'Bankers are not true subject experts - FDD accountants are?'

https://www.reddit.com/r/Accounting/comments/z0bk…

Saw this post by a former FDD accountant and auditor, made the move to MM IB analyst. The circle-jerkers in comments agree

TL,DR (of what this guy said):
1) Bankers are not true subject experts, (FDD) accountants are
2) Bankers are like real estate agents who just market and sell the house, accountants are the appraisers who actually value the property
3) Bankers masquerade as modelling and presentation gurus, and fear that clients will see thru their shit and find out that they dont add value

Thoughts? Lol.

(Don't MS me please, I just reposted and regurgitated his opinions. Those are NOT my opinions)

Comments (33)

Most Helpful
Nov 21, 2022 - 11:04am
rabbit, what's your opinion? Comment below:

I'll take a quick stab but my first read is while they make some valid points, it's basically another junior banker who misses the forest for the trees.

We are subject matter experts, but just like accountants, its within our sphere. That is to say we have our lane, accountants have theirs and there is some overlap. We are all ultimately service providers with specialized knowledge/experience that clients find useful and pay us for. Is one more valuable than the other? We could look at what fees bankers make on a deal vs. accountants as a proxy for how clients stack us. I don't know what the right answer is and am frankly not interested in a measuring contest.

On the most barebones, simplistic level, a business isn't just financial statements / financial health. There are strategic and operational nuances, qualitative aspects and many more that you can't distill into an income statement / balance sheet. A good banker is a good salesperson, who can distill ALL of that into a good story to sell to investors or buyers. Any junior banker that thinks that's super easy to do is welcome to go and try lol. There is a reason boards and c-suite come to bankers for strategic advice, not FDD.

On the flip side, FDD has it's specialty which I highly highly doubt I could do. But it's not strategic hence the delta in fee value.

No hate on either, everyone has their niche and interests. I just find this kind of comparison somewhat uninformed.

  • VP in IB-M&A
Nov 23, 2022 - 5:44pm

100% agreed with rabbit. I actually don't mind the real estate agent analogy, as I use it all the time to explain what I do to those who aren't familiar with M&A. I used to be quite a skeptic of what value bankers actually add (I used to work in Corporate Development). 

I have a lot of respect for the FDD/QoE guys because working in the middle market they are really a value add especially with some of the internal financials/accounting these companies provide. As with real estate agent you pay them to market the house to get the highest value along with their rolodex of buyers who would be interested in the house. Same with bankers, you are paying us for our view on pricing based on other similar assets that have traded and the buyers/relationships we know that would be interested. Ultimately, if we do our job right we will create a bidding war which will maximize value for our client.  

Bankers will craft a story that puts the company in the best light, put together a list of well qualified buyers (who also behaved well during previous processes, not just get to diligence to take a peak under the covers) and ultimately negotiate important issues (leverage offers against each other, exclusivity, who pays RWI and other business related issues that pop up during a deal).

I didn't read the article but I would agree that Accountants are the subject matter experts when it comes to..... accounting but when it comes running a deal process to get the best pricing/terms for the client, it's the bankers. 

While FDD is important, it's a workstream in a greater process. 

  • Analyst 3+ in IB - Cov
Nov 21, 2022 - 12:09pm

Bankers are business brokers. To be honest it is never valued for expertise in strategy / financial insights but rather on the ability to coordinate things and execute transactions managing workstreams of accountants, lawyers and clients.

It just happens bankers made the most as traffic coordinator

There are many small check size deals done without bankers but probably most of these deals still involve external lawyers and fdd advisors despite the company has its own corp dev and legal team

  • Analyst 2 in IB-M&A
Nov 21, 2022 - 7:20pm
[Comment removed by mod team]
  • Intern in IB - Gen
Nov 23, 2022 - 5:03am

All you have to know is who gets paid more to know if being subject experts is important, and the dury is out: it isn't important. Comp wise, landslide victory to IB over accountants

  • Intern in IB - Gen
Nov 23, 2022 - 11:12pm

Yeah I can't spell lol. Spills over in all my work; sometimes I input to buy 10,000,000 million shares instead of 10,000 million - oops, lol

Funniest
Nov 25, 2022 - 7:56am
Couldn't Finance a Cigarette, what's your opinion? Comment below:

"Boss, sorry to bring this to you at lunch but uhhh - the intern accidentally did another hostile take over. The board wants your perspective on their new Wi-Fi enabled hair dryer"

  • Intern in ER
Nov 25, 2022 - 7:57am

LOL HAHHAHAHAH

  • Analyst 1 in IB-M&A
Nov 23, 2022 - 10:45am

My impression of FDD in M&A and RX advisors (A&M, FTI, alix) is that they do the boring b^tchwork. The stuff you touch on in IB is far more interesting and you get a much better view of the operational side. 

Assuming he isn't lying for karma it sounds like that guy is at a LMM sellside shop which can feel more real estate brokerish. 

