Hi all, I've been looking around WSO for a while now but haven't gotten around to posting anything substantial/giving back. I'm doing a Q&A for the next two weeks give or take to answer questions/thoughts you might have. Hopefully I can help despite my limited background, given the seeming lack of information on big 4 diligence groups. Maybe this will help someone decide that this is the career for them. Going on a few years now I have been working in a transaction advisory services group at one of the big four professional services firms in New York. The work varies significantly from one big 4 to the next (i.e. EY vs. DT vs. PwC vs. KPMG), and even moreso when looking at regional firms, so i'll stick to answering specific questions and areas of interest rather than giving a background at length. I won't be answering some questions due to the nature of the work (M&A), firm policies/restrictions, and personal reasons. That leaves plenty to be discussed though, so ask away.
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Couple questions:
How much MM work/small client work do the Big 4 do? I work in FDD at a global non-audit firm (think Houlihan Lokey/A&M) with a decent reputation in TAS, but I've started to get frustrated with how shitty the data our clients give us is. This is especially irritating because I want to specialize in healthcare, and it's frustrating to build waterfalls/cut data when the billing data is damn near unusable. Is it going to be more of the same with larger clients or would moving to the Big 4 be an upgrade from that standpoint? I imagine there's always add-on work that B4 handle for their PE client's portfolio companies, but is the majority of the work like that or are there more $700M+ deals out there?
On a related note, which cities tend to be stronger in Healthcare and which B4 will allow you to specialize more into a particular niche? As an accountant, I want to avoid NYC/SF because it's very expensive to live in those cities for what we get paid. Are there other options (i.e. Chicago/Boston) that would give me those opps and be more cost effective?
Thanks!
It depends on the firm really. The Big 4 obviously work on bigger transactions, with the biggest clients/megafunds being guarded/catered to with the most resources (no surprise here). Data doesn't always get better with size....trust me. That depends on the reporting systems/controls of the company honestly, though with bigger companies you do tend to see better reporting systems. You can get some companies that have so many entities/segments that their reporting systems are in some cases not cross compatible which leads to nightmares. Moving would likely be an upgrade on that front, though your pay may not upgrade if youre at A&M specifically (given their payout structure versus most other firms).
Boston is also a choice for healthcare (especially biotech). The big4 are organized differently, but i'm unsure which one to aim for when it comes to healthcare - especially in Boston as i'm not too familiar with the big4 there. Keep in mind, Boston isn't much cheaper than New York and it's a lot smaller - but if you want healthcare it's definitely worth considering.
Thanks for the insight. My other question is more general and I wanted to get the perspective of someone from the Big 4.
I'm wondering if you see much a future in FDD. In my brief time working in the industry, I fear the work is becoming highly commoditized and will essentially go the way of audit in the long-run. Lots of second and third-tier firms are entering the market and undercutting on prices. Plus, a lot of firms just see it as a check-the-box activity/formality that's necessary to get the requisite funding from lenders and not necessarily a value-add activity.
I personally disagree with this and feel a lot of value can be added with the right team/firm. FDD, and accounting in general, sometimes gets the unfair rep of being "conservative". I see it as trying to be grounded on verifiable evidence, versus pie in the sky projections on "growth" or "synergies", which usually never come to fruition and destroy value. That said, I fear a lot of PE funds don't feel that way and think they can project the long-term health of the business better than we can. One project I worked on was especially frustrating when we told the client's corp dev team that the backlog of revenue the bankers were projecting was 34% short of historical numbers, the growth projected on new facilities was much higher than other facilities, etc. and they still insisted on doing the deal, albeit at a slightly lower (but still outrageous) multiple.
Do you think this is true or are you pretty optimistic about the service line going forward?
Commenting on your personal example - a corp dev team implies that implies that you were working on a buyside for a corporate. In that scenario, they're 1000x more likely to buy the business (or not) regardless of what we say because they're usually thinking about it from more of a strategic/long term perspective and what it can do for the existing company rather than what that one acquisition is going to do in terms of standalone revenue/performance. They are 9 times out of 10 not looking to make an exit in ~5-7 years, they're looking at the positioning of the overall brand/vision/direction of the parent and all that. They want to know if there's some massive red flag outside of the numbers, like a lawsuit or old investor that has been swept under the rug that most people wouldn't bat an eye at but could be a future issue in combination with that the corporate knows (and hasn't shared with anyone else).
About commoditization - I wouldn't worry too much about it being commoditized if you're at the right firm. Relationships are still a massive part of getting deal flow/winning work. Think of other fields/practices and what they do (including finance roles)....a lot less wiggle room and a lot more standardization that has existed for some time now. The "right" firm is any firm that's investing technology to continue diversifying their definition of "FDD" and fighting to win new/develop existing relationships. Say that out loud and I think you'll realize that the same could be said for many things.
If you think about FDD as being the exact same work that is and has been done since someone created the first practice then yes that's arguably already been commoditized for a minute.
This is a huge question, and if i could answer it with 100% certainty then i probably would be working for myself right now haha. The biggest drivers are likely technology, access to information, and communication (firm culture/capability) - with emphasis on the first two as those seem to be the biggest hurdles in terms of differentiating outputs from one firm versus another.
FDD is not audit at all - the only real connection is that we sometimes review their audit workpapers (review meaning we have ~2 days to rifle through an entire digitally stored audit looking for specific things we want more info on, because the client doesn't always fulfill your requests or give the right information you're looking for so it helps to be able to see verified info rather than hoping they give you what you need....not checking off boxes or anything like that). So what do we do? We take existing trial balances, legal documents, operational documents, etc. and comb through all of that good stuff in the data room (and from meetings with management in person/conference call) to prepare analyses and reports. These reports are usually centered around a quality of earnings which validates a particular adjusted EBITDA figure, but there's a lot more than that which goes into the reports given that the price for the company is usually already "decided" and a lot of things important to the health of the company are not always quantitative, but qualitative. On a high level we look to normalize operating conditions, look at net working capital, cash flows, debt levels in the business, and reporting capabilities of the company. That makes up about 70% of the report and 30% is more abstract info ranging from supply chain/market analysis/other deal specific things. Bigger fees, more important clients, larger scope - more diverse and nonstandard analyses typically.
You can't move "freely" but it's definitely doable. Be careful and talk to people before jumping as the work varies significantly between big 4, and within each big4 as well. "operational" can mean 100 different things depending on the group (could just be IT related things).
People don't typically move from MBB to FDD unless they're hoping in at a director/partner level. MBB might hop into integration/IT consulting/management consulting at a big4 more likely.
It's very similar to banking in all respects for recruiting. It starts way before your final year of college and there are almost no spots because most people didn't come to the group straight out of college, they did audit first and were a top performer or worked in finance elsewhere then lateralled into a big4. This doesn't ring true for everyone though, as those who were qualified for banking but didn't aim for it/didn't get it also come to these groups despite not doing previous internships and events throughout college. It's not similar to audit recruiting in this way, as people with attractive finance backgrounds consider the role as well which raises the bar substantially (i.e. coming from OCR if you have a 3.5 you're not only below average as a candidate but almost certainly won't get an interview unlike in audit/tax...it would be an uphill battle).
For schools it tends to be target schools, but including top accounting schools (think Notre Dame, Chi-Illinois/Urbana school, U Chicago, University of Texas/mccombs school, etc.). Just not many if any ivy league, unless it was an MBA for someone already working at the firm/lateralling to a senior position. You'll see people that are senior and don't fit into this bucket, but that's because they did 2-5 years of audit before switching over to the group and were a top performer that "paid their dues".