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If you have the axe analyst in a space, you're more likely to be on the deals. The management teams know who the best sell-side analysts that cover them are. As long as you have a good reputation and are "buy rated", they'll probably bring their business to your bank. This is why the vast vast majority of sell-side ratings are horseshit. It also helps if they ask "tee-ball" questions on earnings calls instead of asking actual difficult questions that may make the management teams look bad (in some cases).
Seems to me we normally get told to start covering a company when the IBD division brings in a capital markets/M&A deal rather than the other way round
You're clearly missing the big picture. Janky is right.
Significant impact for IPOs and follow-ons. Little impact for M&A. As a mgmt team you date your bankers, marry your analysts.
Thanks for the reply. Can you just explain how there is an impact on IPOs? Research analysts wouldn't cover a private company, right?
Errr, surely once you undergo an IPO you're no longer a private company, right?
Management wants to be covered by a well respected analyst on the street. If your bank has an analyst that's good and is bullish on the sector, your bankers may have a leg up while pitching. Private or public doesn't matter. Management teams don't live under a rock and they know who has a good research franchise when selecting their IPO book runners (plus it's usually part of the pitch anyway. i.e. research coverage is usually implied or even guaranteed by the bankers).
I would add that one of the unwritten responsibilities of an analyst is to build relationships with privates and VCs. Also, during due diligence analysts meet with management teams from privates.
How often would research analysts meet with private companies/VC? Or is it something that is mainly done during the pitching process?
I wouldn't have thought that research would be involved in the pitch directly as it is material non public info?
If you're interested in the mechanics of Research/Banking and the conflict of interest that arises between the two divisions and similar you could try reading Confessions of a Wall Street Analyst - gives you quite a bit of color on all possible matters.
I had to attend an analyst meeting with the management of a potential IPO as part of a vetting process and I know all of the trips my analyst makes but I've never heard of an analyst speaking to a private company just for shits and giggles/when it's not related to a due diligence assignment. I have also never heard of any analyst speaking to VCs or that being part of our regular business. Management of a private company that's not planning on going public any time soon (with your bank as one of the underwriters) doesn't have to tell you shit to be honest and they often can't discuss anything unless you were already wall crossed on the deal.
Maybe if it's some sort of supplier or customer of one of the companies you actually do cover, it may be worth looking into as part of routine due diligence etc. but even then they would probably only tell you what they already disclosed.
Also, you are correct on that last part. We can't be involved in the pitch or help source deals. All we can do is give our banking contact information but we are not even allowed to tell the bankers to expect a call or brief them on who will be reaching out to them. It's all very strict.
Ah ok. Thanks to all of you for your help. I didn't realise/understand the importance of research when it comes to winning deals.
For those of you working in research, how much does the conflict of interest affect your research? Is it something that is acknowledged across the floor or do people not talk about it?
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