LevFin vs Financial Sponsors
Which group would be easier to spin into PE heard conflicting arguments for both sides and want to hear different sides.
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Depends on the bank
For most banks, Financial Sponsors will provide an execution-focused, industry-agnostic experience including LBO modeling, diligence, meaningful work toward committees equivalent to that of the coverage group, and direct (constant) exposure to PE clients.
Have seen your posts on here for a while and they’ve been really helpful — big fan of your account. Couple questions for you as I’m thinking about a move from M&A to Sponsors:
1) When you say “LBO modeling,” is that just for internal committee purposes to see what IRR the PE firm is expecting? Or is it more of a true operating model in the sense that you’re advising on valuation/the acquisition? Does your LBO model actually ever get sent to clients or is it all just for internal purposes to see if your bank can underwrite the deal?
2) How much of sponsors is merely just the PE firm coming to you for financing versus actual advisory? Do they usually already know everything about the business, what multiple they’re going to pay, etc. — are you helping them figure that stuff out or is the whole thing just them using you to raise debt?
3) If you’re not an advisor but just providing financing, then does the true “operating model” experience come from more of an investing mindset to determine if your bank can underwrite the deal (and accept the debt on its books if syndication goes bad)?
4) Do you also get to hold the pen on the model and run point for the lender process? If so what does that look like?
5) How would you compare sponsors/M&A at the junior level across the board?
I’m looking to get over to Sponsors from my current group and have heard great things about the BofA/CS/Barclays/MS sponsors groups because they run execution and hold the pen but I’m just curious how much analytical rigor is going into the assumptions for the operating model and how it’s actually used (the analysis and digging deep into the business are what I like about M&A).
Thanks in advance!
At a mid-ranked BB, typically for us on buysides industry coverage holds the pen on the operating model and the sponsor plugs it into their own LBO, LBO model is run by Sponsors Team and purpose is really just to see if the Coverage OpMod MRA %age is high enough to get GL on financing. Different banks may do it differently though
Not OP but all of these, while good questions, really depend on the bank and the mandate.
For the specific banks that you mentioned, I have heard that Barclays sponsors does less modeling than the others. That being said, I have heard positive things about all of them. Relative to M&A you'll *likely* be grinded less and get a more rounded experience: if your bank wins exit mandates then you'll see a fair amount of IPOs and M&A within Sponsors.
1) Both internal committee and operating model. If the deal goes live then the model is sent to clients, ratings agency, private-side investors
2) Usually one bank at a time is truly "advising" the sponsor and the rest are more passive bookrunners, though even then at a junior level it's great experience
3) Yes it's more focused on that, think cash flow vs. IRR
4) Yes, once your PE client wins the deal and you're selected as the lead bank, your client is all of a sudden a true partner vs feeling like at arms length
5) Both are different and it's hard to get both exposures in any one group, so if/once you join PE there will always be some skillsets you need to develop further.
It really depends on the deal how much rigor goes into it. For live processes, there is quite a lot since there can be hundreds/thousands of investor questions digging deep into the business. For initial financing reads you can probably get away with something more quick and dirty. But that's part of what I like about Sponsors, since you're not pitching ever, you don't have to boil the ocean for things that don't need it.
All things being equal obviously a fsg role would be better than a lev fin role if the sole goal was to break into PE.
But lev fin is a close second. And plant break in from lev fin.
I know you’re trying to find every possible advantage to set yourself up to get into PE, but it really comes down to how you perform once you get the first round interviews. And if you go to a top school and get into any decent group at any top bank, you will get the interview.
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