  • Analyst 1 in IB-M&A
Nov 23, 2022 - 12:58pm

Middle market sell side shops are very process oriented, especially on the smaller end. You're coordinating diligence request follow ups and sending 100 e-mails to prospective buyers. Capital structures also tend to be much more simplistic. It's more of a pure middle man role vs. actual advisory. 
 

still 10x better than FDD lol 

Nov 23, 2022 - 11:12am
sewter3, what's your opinion? Comment below:

As a banker, I'm prepared to admit FDD is often more technical. It isn't as competitive and doesn't pay as much because of supply and demand and historical links to the auditing profession which has never earned ib-style fees

Nov 25, 2022 - 9:12am
Sokz, what's your opinion? Comment below:

Think there is two more things to consider with respect to fees/comp:

- FDD are supposed to provide an objective (neutral) view. A fee that is based on the success of a transaction provides misaligned incentives. Can't speak for the US but in Europe they're mostly paid hour x rate especially for that reason. 

- FDD is paid irrespective of the completion of a transaction whereas this is not (/always) the case for IB. If it takes 4 processes to sell a company PWC is paid 4 times whatever hours they invested but the IB will only receive one success fee that ought to cover all (/most) prior work.  

Nov 23, 2022 - 11:58am
ASEANalyst, what's your opinion? Comment below:

I actually went from IB > PE > Big4 DD/M&A, which some people would call this a massive downgrade in "Prestige". So here are my 2c:

IB = Sales-focused (duh) and definitely an optimistic bunch, crafting a story and having a feel for the market are probably the most used skill in my experience. I learn what investors is looking for and therefore aligning their interest and goals with our clients needs.

PE = Strategic and analytical, key takeaways here are about commercial dynamics and risk management. Also personally for me the most demanding in the case of project management. You work on less projects but deal twice as much problems and double the complexity from IB. As one of the previous poster said, you definitely learn on how to become an IB employee better in PE.

Big4 = Fundamental focused and the most skeptic of the bunch, coming from both PE and IB, my modelling work here goes through twice the amount of scrutiny and the QA process is much more stringent. My partner always says "We are hired because of our accounting and taxes expertise." I could get away with some random numbers or minor errors in accounting principles in IB/PE (which focuses on the bigger picture) but here our model have to not only be absolutely flawless but also easy to understand & operate since the smallest issue with the model could result in a dispute which jeopardizes the entire deal (it happens) since it will form the basis of the entire transaction.

I miss the pace of IB and the breadth of PE, but i guess big4/consulting strikes the best balance for me so far.

  • Consultant in Consulting
Nov 23, 2022 - 12:21pm

Just out of curiosity, as someone who is trying to move the opposite way. Would you say the jump to Big4 was worth the pay cut vs the benefits in terms of WLB?

Nov 24, 2022 - 1:26am
ASEANalyst, what's your opinion? Comment below:

Pay is a subjective matter, tons of variable going into it. But in my case so far it's worth the cut since i roughly worked half the hours with 20% less pay. So the cost benefit ratios benefit my needs.

And it is highly group dependent, an M&A team in PwC vs in EY could be worlds different culturally form each other. I suggest you look into the team and culture itself more than the remunerations.

Nov 24, 2022 - 1:30am
ASEANalyst, what's your opinion? Comment below:

The reason is simple and i stated it in my original post, it strikes the balance between pace and depth.

I kinda resented the "selling the dream" vibe at IB (way too optimistic, sometimes outright deception), and PE works way too slow for me (esp. in LMM fund like i was). It goes doubly when you have horrifying culture (which it was).

  • VP in IB-M&A
Nov 23, 2022 - 5:20pm
Intern in ER

https://www.reddit.com/r/Accounting/comments/z0bk…

Saw this post by a former FDD accountant and auditor, made the move to MM IB analyst. The circle-jerkers in comments agree

TL,DR (of what this guy said):
1) Bankers are not true subject experts, (FDD) accountants are

SME's on what? The author never specifies this, FDD and Bankers have very different jobs so we are going to be SMEs in our own domain. 

2) Bankers are like real estate agents who just market and sell the house, accountants are the appraisers who actually value the property

True, but much like real estate the appraiser does not set the price for the asset, the market does and it is the job of the "real estate agent" (banker) to get the seller the best price possible by positioning the asset in the best light.

3) Bankers masquerade as modelling and presentation gurus, and fear that clients will see thru their shit and find out that they dont add value

Having started my IB career at a big4 in CF we often brought in the accounting side of the shop to do QoE and sometimes help out with working capital calcs, they use software to do everything and don't know dick about modeling. 9 times out of 10 as bankers we are building models at the behest of clients to show various scenarios and outcomes, if it's what the client wants then it's valuable.

Thoughts? Lol.

(Don't MS me please, I just reposted and regurgitated his opinions. Those are NOT my opinions)

Nov 23, 2022 - 6:38pm
george_soros, what's your opinion? Comment below:

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Nov 25, 2022 - 9:11am
Chadmorant98, what's your opinion? Comment below:

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