What do boutiques do when there are no live deals?
Hey everyone, I´ve been lurking for a while now but this is my first time posting. Sorry if this is a rookie question or has been answered before, but what do small shops do when they have no live deals? I know the senior bankers would be out looking for clients, but what about analysts and associates? I´m talking about extremely small shops with maybe 10 people or less and very little deal flow. Do they provide other financial services or do they sit idly waiting for something to come up? Thanks!
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I also work in a no-name boutique (albeit part-time, still at uni) and what's said above is accurate; something is better than nothing. Lots of bitch work too (updating databases is glorified data-entry, ugh kill me) but you also get tonnes of exposure to live deals.
Will leverage this experience to lateral to a better/bigger firm in the future. All about dat hustle.
I worked at a small shop (15 people) in a small-market city before going back to business school. I was five years out of undergrad with zero finance experience, and I only got in because I knew a guy who knew a guy.
My experience was fantastic, and for one reason only: two of the MDs there decided that they would be personally invested in my growth. They took me to pitches, explained their thought process in negotiations, answered lots of questions, and gave me an education far beyond what one would expect from an analyst position. The actual content of what they taught me, and how to think about it, has played a significant role in my career progression.
However, if not for them, and had I spent time with just the other two MDs at the firm, then my two years would have been a total and complete waste, for the reasons stated above. There's no structure to teach you anything, and no time to invest in junior employees, and the people at the top don't have to care if they don't feel like it. If that's the situation you're in, then all you can do is try to teach yourself as much as you can.
Side note: in applying to business schools, or trying to lateral, recruiters/adcoms have a very difficult time valuing your experience if they don't recognize it. They don't have any idea what the actual work is like anyways, but if your resume says "analyst" and "Morgan Stanley," then their reptilian brain stems can recognize patterns and say "oh, we've had some of those before, and they seem to have done okay here." You can end up with excellent experience at a name they don't recognize, and it becomes very difficult to articulate that experience in a way they will appreciate.
I started my career off at a small, industry-focused, M&A boutique that had four MDs, two associates, and me. We regularly had one or two part-time interns from a local university. After a year at this firm, I lateraled to a MM IB.
We never pitched for business. All of our MDs were either former operators or corporate development executives and used their network to their advantage. 99% of our clients had EBITDAs of $1-$2M. While our actual deal flow defined as the amount of deals that we close was relatively weak (one to two a year on average), we almost always had one that we were working on. The thing with these small clients is that they almost always are not 100% sure they want to sell, which means that sale process is very drawn out and frequently goes from on to off to on to off to on again. These small clients are also very financially unsophisticated and require a lot of hand holding through the process. This always gave us something deal-related to work on.
One of our MDs always spoke at extremely nichey industry conferences. We rarely got deals from them, but the idea was to be THE investment bank for these industries, so that when the time to sell comes, we can skip the pitch and always win the mandate (I believe this same strategy was actually used be Jefferies's healthcare IB coverage group, but I cannot find anything to verify it). Putting the presentation together for these conferences was a complete nightmare. Imagine putting together a presentation on an industry that almost know one knows of and having an employer who refuses to pay for research. Then, when you find some free research report, the employer always gives you the "can we really trust this?" line.
It looks like some other posters have given some good information on life at a boutique, but I'm happy to answer questions too.
We actually spend a lot of time looking for new deals... it is quite common to have more than one live deal running and still seeking for others to add. At the end of the day, as you won't know which transaction you'll be able to close and which you won't, the point is just getting mandates. That translates naturally to a lot of work of "pre-mandate" analysis, probably with something like a 1:50 conversion rate.
BTW, I tend to agree with Jack.M.T. advise "do not work for a small shop if you can avoid it" but let me be more clear: it is way better to work for a small shop if you want to be part of this world than to join a whatever corporate environment doing anything from marketing to accounting... But one has to be aware of all the limits a small shop (with no name), ranging from limited resources (and access to data) up to not relying in the future on a "pedigree". Which is key for a number of firms. And this is the real downside... because once you are on a path is difficult to jump to another one.
I'm not sure what your experience has been, but it sounds like you have the impression that the buy side is easy.
There's a crucial tenet to all finance: there is no easy money. Easy money exists for short periods of time because of information asymmetry or a misunderstanding of the true underlying risk of a venture, and then it gets competed away. If other money seems easy, then the risk is probably not being priced correctly.
Generating returns in private equity today is harder than it's ever been, and it should be. The days of buying out an under-managed public company and leveraging it to the tits are gone. There are minor returns that can be gained from appropriately designing capital structure, but the only way to generate risk-adjusted return is being on the right side of "analysis asymmetry," where you've determined a growth trajectory for the asset that nobody else has figured out or can achieve.
(Either that, or you can find an asset that nobody else has found and buy it below market rate. But unless you're in growth equity or have a world-beating sourcing model, those opportunities are few and far between.)
The information that gets communicated in a CIM is... fine. It's a starting point. But there's a deep gap between bankers and, say, strategy consultants in assessing the position of a firm and its product offerings in its marketplace and greater environment, and I very rarely find the answers to my questions in a book. I need to have an exceptionally well-developed thesis in order to defend a real value creation opportunity, and the banker's information isn't going to get me there.
Maybe you've seen PE firms that are "dumb money" that basically take what they're given and add some leverage and call it a day. But if that's really their model - source from bankers, participate in auctions, provide money that isn't any greener than anyone else's - then there's no alpha there, and their investors are just taking liquidity risk. I wouldn't confuse that dying model with thinking that working on the buy side is "easy."