Difference of Senior Quality
Does the quality of MDs differ significantly from firm to firm among reputable firms? It seems like IB is somewhat of a commoditized industry, so would be interesting to gain more perspective on this.
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Most definitely yes. Started my career at a Balance Sheet bank (think WF/RBC), lateraled to a MM (think Blair/HL level), and then moved to a mid-BB, before finally lateraling to an EB. At each different type of bank, the type of clients are different, the nature of the client's relationship with the seniors are different.
Personally from my observations I'd say EBs tend to have to highest quality of seniors, as EBs largely poach top seniors from BBs that have proven their ability to act as a standalone advisor. Seniors at BBs tend to be generally good, but many rely on franchise strength for their relationships and deal flow more than personal relationships. Also, deal exposure throughout one's career is also important, and the average MD at GS/MS who has had far more high-quality deal exposure through his or her career (which has helped build relationships and credentials) tends to be somewhat of a higher quality than at other BBs. MDs at MMs have a very different skillset, and are very good at what they do (which is why it's so hard to lateral from a MM to EB/BB at a senior VP/Director level, you've simply built up a different skillset). For example, the MDs at Harris Williams are probably the best in the world at running a generic middle-market sponsor sell-side process because they have very strong deal exposure and thus credentials and relationships with the necessary players in the middle market sponsor world.
MDs at Balance Sheet banks often rely on the CB for their relationships a bit more, and also have to do quite a bit of relationship-building and coverage work for CB-related purposes as well. For example, my former MD at a Balance Sheet bank had to deal with very boring discussions such as discussing corporate pensions and very general investment-grade financing with his F500 clients, and the clients saw him as more of a CB coverage banker rather than the MDs from MS/JPM that they brought on as lead advisors for their M&A deals.
What level are you now and how did you make the switch to an EB/what matters for elevating here?
Always wondered how much of an MDs role at a BB/balance-sheet bank was consumed with CB work vs. M&A or more interesting cap raise work. Makes sense.
Yes, it varies wildly, but not necessarily in the way that you would anticipate. You might expect that EBs have the better relationship/coverage guys, because their model is entirely dependent on one individual winning a big mandate. That can be true, but there are also a lot of instances where large corporates want to hire an EB because of the lack of balance sheet conflict, the ability to write a fairness opinion, and the significantly lower fee associated with the work.
on the flip side, yes, there are troves of BB MDs who make their money just because they sit in the right seat at the right bank with the right credit exposure to the right industry. However, in the current market, that niche is a bit more competitive than it has been, and many BB MDs in coverage are fighting tooth and nail against a lot of other BB fork and knife bankers. In some ways, I would actually say that the BB MD has a much better understanding of the industry (because he/she is on the road 300 days/year) but the execution effort is much worse than the EB partner. The BB MD spends his/her time winning the mandate, but the EB partner spends his/her time actually executing the deal. Similarly, the EB partner can agree to a much lower fee because of their direct economic exposure, whereas the BB MD has to fight for a higher fee due to the large team (primarily junior) necessary to do the deal
Might be a stupid question, but does the EB schtick of being and "independent advisor" actually matter to clients? I've always thought of it as a marketing gimmick and that IB advisory is relatively commoditized to the point where the client doesn't really care that much about potential conflicts of interest as much as signaling to the market that something is unconflicted (eg. no bank will ever produce a fairness opinion that says a deal isn't fair, but rather the fairness opinion is produced for the purposes of being utilized by the client to signal to shareholders that the deal is fair).
Occasionally it does, particularly if the company is selling itself or facing a hostile investor. Much nicer to know that your advisor won't potentially earn fees from your enemy taking you over or someone betting against your share price.
The flipside, however, is that big banks will say that they're fully in the know of investor sentiment or can raise capital at a moments notice to help you fend off an attack.
Always two sides to the argument
It's very dependent on the type of client and each individual situation as well.
For example, if you're a super acquisitive corporate who constantly looks for deals to do, there's a lot less incentive for BBs to fuck you over for a quick buck so you'd be less worried about conflicts because your ongoing business relationship is worth much more to the BB than any incremental value from a "conflicted" piece of advice.
If you're a founder-owned business trying to maximize value selling to sponsors that constantly fund their LBOs with BBs, you might feel a lot more comfortable with an independent (even if they likely have similar repeat business and relationships with sponsors).
It does for the most transformative transactions often times given the client often times wanting the most fair advice and nothing conflicted with the fact that their advisor is also their lender and therefore may be fetching a deal which may just be best for the bank’s loan book rather than their own interests. While it may seem gimmicky, the unconflicted advice angle is actually really valuable given at its core, it ideally would yield the highest value for the client without instilling any doubt that the advisor is acting in any kind of self-interest. That’s also why you’ll see a lot of big M&A often times led by a independent advisor and have bulges to the right of them as the client doesn’t want the lead advisor to also be their lender. It’s a newer trend (not that new) but certainly quite common these days.
I think certain clients are beginning to learn how much it matters.
A lot of BBs will show up to bake offs/board meetings with 3-5 MDs in order to win the business, and then the client will never hear from those MDs again and have the transaction executed by a VP or director.
On the flip side, maybe only one partner from an EB shows up to pitch the business, but in my experience, that one partner will be available 24/7 during execution of a deal.
I've seen corporates more and more attuned to this fact and point blank ask who their counterpart will be. BBs will always lie and say it will be an MD or vice chairman or whatever, but 2 months later, a VP is the only person that client can get on the phone. A lot of this is due to the comp structure a BBs, where you're reward for winning mandates but not necessarily closing deals
As I've said in a bunch in other comments, the flip side of this is EBs, where the partner is highly incentivized to do 2-4 deals a year by having a ton of economic exposure to each deal that gets close
Does this also have to do with the fact that most BBs (except GS/Barc) distinguish product and coverage so the coverage banker may land the deal and never be seen again after handing things off to the product team?
But also do big corporates really care about the advice they get from bankers? I've always been told that in most cases they just pick GS/MS to rubber stamp their valuation and pitch it to the shareholders, so in that sense, it seems like senior counterparts wouldn't really matter that much if they just want the platform's rubber stamp
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