Solicit small IPO deals vs. M&A deals

Soo let’s explain what you need to do either deals:

ECM deal:

• prize: 5-7% fee pot per deal

• need syndicate & sales / trading desks with all associated systems (compliance…) to trade with investors. That means some level of scale and a lot of sunk costs. And since everyone covers the same investors the only way to really differentiate is by scale & frequency of trading with the buy side

• need research, to cover the stock

• need industry coverage & ECM coverage. If TMT or HC (where you see big ECM volumes) you need to spend time both with Vcs and companies

• but in every ecm deal, there will be a few banks. Any $100m biotech raise will have 3-5 banks for example. So max fee for the lead bank tends to be 30-40% of the raise, the other split the rest

• only the lead left bank does the bulk of the work with management. For the others they wait for syndicate & sales brief to get their cap markets team to sell to investors

• repeat issuers tend to rotate syndicate to expand research & investor reach. So you can go from lead left on a deal to absent on the next.

• lots of things not in control of the industry banker: what if research drops coverage? Have a sell reco? You don’t get on a deal if your bank’s view is sell on the stock. Relationships with issuers can sour quickly

• the calling work is basically that: calling. It’s not about having great ideas, it’s about share of mind & being there to help the potential issuer understand market conditions & how to take advantage. It’s hard to be smarter than the next banker, but it’s also hard to be worse

So needs a lot of volume to cover the costs. It’s lucrative but requires scale.

If you’re an industry banker, a $1m fee has to feed IB (industry + ECM + syndicate), sales & trading (incl. research).

• after the deal you still need to cover the stock to get repeat business.

M&a:

• 1 or 2 advisors per deal

• you can do an m@a deal with 2-3 people (MD + Vp + analyst are enough to run a small ish sell aide). $3-4m fee doable by such a team, and no one else

• the team works hand in hand with the decision makers. Lots of visibility builds your brand and image. This is where individuals shine (make the deal happen) and get rewarded jn $ and kind (reputation…)

• you do as well as you can, albeit obviously impacted by brand, etc.

• differentiated ideas pay off (sometimes).

Now, because you can have easily 5+ banks on an ecm deal, vs 1-2 banks on an m&a deal, ecm focus is a lower risk strategy in high issuance industries. If you look at healthcare you have a few MM firms doing $500m ish revenue from ECM only (Cowen / Leerink / Piper…).

Ideally, the banker will generate some flow from ECM (pays the bills) and generate a few m&a deals for the upside.

The above is from the perspective of an industry banker obviously.