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Especially coming from a bulge bracket where deals average about $1bn or more per deal.. has anyone had to answer this in a Middle Market PE interview?

Comments (12)

  • In reply to happypantsmcgee
    lionwater's picture

    happypantsmcgee wrote:
    http://www.wallstreetoasis.com/forums/why-do-ppl-c...

    Thanks, but that thread is more about why megafund over MM. My question is the opposite.

    Also, I am more interested in what is a good answer, rather than what the real reasons are (i.e. slightly better lifestyle, though not always the case.. especially at top MM funds).

    And most people in that thread say the work is pretty much identical between MM and megafund at the junior levels..so what can I say to an interviewer that is at least somewhat true and doesn't make me seem lazy.

    .. maybe that I see more growth opportunities in the MM companies than megacap corporations..?

  • CompBanker's picture

    I've hit a lot on the "real reasons" why someone might choose MM over Large Cap / Megafunds. Some of these also make for good answers (responsibility), while others make for poor answers (less hours). I'll try to take a different approach here.

    You're currently at a BB. Try to think of all the reasons you DISLIKE working in such a large organization. Is it a lot of red tape? Do you hate having to report to twenty different bosses in five different groups, none of which talk to each other? How about the size of your deal teams? Do you like having responsibility for a small piece of a large transaction or would you prefer responsibility for a large piece of a small transaction? Try to think of which environment is most appealing to YOU and drive your responses based on that.

    Having worked in MM IB / MM PE my entire career, here are a few of my thoughts:

    The most important aspect of any job is the people that you work with. Regardless of what work I'm doing, I enjoy it infinitely more alongside people that I respect and have built a relationship with. At a large organization such as a megafund, the large deal teams and structured organizational chart create a different work environment than one would encounter at a MM PE firm. I prefer having a handful of colleagues over hundreds.

    Early in your career, particularly in a pre-MBA role, there is tremendous value in learning as much as possible. At large private equity shops, your job function is typical reduced to a small facet within the deal process (for example, I know a person at a megafund who spent two straight years working with a single portfolio company to research and track the chinese transportation market). At smaller PE shops, not only do you get exposure to ALL aspects of transactions, you are given ownership over key tasks and play a meaningful role in the completion of the transaction. This increased exposure will put you leagues ahead of your peers at larger shops.

    Similar to point number two, the "exploratory" work in MM PE is significantly less than it is at Megafunds. In MM PE (that don't have a sourcing model), you spend almost 100% of your time pursuing real transactions, and the volume is high. The typical associate can expect to personally review 50 to 100 transactions in their two years. They can expect to complete at least one platform, multiple add-on acquisitions, and potentially multiple sales. Right now, the mega-deal market is really struggling. Few multi-billion dollar LBOs are taking place. When you've got $20 billion of capital to deploy, there are a limited number of targets you can go after. Given the number of megafunds out there and number of associates at each fund, the odds of you getting multiple billion+ dollar deals done is pretty low. Sure, you may do a handful of smaller add-on acquisitions, but if this is the case, shouldn't you have just gone to the MM PE shop to begin with?

    Finally, while deals in the MM are unlikely to make the front page of the Wall Street Journal, at the end of the day this has almost no impact on your life, particularly as a junior professional. The coolness factor of being the associate who drafted the funds flow for a multi-billion dollar merger wears off after a few hours. Having three extra 0's on the purchase price doesn't make you smarter or better looking. Your parents and friends aren't going to be impressed (you're likely to be labeled as a douche if you talk about work too much anyways). So unless you are trying to fulfill an inner need, doing larger deals really will not change your life.

    And of course, there is the money. I'm guessing that excluding my carried interest, I still make less money than a pre-MBA megafund associate. However, the marginal value of money decreases more rapidly than you would think. I live in a penthouse suite by myself, have every gadget known to man, a fully paid for luxury car, a $30,000+ wardrobe, dine out all the time, take international vacations every quarter and weekend trips around the country month or two, and still manage to save my entire bonus every year. While I've never lived in NYC, which would obviously impact my cost of living, an incremental $100k/year would have zero impact on my standard of living. For those who plan on getting married and having kids they want to sent to private school: By the time you hit your early 30s with a couple of kids in private kindergarten, you'll be pulling in $500k/year in MM PE and will have no problem covering these costs.

    The above probably sounds like a rant more than anything else, but there are very real benefits associated with MM PE that I feel are often overlooked. When answering the question of "Why MM PE," try to communicate how the benefits of MM PE are meaningful to you personally. To the extent you can support it with examples of similar experiences you've had in the past, all the better.

    CompBanker

  • johndoe89's picture

    Compbanker, +1 for you - i'm a miser with my SBs, but everytime advice like this is doled out on the forum, I feel happy to part with one.

    Lionwater - any slight variation of the above should blow your interviewer away. Full resonate with what has been said above. To provide another example that supports what Compbanker said above (about the megafund associate he knows spent two years studying the chinese transportation market), I received a resume for a VP level position at our fund from someone who currently goes to HBS and worked at a top-tier megafund (think THLee, Carlyle, Providence) who spent two years evaluating two add-on acquisitions for one portfolio company of the fund and the said person's only real transactional experience was a failed 30+ billion leveraged buyout which collapsed because the firm was unable to raise enough debt financing at attractive terms (gone are the days of cheap covenant light debt deals).

    Infact, you could probably use the above as another reason to move to a middle market PE fund (after you've exhausted Compbanker's suggestions). Something maybe along the lines of the probability of getting a deal done at the megafund level being really low these days since current market conditions don't support such deals anymore - you have somehow had first hand experience at your BB either pitching potential port cos/trying to finance transaction for PE megafund clients that wouldn't go through. You'd rather work on smaller deals with a higher probability of execution. All the best.

