So in IB you work a lot when you're on a deal. The MD presents this to the client as "if you hire us, we'll do anything for you, any time of day, no questions asked". At the end, the MD gives the client a bill for all this hard work that was done.
Is there a reason an IB doesn't just offer their services at a cheaper price, and that way afford to not work 100+hr weeks? (and maybe go on to become recognized as a top shop given people don't face burnout, and so expertise in certain fields is very high?)
There have been a few high (or semi-high) profile direct listings in the past few years (Spotify, Slack, etc.). So obviously, paying fees to investment bankers is part of the equation and some companies don't want to pay that much money, regardless of output.
Basically, is there a market for B-quality investment banking work?
Yes, it’s called Nomura.
IB is not Law my dude, there's no billable hours. It's just a fee based on deal size
I get that. So why not reduce the fees and live a more normal life? Everyone gets a 10% to 20% compensation haircut, but life is generally more manageable.
No. There is not a market for B quality IB work.
A 10-20% reduction in fees is not worth going from A to B IB work. Clients would rather pay 100% of fees to get A work.
Fair. If direct listings support the fact that some firms are willing to pay $0 for no IB work, wouldn't that imply that there might be a gradient of what firms are willing to pay?
there is significant market risk for a direct listing. You need an A+ brand and even then your investors would rather pay few hundred million bucks rather than risk having a crap IPO and have reputational damage risk + a shit trading price.
You are only considering one part of the equation.
Now lets take a sell side - the goal is to drive competitive pressure to drive the price up. How do you create pressure you create constraints (ie no communication, time). So you want to have a process with a tight timeline - creating pressure for both bidders and bankers. So they will still want to be paid well given the pressure.
If you are on a buyside deals you are playing by the rules of the seller - ie time pressured.
Only thing that can take ages is like public M&A where there is endless discussion over years and then the company pulls the trigger and its hectic for a month.
Deals simply just need to move quick and really don’t have breathing room to be done slower. In a sell-side M&A deal, the longer you take, the more likely the deal is to go stale and prospective buyers get turned off. In an IPO, there is a lot of pressure as an underwriter to meet the deadlines to get the assets that prospective investors are committing to buying into their hands.
The difference in an optimal vs sub-optimal outcome relative to the fee itself is such that no one is going to pay for bargain bin advisory work.
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