What makes a good investment bank?
Hi everyone,
Before I start I just want to say that I am an incoming IB intern, which should explain why I'm asking a question that might seem obvious to a full-time professional. And that question is - what makes a good investment bank from the perspective of a client?
There is plenty of bank tier lists on this site but it seems to me that they are all taking the perspective of a banker looking at the banks as a workplace. What matters are exit opps, comp, culture, deal flow etc. And that is perfectly understandable - after all, these are bankers here who are asking and answering this type of questions.
However, I have also noticed the sentiment that while the above premises are legitimate, the differences between banks of different tiers get blurred once you start working there full-time. Or if they don't - as it might be the case when comparing a group with a great deal flow vs. constantly pitching - the causes are MDs not winning business or market conditions being poor. I haven't seen many takes along the lines of "we get no business but that's because we are a crappy bank and the work we would do would be crappy". Not that I should - people don't like to talk about how they are bad at something. Nonetheless, it made me think - what causes an investment bank to provide more (or less) value to its client than the competitors? I intentionally do not refer directly to winning business, because I am interested in qualities other than the pure salesmanship of senior executives. Also, please excuse the "provide value" buzzword.
While in the process of networking and recruitment I have seen multiple banks' presentations on what makes them market leaders, they all were relatively generic. I would be very grateful for a more direct and honest take on what actually makes an investment bank more useful to its clients.
Thanks,
Intern
Great question. Basically
Strippers and Cocaine
No, honest answer: good seniors, range of work and plenty of reps for deal flow. Am interning at one at the moment and so far, it's been pretty good.
Deals pretty much always go to either the best terms or relationship AND a belief that the bank can successfully run a process. This is why MDs are so important and have so much optionality since they own the relationships and oftentimes clients are loyal to individual MDs, not the overall firm. This is why traditionally considered lower firms might beat out better firms in winning mandates or in certain sub verticals. It's all about relationships as long as a firm has some history of creds in a space. Contrary to popular belief, large corporations and sponsors don't look at WSO to determine who gets business but mostly do it based on the relationship with a certain MD and to a smaller extent based on pitch decks. This is why Jefferies and RBC have been so successful recently; they have been able to successfully hire their way upwards since 2008 or so and grow their franchise over the years alongside being generally aggressive with terms.
The best teams part only comes into play when there are no relationships, which is almost never the case for true large-cap deals. Even then, it's usually best to team within a certain sub-vertical, not broader IB. Some boutiques might still win the deal over a supposed elite boutique or BB based on what MDs they have and their creds for example.
Edit: To summarize, what makes a good investment bank is its expertise and strength of seniors within the niche you are in.
Thanks for the answer. Would you then go as far as to say that process/execution is somewhat commoditized (and what makes great banks is the ability to optimally monetize it)? Also, what exactly would you say makes a team the best team?
The best team = a combination of deal flow and strength of seniors within the subsector of relevance for a deal. For instance, if chemicals sell-side, the corporate or sponsor selling it will choose the bank who they have the strongest relationship with. Suppose there's somehow no notable relationship of any kind (very rare), it'd go to the firm that within the specific sub-vertical is regarded as being the best or highly regarded as a combo of successful creds in that space alongside the overall creds of the seniors in the team. With things where financings are involved, financing terms may often also be considered when giving a lead as oftentimes the lead-left for LBO for instance also gets financial advisor creds. As mentioned don't think too much about best team, it's all very subjective and case-by-case. Realistically it also doesn't matter, deals go to relationships for large-cap transactions like 95% - 99% of the time as all large corps and sponsors are quite extensively covered.
The process is commoditized in the sense that certain seniors and groups have better connections and can possibly run the process more efficiently/with more bidders to get you a higher price. Depending on the strength of seniors and group, you can definitely get higher selling prices if you use a better group, but at the end of the day the asset has to be appealing for people to bid on and every bidder has a price in mind so it's not THAT big of a difference as long as you pick a generally good/decent group in your sub vertical.
Got it, thanks
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