What work do you do for sponsor deals? Deal experience in FSG.
Can anyone explain the work that you do in Financial Sponsors groups or other groups where you're working on a sponsor deal? Other than when you're working on a sell-side M&A deal for a portfolio company, are all the mandates going to be buy-side M&A? How does the deal process look like for this? Are FSG groups just tapped to do the financing for LBOs or are they with the PE firm through the due diligence/investment process.
I'd appreciate insight specifically on FSG groups that do everything in-house and aren't just the relationship managers (think CS, Barclays, MS, BAML).
bump
Except for a few banks, FSG is a rough place to be. Usually, coverage / product will run with the majority of the deal or deck and FSG will chime in at the last second for pages like sponsor universe,“specific-fund portfolio”, etc. For LBOs, LevFin will price the issuance, time it, and syndicate it. M&A will almost always run the acquisition at all banks that have a m&a group. My roommate, who is at a BB (Upper Mid?) FSG group, quite literally spends his days waiting on coverage to send over opportunity pages and then sends up the food chain. I have watched him work less than 20 hours some weeks.
Here is an example of a walk through of how a FSG group might be involved. PE raises a fund with committed capital. PE funds identifies a sector they think will make them rich. They ask Citi (for example) FSG MD for thoughts on the market. FSG loops in Citi sector coverage MD. Coverage puts together a presentation with opportunities. Sends it to the FSG group. They don’t touch anything really and then send it to client. Client likes it and hops on a call. They discuss and client wants to move forward but wants deeper financial analysis (Model). M&A gets looped in (and tax group if necessary). M&A (and coverage?) run the model and analysis. Send to FSG, who again doesn’t touch anything hopefully and they sent to client. Boom - mandated. PE group needs to call capital but there’s a delay! FSG “underwrites” stop gap revolver for “bridge” financing until the capital call is completed (which is the max of FSG’s value add). LevFin gets involved for the financing of the LBO and prices it, then issues it. Then regular acquisition process....
Thanks for the insight. Do you know what the process might look like at a place like Barclays where there isn't a M&A group and FSG runs the model? I'm assuming they still work with coverage to find opportunities, but FSG would takeover the model. Also interested to know FSG's role with portfolio companies-- in terms of portco M&A as well as financings. I know MS/Barclays/CS all handle M&A and financing for sponsors and their portco.
so if Citi FSG work is mostly qualitative and team doesn't hold the pen on anything, how are analysts able to recruit for PE with less than stellar deal experience and no modeling work? also how's comp in FSG considering it's less intense than M&A and coverage groups?
I’m not sure this is a real question or not so I’ll bite, but same reason LevFin groups at some banks can recruit. They know how all PE firms operate (similar to credit shops and LevFin). Pretty silly to equate modeling experience with PE placement now a days. DCM gets paid the same as m&a at analyst level.
No sir, I know FSG doesn’t handle the model at Barclays - first hand experience with consumer retail and natural resources to attest to it. FSG aren’t really created to run deals or hold the pen on models - it’s simply a relationship role. Think more corporate banking perhaps. At places like Barclays or Goldman, FSG main role would be to coordinate with the titan industry groups (especially helpful for generalist sponsors).
No difference between portco vs GP level stuff with PE firms. It’s all PortCo unless Henry Kravis is finally LBOing Steve Schwarzmans wife. Same rules apply, the coverage banker covering that client will continue to be the main guy for that portco and FSG will simply coordinate requests.
With all this said,
hmm that's interesting...I've heard from people in the group and across other groups that FSG handles the modeling at Barclays.
This is flat out incorrect. Barclays FSG holds the pen on the model in all Sponsor deals / transactions.
Lol thanks man. In natural resources and P&U they do not - probably holds the same idea for consumer retail. Maybe in other groups FSG are more involved but it’s not the normal and suggest you re-source your information.
For some banks like CS, FSG and LevFin are integrated, which makes for a very technical, execution-based and modeling-intensive group that handles the whole process.
Can you elaborate on the actual process? I'm having trouble wrapping my finger around how the PE firm works with FSG because I feel like PE associates would probably do much of the modeling work required and DD.
PE firms are coming to FSG groups at different banks to see how competitive they can be with commitments and pricing. FSG analysts run the internal LBO lender model to give the bank a sense of how comfortable they are with performing the acquisition financing. PE shops have their own comprehensive models but generally just share one base case with the bank. FSG analyst has to tailor a few different cases to showcase how the debt will perform in different situations.
any opinion on MS FSG?
No sorry not familiar. Would assume M&A holds the model for any and everything there though.
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