Difference Between $100m & $1-10b Deals
From the many articles and accounts I've read from those in PE & IB (PE more specifically), I've noticed a consistent trend that larger deals tend to be more complicated.
I've a year of M&A expirience, I've done 1 deal sell-side to UMM PE $750m and several trade buyer deals ranging from $30-150m. I cannot compare between trade and sponsor deals, but at this valuation difference I struggled to note any significant differences in the transaction.
Can someone with experience of PE transactions specifically at the larger level $1bn+ (ideally from both the sell & buy-side) explain what makes larger deals more "complex" transactions? Perhaps a list of things that have to be done differently if possible - many thanks in advance!
For what it's worth, if this question is related to PE recruiting, don't think funds care too much about the "size" of the deal. Know plenty of people who only had sub $1bn txns (in-progress, not even closed) on their resume during interviews with MF / UMM firms and still got offers.
Thanks, reassuring. I was actually interested in finding out the differences in what has to be done for a larger transaction since I haven't been on any. Would appreciate any info if you have, cheers.
In my opinion, there's a bigger difference between working on txns involving a public company (regardless of size) vs. private companies. Lots more regulatory, shareholder value, board of directors, etc. things to navigate.
@SOFRsoGood @PrivateTechquity 🚀GME🚀 @Relentless
Any ideas?
Honestly don't feel there's much insight I can provide from personal experience here so I'm just going to opine on what I've heard anecdotally/think from my perch in the MM. Biggest deal I've worked on was a $500m buyout and I never did banking so I haven't seen what things look like from the advisor side. The founder of my fund was previously a senior guy at a MF and has said it takes just as much effort to do a $100m deal as a $1b+ and that the difference mainly comes from institutional process (i.e. internal bureaucracy at the bigger funds + simply having more resources to work with). For example, at a LMM/MM scale you'll likely doing all/most of the diligence work yourself vs UMM/MFs can outsource. They'll hire & manage 3rd party consultants who are subject matter experts to do chunks then sanity check it or use their own dedicated teams, but even that's not 100% the case these days for some funds on either end of the spectrum.
It would make sense that there's clearly a big difference when you're looking at say a $5b-10b company with international operations. That's a scale where the sheer number of product & service offerings across geographies is by default going to be a lot more complex than something that's only a few $100m. And if you need to go into the weeds of each segment, that's obviously going to take a lot more time & effort. If you throw in something like a take-private there's a bunch of other regulatory/legal considerations that have to go into that process (my fund explicitly avoids TPs for that very reason). And when there's literally a 10x difference in the amount of money in a deal, there's going to be that much more pressure on ensuring all the ts are crossed and all that good stuff which creates much more paperwork and CIM pages for the VDR. This isn't to say the people doing the smaller deals don't work as hard or produce as good work, but there's just less of that work that's needed + when there's so much more money involved it's inherently easier to afford putting more redundancies in place to make sure there isn't slippage somewhere.
Everyone in PE is trying to make money but not in the same ways when you're moving upmarket. IMO (these are generalizations) MM firms are really looking for those growthier 3x+ outcomes wherever they can and sometimes take on more risk in the process (+midsize businesses are inherently "riskier" than vs large enterprises if you ascribe to that theory; you'll see more donut MM deals than MF deals but that could just as easily be due to there just being more of the former getting done in the first place). This is counter to MFs (and some UMMs) which seem more focused on being safe & steady generating ~2x+ for the big pension/sovereign wealth funds and not losing money so they can keep accumulating fees (they've shifted from defining success in the model being based on carry generated from successful outcomes to accumulating fee-generating AUM).
Agreed. I’d also say it’s unique to the business as well, not just size. The largest deal I worked on was a pretty cookie cutter $2B+ deal for a Canadian pension fund buying a Canadian company in a straightforward space with a sophisticated seller . Was a lot of dealing with their IC, but wasn’t super hard.
In contrast, there are $100M deals where the counterparty hires a shit bank, company does operations across countries, family run so lots of areas are a shit show. Etc.
Sure there are a few things that jump out at me.
Math: The big one is the math. Bigger deals are always more complex from a modeling and math perspective. Along their journey from founder to fifth sponsor to public etc these companies accumulate a lot of shit in their waterfalls and cap structures. Additionally they have all these rev streams usually that are all individually modeled and different buyers and investors will ask questions about different ones. This introduces further more areas for the company’s FP&A and accounting to have rounded numbers, made up numbers, fat fingered, avoided work, etc and now the bridge to the GAAP is the eighth wonder of the modern world. Second, big companies have a lot of options. Meaning now we are evaluating 15 strategic alternatives which involve selling various parts of this business to various public and private folks, this is much more work than a nice PE to PE model for a 20m EBITDA biz.
