructuring, strategic advisory or other) because of the complexity of the assignments for which we earn revenue. For example, a restructuring assignment can involve, and in some cases end successfully in, a sale of all or part of the financially distressed client. Likewise, an acquisition assignment can relate to a financially distressed target involved in or considering a restructuring. Finally, an M&A assignment can develop from a relationship that we had on a prior restructuring assignment, and vice versa. 2012 versus 2011. Advisory revenues were $291.5 million for the year ended December 31, 2012 compared to $302.8 million for the year ended December 31, 2011, which represents a decrease of 4%. The decrease in our 2012 advisory fees, as compared to 2011, resulted from a slight change in the mix of our advisory assignments and resulting transactions, with fewer $1 million or greater revenue clients nearly offset by having more $10 million or greater revenue clients. Prominent advisory assignments completed in 2012 include:
•the acquisition by Boyd Gaming Corporation of Peninsula Gaming, LLC;
•the sale of Deltek, Inc. to Thoma Bravo, LLC;
• the sale by The Hartford Financial Services Group, Inc. of its Retirement Plans Group to Massachusetts Mutual Life Insurance Company;

•the representation of Inergy, L.P. on the sale of its retail propane assets to Suburban Propane Partners, L.P.;
•the sale of ISTA Pharmaceuticals to Bausch & Lomb Inc.;
•the representation of Lonmin plc on the refinancing of its balance sheet and associated rights offering;
•the sale by Norwest Equity Partners of its portfolio company, Becker Underwood, to BASF AG;
•the acquisition by RedPrairie of JDA Software Group, Inc.;
•the capital raise by Siris Capital Group, LLC; and
•the acquisition by Superior Energy Services, Inc. of Complete Production Services, Inc. During 2012, our capital advisory group served as global placement agent on behalf of private equity and real estate funds for six final closings of the sale of limited partnership interests in such funds and two secondary market sales of limited partnership interests, achieving similar financial results to 2011. We earned advisory revenues from 160 different clients in each of 2012 and 2011. We earned $1 million or more from 66 clients in 2012, down 11% compared to 74 in 2011, and 32% of those were new to the Firm in 2012 compared to 26% in 2011. The ten largest fee-paying clients contributed 36% and 35% to our total revenues in 2012 and 2011, respectively, and none of the top ten largest fee-paying clients in 2012 had in any prior year been among our ten largest fee-paying clients. We did not have any client in 2012 or 2011 who accounted for 10% or more of our total revenue. From a global perspective in 2012, compared to 2011, a decline in both Australian revenues and revenues outside our primary markets was offset by an increase in North American revenues, driven by changes in general transaction activity in those markets. By industry sector, greater activity in the industrial, technology and energy sectors generally offset a sharp decline in activity in the financial services sector. 2011 versus 2010. Advisory revenues were $302.8 million for the year ended December 31, 2011 compared to $252.2 million for the year ended December 31, 2010, which represents an increase of 20%. The increase in our 2011 advisory fees, as compared to 2010, resulted from a greater number of fee-paying clients, an increase in the number of completed assignments, an increase in the volume of strategic advisory assignments with related retainer fees, and greater revenues from our capital advisory group. Prominent advisory assignments completed in 2011 include:
• the sale of the publicly held interest in Alcon, Inc. to Novartis AG;

• the acquisition by A.O. Smith Corporation of Lochinvar Corporation;

• the acquisition by AXA Private Equity of limited partnership interests in private equity buyout funds and a portfolio of direct stakes in companies from Citigroup;

• the sale of Capital Power Income L.P. to Atlantic Power Corp.;

• the acquisition of Coal and Allied Industries Limited by Rio Tinto Limited and Mitsubishi Corporation by way of Scheme of Arrangement;

• the sale of The Forzani Group Ltd. to Canadian Tire Corporation, Limited;

• the capital raise by Related Real Estate Recovery Fund, L.P.;

• the acquisition of Tower Australia Group Limited by Dai-ichi Life Insurance Co.;

• the acquisition by VF Corporation of The Timberland Company; and

• the acquisition by Virgin Money of Northern Rock plc.

