Advising PE firm

As a banker, when you are advising a PE firm on buying a company (they are in the bidding process), what typically goes in the pitch deck you make for them? Would you put strategic alternatives for the target company?

Might be thinking about this wrong if somebody can clear this up

Most Helpful

Buy-side sponsor mandates are a little bit different than what you’re describing. Sponsors who are looking at buying a company are generally wanting some or all of the following three things:

1. Quarterbacking the Deal: this is the most straightforward one and involves pushing the deal forward on the sponsor’s behalf. Basically doing the job of the PE Associate and deal VP. It’s pushing legal documents, DD trackers, and financial models forward so the sponsor doesn’t have to. It’s basically outsourcing the junior PE work.

2. Bolt-On M&A: PE sponsors love multiple arbitrage and rolling up industries, so this is basically identifying a list of actionable targets that the sponsor can go after once they own the business so that the investment is successful. This is also generally the job of the PE associate and even the business development team at some firms.

3. De-Risking the Deal / Industry Expertise: This is the least frequent rationale, but PE sponsors want their deals to be good investments, so the big blue chip private equity firms will generally hire a large consulting firm (MBB tier) to do a market study before doing anything too big. The sell-side bankers may do this too, so sometimes you can even see two big-boy consulting decks on a deal. Similar work can be done by industry specialist investment banking groups who understand industry dynamics better than the sponsor does and can bring them up to speed with a deck that covers the salient investment considerations. Not as in the weeds as MBB, but another option in certain cases.

Sponsor clients tend to be more demanding than industry clients and are completely unafraid to ask you to iterate things again and again, because that’s what they do internally, and most were bankers once. Industry clients have mostly never known such pressures, and therefore sometimes don’t even think to ask for as much. It’s satisfying work, but comes with its own set of expectations.


Sponsor buy-side mandates are generally less pitch driven than sell-sides, as the sponsor will often already know who they want to use based on what banks have done the biggest and best deals in the space and are likely to be the most knowledgeable. The lower fees from buy-sides also make a lot of banks less likely to stick their heads out for an overly elaborate pitch. Banks will also often approach the most promising bidders to ask them for a buy-side mandate. It’s important to choose your horse right, because you’re often only paid if the deal closes, so you want to be working for the person who is most likely to close.

As far as the bolt-on M&A, a sponsor could likely make a first round bid without having much info on bolt-ons, but would want more clarity before sealing the deal. I can see that being a key deliverable for the subsequent rounds of bidding as the price ratchets up.

Another key concept which will help you understand why PE sponsors ask for comps in the first place is the investment thesis of “buying down,” which is something I love to hear on the sell-side, but is frankly just an excuse for overpaying often times. “Buying down” the multiple is the idea that the sponsor can overpay for a platform, but if there’s a ton of targets that can be picked up on the cheap over the portco hold period (say 5-7 years), then you can still make your original money back and a nice profit. Still seems a bit unwise to think an investment thesis like that is in the bag and therefore worth paying for today, although I love the premium price it gets sponsors to pay me as a sell-side banker, so it’s all in good fun as I’m concerned.


Other answer is good, the things I’d add to that are -

Process dynamics - a good bank will be very tapped in to a deal in their wheelhouse even if they aren’t advising. They will generally know who else either is / would likely be interested - will a big strategic likely pay a premium here (making it unlikely for a sponsor to win)? Is the seller hoping to roll so a PE firm makes more sense? What are comps people are likely to look at (for valuation benchmarking)? The bank can also help with bidding strategy

Exit planning - this is a big one, but a PE firm often trusts a bank to help understand potential exits after their hold. If the company looks like this in 3-5 years, will it get strategic interest? Is it going to get a multiple premium if it grows or does __? Basically helping the PE firm underwrite the exit in their model and gain conviction, especially if there’s a story of multiple expansion (I.e. if you hit $200M of ebitda, Microsoft or another big tech co will want it and you can get an outsized multiple)


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