Transaction Services Groups
Can somebody explain the different groups of Transaction Services: due diligence, accounting advisory, and valuation.
Which group do people who previously worked in audit move into?
What do they focus on? Do they hire from undergrad? Do you have to have experience? What are exit opportunities for each group? Which pays best? Etc....
Too many open-ended questions to draft a relevant response without some huge post oulining the advisory LoS. What is your background and why are you asking? You mention both recruiting new hires and transferring from audit. Knowing what you like/dislike or is important to you would be helpful to know as well.
I am a finance major from an extremely non-target university. I'll be getting my Master of Accounting from a very well-respected university starting in August.
I plan to work in audit for a year or two. I've heard a lot about people trying to make the switch to Transaction Services after a couple years of audit. It seems that its very difficult to get a job in TS straight from school.
So with that being said... do you have an idea what people are talking about when they say that they are trying to make the switch to TS. I am assuming that they are talking about the financial due diligence area. Could you provide some insight on the different work that is involved in due diligence, valuation, and accounting advisory?
From what I can tell at my firm, FDD are the guys who do deep dives into target Company's financials. They do occasional sell side work but the majority of their time is spent working with large Corps or PE firms analyzing target co's underlying data and then reporting these findings and any ebitda adjustments to the Corp/PE firm. My only experience with the BVal guys is them supporting us on the audit side (i.e. developing projections for use in goodwill impairment, calculating FV of a private company's stock, etc.). I'm sure they do much more than that so someone else will have to expound on that. I do know BVal is heavy in the modeling department which I think is why IB is a somewhat feasible exit opp from the group. Accounting advisory is technical accounting--so think helping clients properly account for complex transactions a la carve outs or IPOs or new rev rec standards.
FDD = Producing due diligence reports for either buyer or seller. These reports explore the target company's financials to ensure nothing seems "out of place" aka the company won't suddenly go bust post transaction. Core analysis in the reports include: 1. Identification of potential EBITDA adjustments (which may or may not be taken on board by the advisers when they do their valuations) 2. Suggested inclusions and exclusions in net working capital and net debt calculations for the sales document. Exits I have seen are FP&A (common), corporate development (common), equity research and occasionally IB (rare).
Vals = Audit assist as mentioned above. Purchase price allocation for transactions. Independent expert reports for takeover offers to assess fairness of offer. In terms of modelling, Big 4 has dedicated modelling teams which take care of most modelling needs. Valuations in my experience are actually not that heavy on modelling and has more of a focus on model review and assessment of inputs into valuation models. Exits I have seen are equity research, IB and Infrastructure funds.
M&A (corporate finance) = You didn't ask about this division but if you are interested in moving into IBD then this is where you want to be. These guys are the IBD of the big 4. They act as advisers on small to mid market deals and the work they do is the same as IB except on smaller scale with smaller fees. They focus on volume versus deal size. Exits are corp dev, strategy, IB, equity research etc. All relatively common.
Great summary.
If you had to guess, which of those groups (fdd/Val/Corp fin) have folks who stick around the longest before exploring exit opps? I.e. is one of them more of a churn and burn than the others? My gut tells me it's probably more determined based on the specific office locale and culture, but was curious if you had any insight.
Big 4 culture is in general churn and burn due to the structure of the firm with massive analyst classes filtering into comparatively small group of managers/directors/partners. Compensation that is below market also doesn't help, especially for the transactions divisions.
I have only worked in the FDD and Corp Fin divisions only but from what I have seen FDD analysts tend to stay longer with most directors/partners being career FDD guys. Would say most FDD analysts that exit do so at senior analyst (3 years) or Manager (5 years).
In Corp Fin the turnover is a lot higher due to more prestigious exit opps into IB or Strategy for better comp. It is an odd dynamic where 1. analysts generally stay till senior analyst (occasionally manager) and then leave for IB and 2. Director and above group made up of ex Investment Bankers who want a lifestyle change. As a result, our team has a very low number of career big 4 corp fin people at both the upper and lower ranks.
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