During 2011, our capital advisory group served as global placement agent on behalf of private equity and real estate funds for seven final closings of the sale of limited partnership interests in such funds and one secondary market sale of limited partnership interests.
We earned advisory revenues from 160 different clients in 2011, up 14% compared to 140 in 2010. We earned $1 million or more from 74 clients in 2011, up 30% compared to 57 in 2010, and 26% of those were new to the Firm in 2011 compared to 44% in 2010. The ten largest fee-paying clients contributed 35% and 36% to our total revenues in 2011 and 2010, respectively, and only one of our ten largest fee-paying clients in 2011 had in any prior year been among our ten largest fee-paying clients. We did not have any client in 2011 or 2010 who accounted for 10% or more of our total revenue. From a global perspective in 2011, compared to 2010, our advisory revenues increased in Australia, North America and Europe and declined in Japan. By industry sector, greater activity in the consumer, financial services and healthcare sectors and fund placement activities generally offset declines in activity in the industrial and energy sectors.
Investment and Merchant Banking Revenues In December 2009, we sold our interest in the merchant banking business in order to focus entirely on our advisory business. As part of the sale arrangement, we continued to manage and administer the merchant banking funds during a transition period in 2010. For accounting purposes in 2010, we recorded the revenue and expenses related to our management of the merchant banking funds in our consolidated results although the excess of the management fee revenue over the amount paid for compensation and other operating costs associated with the management of the funds accrued to the benefit of GCP Capital and was recorded as noncontrolling interest. On January 1, 2011, GCP Capital took over the management of the merchant banking funds.
Since our exit from the merchant banking business we have sought to realize value from our remaining principal investments, which principally consisted of investments in previously sponsored merchant banking funds and Iridium. In 2011, we sold substantially all of our interests in GCP II to certain unaffiliated third parties and certain principals of GCP Capital for an aggregate price of $44.8 million, which represented the book value (which approximated fair value) of the assets sold. As part of that sale, the purchasers had put rights, exercisable in December 2012, to require us to repurchase their interests in either or both of two of the GCP II portfolio companies sold to them at their purchase price, adjusted for further capital calls or distributions since the date of sale. The purchasers exercised substantially all of their put rights and we acquired interests in two portfolio companies of GCP II for $15.5 million in the fourth quarter of 2012. We also sold in 2011 our entire interest in GSAVP funds to certain unaffiliated third parties for $4.6 million, which also represented the book value (which approximated fair value) of the assets sold. We did not recognize any gain or loss on the sales of our interest in GCP II or GSAVP because we sold our interests at book value. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources".
In 2012, we continued the liquidation of our previously sponsored merchant banking funds with the sale of our entire interest in GCP Europe for proceeds of $27.2 million, which represented approximately 90% of book value. We recognized a loss of $3.4 million as result of this sale. This transaction was pursued in order to accelerate the liquidation of our investment portfolio and generate additional funds for share repurchases. At December 31, 2012, we had remaining investments in previously sponsored and other merchant banking funds of $16.8 million, including interests with an estimated fair value of $9.7 million in the GCP II portfolio companies, which we acquired upon exercise of the put rights in December 2012. At December 31, 2012, we had remaining unfunded commitments to merchant banking funds of $3.5 million. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources".
In October 2011, we initiated a Rule 10b5-1 sales plan to sell our entire interest in Iridium over a period expected to last approximately two years. In the fourth quarter of 2011, we sold 870,000 shares of Iridium at an average price of $6.72 per share for proceeds of $5.8 million. During 2012, we sold 3,850,000 shares of Iridium common stock at an average price of $7.91 per

share for proceeds of $30.5 million decreasing our share ownership to 5,084,016 common shares, or approximately 7% of Iridium's fully diluted ownership, at December 31, 2012. At December 31, 2012 Iridium's quoted market price was $6.72 and our interest was valued at $34.2 million. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources".
The following table sets forth additional information relating to our investment and merchant banking revenues:

                                                     For the Year Ended December 31,
                                               2012                 2011                2010
                                                              (In millions)
Management fees                          $            -       $            -       $       12.9
Net realized and unrealized gain (loss)
in Iridium                                         (5.0 )               (6.2 )              5.0
Net realized and unrealized gains
(losses) in investments in merchant
banking funds                                      (3.4 )               (4.5 )              6.7
Sale of certain merchant banking assets             0.3                  0.8                1.1
Interest income                                     1.7                  1.1                0.4
Total investment and merchant banking
revenues                                 $         (6.4 )     $         (8.8 )     $       26.1

For the years ended December 31, 2012 and 2011, our investment and merchant . . .