How do firms with no balance sheet win M&A business?
How do firms such as HL, WB, Baird and HW win M&A mandate over firms like Truist or WF that have tons of balance sheet? Is it purely based on the relationship of MDs? Or does the pure advisory firm run a better process or provide more value to the client from a strategic side? Just doesn't make sense to me why they can so much more business when IB all seems to run the same process and do the same thing.
Worked at a "non-elite" independent. The pitch was basically "independent advice unencumbered by balance sheet and financing commitments". Packaged with sector expertise and MD relationship, that resonated with boards and management where governance was an important factor. Firm would generally end up as a co-advisor, advisor to special committee and/or do fairness work.
Lol probably kickbacks or something idk (jk), I work at a BB and can tell you that any time I see non-BS bank win a mandate I'm puzzled because honestly, there is barely any material difference in the pitchbooks (unless we are getting into esoteric info for companies, which at a smaller size would make sense, hence sector expertise), the quality of your legal development will barely vary by bank bc of contracting/lack of difference (can't really be creative with regulatory filings lol), so apart from flexible staple financing and nice rates, I have no idea unless there's an MD relationship or the lead on the deal is a giga Chad in terms of persuasion
Makes 0 sense to me. I don't understand why company's or sponsor won't prefer advisors who also can commit capital over just pure advise. Especially, when everything is essentially the same thing.
I can see why financing might be good plus for buy-side mandates, but for a sell-side advisor, wouldn’t the quality of the advice be the only thing that matters?
Well it doesn’t make sense to you because you work in loan syndications at WF.
coverage teams at WF / Truist aren’t good and nowhere close to Baird or Blair’s top groups (tech/industrials)
WF and Truist basically just get financing deals and are not known for good M&A advice
Know the space. Know buyers strategic and financial with very established relationships. Dedicated deal teams and better relationship building
What's consider better relationship building? You know the process and the work coming from GS/MS is no different from a lower rank MM firm like RJ,Truist or Piper right? I won't say one is better than the other.
For larger clients or companies likely to go public soon, most banks will be have semi-regular meetings with the CEO to discuss various ideas, strategic opportunities or guidance on potential paths forward to position the business for an IPO.
when it comes time to hire a bank, that CEO will choose the bank that most consistently gives great advice or who they trust (or sometimes whoever does the most transactions in that sector)
Feels like you already made up your mind on this, but there is a big difference in abilities of bankers. The best bankers have spent the most time learning the ends and outs of what specific business attributes are most valued in that sector (either by investors or strategics) and are best able to highlight the specific characteristics of the business that are the most valued by the market. They’re better at negotiations, have more experience finding creative ways to bridge gaps in valuation, better at guiding buyers to a valuation, the list goes on…
Half of those firms you mention have a bread and butter business of running sponsor backed sell sides. In other words, when a portco comes up for sale, they sometimes get the call simply because they were the ones that sold it to the sponsor in the first place (or maybe they know the space, or maybe they just know how to run broad sellsides for a reasonable fee). Also, keep in mind these firms are all playing in the middle market so it's not like acquisition financing gets stupid complex like it might for a mega deal.
I understand, but every firm knows how to run a sell side process, is it because they charge a lower fee? I know in the cap mkts deals, fees are pretty much standard across all the banks.
All those firms are roughly in the same quality / deal size bracket and probably charge about the same for a given deal. Think of it this way - you own a vanilla middle market industrial company and think you can maybe get $500mm when you sell. If you sell to a strategic, this isn't a big enough deal that most buyers would need to utilize the bank for financing. If you sell to a sponsor, this is pretty much the sweet spot for maybe a couple dozen firms who all already have relationships set up since that is their business. So even in the right situation, maybe it matters maybe it doesn't. The balance sheet certainly might be a factor in picking a sellside advisor but it's certainly not #1 in the middle market.
In practice, decisions aren't made in some sort of vacuum where you're comparing pluses and minuses - banks are often just picked based on strength of relationship with key decision makers (CEO/CFO and board). And just because you have a corp banking relationship doesn't mean that firm is going to be the best for a sellside (for one thing, I've worked with some annoying as shit corporate bankers).
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