Can an investment banking firm specialize in private equity financing only (equity financing for private companies) and NOT doing any due diligence or valuation services ?
Its like raising capital to a client without being responsible to do due diligence or valuation.
Thanks
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Nadeem, I believe that is called Private Equity.
I saw your other posts about this so...
Yes it's possible in a Nietzschian way but no one, or at least no one I've ever heard of, does it. As a sell side guy you need to do some DD on anything you're selling and you have to assemble all of it anyway and you can't misrepresent your deal so you at least have to do some DD because you can't put out CIM or IM together without doing some anyway.
There's also a host of things on why you wouldn't do this from a business pov but what's the point of your question? What are you actually asking?
Thank you Dingdong08 for your reply.
The reason why i'm asking because I was wondering when I-Banking firm involves in a financing deal why they don't just act as a dealer and delegate the DD and Valuation to the investor (buy side) so the investor will become fully responsible and at the same time the IB firm will save lots of time and efforts??
Also, when I said not doing DD I didn't mean not doing AT ALL... I meant doing some primary DD but not going into details and let the buy side do all the detailed DD process.
Everything @"brokencircle13" said.
And the buyside does massive amounts of DD, far more in depth than the M&A banker does as far as I know. Typically the IB assembles all of the diligence items with the help of the company being sold. The IB does review and do some due diligence (I wasn't in IB before PE so maybe someone can chime in here on how much of and who reviews the due diligence in the IB-and if the IB is also participating in the debt, like brokencircle said, they'll do as much diligence as the buyer but I'd assume that's a different department within the IB-leveraged finance? corporate banking?-itself and not the M&A group but someone please correct me if I'm wrong) but the buyer, if it's a sponsor or an operating company buying it, really dives into the due diligence, almost always with the help of consultants and lawyers.
From what I know some of consulting firm's juiciest fees come from performing the diligence work for PE firms and that ranges from the McKinsey's of the world working for KKR to smaller consulting firms that you probably have never heard of but may be more cost effective or have a specialty in the type of company that's being sold, or a combo. And lawyers just always charge a lot of money but are a necessary evil. And usually (at least every firm I've ever worked) some poor associate/VP level guys get to read every one of the thousands of pages of due diligence items that are in the data room. I fondly remember my days of reading dozens of employment agreement and 300 page contracts. I will tell you, it's a blast.
It's part regulatory, part CYA, and part of it is that usually it's in your fund docs that you'll have third parties perform due diligence and valuation.
I work in the lower MM to MM market so we often deal with advisory boutiques who may only do M&A and don't have a balance sheet to lend and may only raise/broker the debt piece of the deal (and maybe not even that) so they're never going to be on the principal side in a deal. I know those guys read or are at least well acquainted with the important due diligence docs like big contracts, and maybe things like the HQ lease that's a material financial factor, but they're not going to read thousands of pages of documents.
Thanks guys.
Adding to dingdong08's comments, banks don't hold too much of the debt themselves and they syndicate it out. Debt investors will be asking the bank questions for their due diligence, and therefore the bank needs to show that they understand the company and have thought about the same issues that the investors would have.
In addition, banks could enter a firm commitment underwriting, which means they are responsible for any unsold inventory / debt. Without doing the proper due diligence, banks will lose money, and it will come out of fees. http://online.wsj.com/articles/jefferies-expected-to-book-loss-on-toms-…
TL;DR Banks do valuation and due diligence work for business reasons as well as regulatory reasons.
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