  • In reply to CompBanker
    mokey1234's picture

    CompBanker wrote:
    I've hit a lot on the "real reasons" why someone might choose MM over Large Cap / Megafunds. Some of these also make for good answers (responsibility), while others make for poor answers (less hours). I'll try to take a different approach here.

    You're currently at a BB. Try to think of all the reasons you DISLIKE working in such a large organization. Is it a lot of red tape? Do you hate having to report to twenty different bosses in five different groups, none of which talk to each other? How about the size of your deal teams? Do you like having responsibility for a small piece of a large transaction or would you prefer responsibility for a large piece of a small transaction? Try to think of which environment is most appealing to YOU and drive your responses based on that.

    Having worked in MM IB / MM PE my entire career, here are a few of my thoughts:

    The most important aspect of any job is the people that you work with. Regardless of what work I'm doing, I enjoy it infinitely more alongside people that I respect and have built a relationship with. At a large organization such as a megafund, the large deal teams and structured organizational chart create a different work environment than one would encounter at a MM PE firm. I prefer having a handful of colleagues over hundreds.

    Early in your career, particularly in a pre-MBA role, there is tremendous value in learning as much as possible. At large private equity shops, your job function is typical reduced to a small facet within the deal process (for example, I know a person at a megafund who spent two straight years working with a single portfolio company to research and track the chinese transportation market). At smaller PE shops, not only do you get exposure to ALL aspects of transactions, you are given ownership over key tasks and play a meaningful role in the completion of the transaction. This increased exposure will put you leagues ahead of your peers at larger shops.

    Similar to point number two, the "exploratory" work in MM PE is significantly less than it is at Megafunds. In MM PE (that don't have a sourcing model), you spend almost 100% of your time pursuing real transactions, and the volume is high. The typical associate can expect to personally review 50 to 100 transactions in their two years. They can expect to complete at least one platform, multiple add-on acquisitions, and potentially multiple sales. Right now, the mega-deal market is really struggling. Few multi-billion dollar LBOs are taking place. When you've got $20 billion of capital to deploy, there are a limited number of targets you can go after. Given the number of megafunds out there and number of associates at each fund, the odds of you getting multiple billion+ dollar deals done is pretty low. Sure, you may do a handful of smaller add-on acquisitions, but if this is the case, shouldn't you have just gone to the MM PE shop to begin with?

    Finally, while deals in the MM are unlikely to make the front page of the Wall Street Journal, at the end of the day this has almost no impact on your life, particularly as a junior professional. The coolness factor of being the associate who drafted the funds flow for a multi-billion dollar merger wears off after a few hours. Having three extra 0's on the purchase price doesn't make you smarter or better looking. Your parents and friends aren't going to be impressed (you're likely to be labeled as a douche if you talk about work too much anyways). So unless you are trying to fulfill an inner need, doing larger deals really will not change your life.

    And of course, there is the money. I'm guessing that excluding my carried interest, I still make less money than a pre-MBA megafund associate. However, the marginal value of money decreases more rapidly than you would think. I live in a penthouse suite by myself, have every gadget known to man, a fully paid for luxury car, a $30,000+ wardrobe, dine out all the time, take international vacations every quarter and weekend trips around the country month or two, and still manage to save my entire bonus every year. While I've never lived in NYC, which would obviously impact my cost of living, an incremental $100k/year would have zero impact on my standard of living. For those who plan on getting married and having kids they want to sent to private school: By the time you hit your early 30s with a couple of kids in private kindergarten, you'll be pulling in $500k/year in MM PE and will have no problem covering these costs.

    The above probably sounds like a rant more than anything else, but there are very real benefits associated with MM PE that I feel are often overlooked. When answering the question of "Why MM PE," try to communicate how the benefits of MM PE are meaningful to you personally. To the extent you can support it with examples of similar experiences you've had in the past, all the better.

    You have carried interest as a partner I'm assuming? What did you make starting out as an analyst? Did you have to get an MBA before working at the MM PE?

  • In reply to mokey1234
    CompBanker's picture

    mokey1234 wrote:
    You have carried interest as a partner I'm assuming? What did you make starting out as an analyst? Did you have to get an MBA before working at the MM PE?
    Most PE firms have a "pre-MBA" position, usually titled Analyst or Associate. This position is typically filled by someone coming off of two/three years of banking or consulting. Pay varies widely in the MM, with the smallest MM firms paying low 100s and the largest MM firms paying mid to high 200s. Post-MBAs are usually titled Senior Associate or Vice President and typically have a number of years of PE experience. Pay is meaningfully higher than the pre-MBA position and often includes a small piece of carried interest. Personally, I don't have an MBA, but my position is considered a post-MBA position and the partners have indicated that they would prefer I work my way up to Partner level without one.

    CompBanker

  • In reply to CompBanker
    mokey1234's picture

    CompBanker wrote:
    mokey1234 wrote:
    You have carried interest as a partner I'm assuming? What did you make starting out as an analyst? Did you have to get an MBA before working at the MM PE?
    Most PE firms have a "pre-MBA" position, usually titled Analyst or Associate. This position is typically filled by someone coming off of two/three years of banking or consulting. Pay varies widely in the MM, with the smallest MM firms paying low 100s and the largest MM firms paying mid to high 200s. Post-MBAs are usually titled Senior Associate or Vice President and typically have a number of years of PE experience. Pay is meaningfully higher than the pre-MBA position and often includes a small piece of carried interest. Personally, I don't have an MBA, but my position is considered a post-MBA position and the partners have indicated that they would prefer I work my way up to Partner level without one.

    Ok thanks. One more thing, have you heard of PE firms hiring directly from undergrad? Especially in the MM. Good or bad thing to go directly to buyside without significant 2 years in IB?