Good MDs vs Mediocre/Bad MDs
Other than bringing in M&A revenue, what separates the “good” MDs from the rest of the pack? If you’re an MD at a big balance sheet bank, if you bring in no M&A but latch onto financing/equity packages, are you essentially replaceable? What justifies paying these bankers $1m+?
What proportion of MDs are good/difference makers vs not? Is the whole key of building a successful IB franchise attracting the difference-making MDs that do M&A, and everything else is a immaterial? What am I missing?
Good MDs stand out from mediocre or bad ones based on several key factors beyond just bringing in M&A revenue. Here's a breakdown based on the most helpful WSO content:
What Separates Good MDs from the Rest?
Deal Sourcing and Client Relationships:
Team Leadership and Mentorship:
Execution and Delegation:
Adaptability and Strategic Thinking:
Reputation and Influence:
Are MDs Who Rely on Financing/Equity Packages Replaceable?
What Justifies Paying MDs $1M+?
Proportion of Good vs. Mediocre MDs
Key Takeaway
While M&A revenue is a major differentiator, good MDs bring much more to the table, including leadership, strategic thinking, and client management. Building a successful IB franchise requires a mix of rainmakers and strong team players, but the rainmakers are undoubtedly the cornerstone of success.
Sources: Is it difficult at all to become a Managing Director in IB?, Hallmarks of a Strong MD, https://www.wallstreetoasis.com/forum/investment-banking/qa-md-in-ma-and-capital-markets-with-bulge-bracket-and-boutique-experience?customgpt=1, Questions about VP/D/MD levels at investment banks, BB vs EB total compensation
I can’t speak to comp mechanics, but I’ve seen what separates a great MD from an average one.
A great coverage MD is basically an industry insider. They know exactly which strategics or sponsors are ready to buy or sell and can broker introductions months before a formal process exists. After a meeting with them I walk away with either (i) a clearer understanding of the sector or (ii) a short list of targets that line up with our mandate even if nothing is actionable today. Poor/Average MDs on the other hand bring up the same 3-4 idea that every other freaking banker brings up and can't even speak to it in depth even though they 'know the company and 'know the team'.
Process-wise, PE shops don’t need bankers for the model, but a good MD can squeeze another .5-1x turn of EBITDA in a process (at the MF level this could be $100m+ of value leading to $3-5M more for the bankers). So imagine you're a MD at GS and running a ~$3bn sell-side for a MF. and assume a 1% fee (=$30M fee for the bank). Now imagine if the MD is really good and can sell that asset for $3.1bn or heck even $3.2bn well now the bank is getting $32M and effectively the MD just paid his base salary + a bit of bonus just with that extra squeeze.
Interestingly enough, at the MF level you have to dance with the BBs. We’ve got 30-plus portcos that all need financing, so the relationship is inherently quid-pro-quo. Example: a few years ago we sold a ~$2 bn asset and put GS, MS, and DB in the bake-off. Interns on WSO will assume GS or MS would easily win the mandate, but we chose DB. We’d skipped them on a huge IPO and they helped us with financing in the last couple years lol so this was a way to 'get back'. I personally thought the MD at GS/MS were stronger but the DB MD wasn't bad either. Had he been a total bozo we wouldn’t have bothered but just comes to show firm-level politics (and a little luck) still matter.
A bit of a ramble but hope its some helpful color
Straight up don’t believe you, name the asset
Can confirm on the aspect of picking banks: this is how it works. Mildly frustrating on the portco perspective as sometimes you get bankers of questionable quality from like RBC/WF (no offense to either, just examples) running your buyside deals because they lent a bunch of money to your sponsor. Huge difference in quality between bankers on buy-side processes for things like roll-ups: there's a reason sometimes winning bids are much higher in terms of EBITDA (yes, sometimes it's because the firm wants an asset, but oftentimes it's because the buy-side banker isn't that great). Think on the sell-side, less often do actually bad bankers get the role, usually a difference between great vs good MDs. Nobody is giving a sell-side to a banker who doesn't know the market super-well because of a bank's lending due to how much influence a few turns of EBITDA for a sell-side process has for a sponsor, but sometimes sponsors will give buy-side mandates for lending relationships, especially for portco acquisitions/smaller stuff.
Edit: just to clarify, there are indeed great MDs at non-top BB/EBs. These do indeed win buyside/sellside deals not based on lending relationships as well, but on ideas/relationships. There are subverticals where the top bank isn't one of the top BB/EBs for a reason. Yes, DB has great MDs who are rockstars/rainmakers, it's not like joining DB is going to magically make you go from a great MD to a not great MD. Just giving personal experience here that the case of banks winning deals solely for lending relationships is a thing.
Great stuff. So it sounds like Sellside M&A credentials are the best indicator of a good MD, because there are very few institutional factors and the person with the most individual talent usually wins
Good stuff here
My dad's an MD at an EB, formerly at a top BB. The junior MD job is basically about building relationships you can monetize, either winning deals yourself or bringing the whole firm in for a mandate. It's brutally hard, and also why it's so important to be at a firm that actually tries to cultivate homegrown MDs. Those who succeed get a flywheel where deals beget deals as you build a reputation assuming you can execute well. Those who don't are stuck perpetually pitching.
Most MDs end up mediocre because they can't consistently monetize relationships. They survive on passive bookrunner roles on IPO's and financings for clients they do work for / keep pitching as a reward for their work and because syndicates need to be filled anyways. But they're not trusted enough to win M&A mandates on any consistent basis. This makes them still a net-positive to BB banks as they bring in some passive fees and are basically phone picking-up officers, which is why they still stick around despite seemingly never winning any of the M&A bake-offs they are in. Some are okay with this and are chill to work for, others are horrible to work for as they desperately try to win a bake-off. The bad MD's are the ones who cannot get on deals even as passive bookrunners, as they have no connections and/or clients don't like them, those get fired within 3-4 years.
How does a bad MD even get the MD promote? Don't you need to prove revenue generation while still a D to get the promote?
Biggest question is how to actually cultivate relationships and win mandates as a junior MD. Sure having a senior MS is crucial to lend creds and overall support but winning a completely new client seems a lot harder as a junior MD with limited creds
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