Arguably the even bigger one is the people quantum: there are more people around bigger companies. And it isn’t more analysts and associates doing slides and models (it is, but not ratable to the massive increase in rich blowhards with opinions and questions). RBOQ’s are going to ruin your life when it comes to these 50-person boardrooms. They don’t understand the math discussed above. And they don’t want to. They don’t even care if you do. But they want answers, and they want them now.
Finally there is the people intensity: distinct from quantum, for big deals you are often for some of the important firms involved talking about one of their most important things. Maybe another thing they have goes bad and whatever they talk around it but if this goes bad they get fired. So they care more. More people further away from the topic care more — this is not a recipe for happiness of execution team.
All of this can be avoided if the senior people on the deal from all ends are decisive and logical with aligned interests unclouded by political considerations and their own career marketability. And if I had two dicks I’d be in the circus.
RBOQ? What is that?
Rich blow hard with opinions and questions
Sure there are a few things that jump out at me.
Math: The big one is the math. Bigger deals are always more complex from a modeling and math perspective. Along their journey from founder to fifth sponsor to public etc these companies accumulate a lot of shit in their waterfalls and cap structures. Additionally they have all these rev streams usually that are all individually modeled and different buyers and investors will ask questions about different ones. This introduces further more areas for the company’s FP&A and accounting to have rounded numbers, made up numbers, fat fingered, avoided work, etc and now the bridge to the GAAP is the eighth wonder of the modern world. Second, big companies have a lot of options. Meaning now we are evaluating 15 strategic alternatives which involve selling various parts of this business to various public and private folks, this is much more work than a nice PE to PE model for a 20m EBITDA biz.
Arguably the even bigger one is the people quantum: there are more people around bigger companies. And it isn’t more analysts and associates doing slides and models (it is, but not ratable to the massive increase in rich blowhards with opinions and questions). RBOQ’s are going to ruin your life when it comes to these 50-person boardrooms. They don’t understand the math discussed above. And they don’t want to. They don’t even care if you do. But they want answers, and they want them now.
Finally there is the people intensity: distinct from quantum, for big deals you are often for some of the important firms involved talking about one of their most important things. Maybe another thing they have goes bad and whatever they talk around it but if this goes bad they get fired. So they care more. More people further away from the topic care more — this is not a recipe for happiness of execution team.
All of this can be avoided if the senior people on the deal from all ends are decisive and logical with aligned interests unclouded by political considerations and their own career marketability. And if I had two dicks I’d be in the circus.
Can generally opine here from my banking experience and a bit of my PE experience (have less insight from the buyside)
Biggest deal I did in banking was~$10bn equity, smallest ~$500mm equity (only PE buyside I did was a touch bigger than the $500mm)
From a pure finance perspective there really isn’t that much of a difference between my largest and my smallest — both were fairly straightforward businesses so the models were similar but the numbers were just bigger in one. The most complex from a model standpoint was a 2-4bn company that had a bunch of random side businesses. So,in this regard, don’t think deal size matters much from a purely excel POV.
Where the difference comes is in the legal and ops side. A $10bn company has way more contracts, a way bigger employee base, lawsuits, HR considerations, etc. The buyer in the large deal I did had way more focus on the transition services and future management than the small one. As a banker this doesn’t really matter but as a buy side acquirer this is huge. You need certainty around who is running your business. All the legal things have generally seemed pro forma to me but you still need to go through as confirmatory dd.
There’s also the regulatory side. A sub $1bn deal won’t get scrutinized. Add a few bn and Washington is definitely taking a look. This adds a lot of wrinkles that once again don’t matter as a finance junior but do for the overall deal.
On the complete flip have been involved in some rollups. These are simple in the sense that there’s no real business complexity (a sub $50mm equity check can only do so much) but complex in the sense the systems and internal controls are top ass so the numbers are unreliable and you need to do a ton of work trying to make sure you aren’t getting scammed.
TLDR: overall deal complexity tends to increase with size, but from a financial view size isn’t the governing factor it’s business specific which can happen across the spectrum
Thanks, very helpful.
With the most complex model (2-4bn & side businesses) did you SOTP the side businesses, or did all the tabs flow into one operating model that drives the valuations?
I've been through some unnecesarily complex models, but am yet to see an an SOTP. How different are SOTP's to a standard model and is it purely just an addition of TEV? (post currency change).
TIA
From my personal experience, there isn't a significant difference between smaller and bigger deals from a transaction complexity standpoint. Of course if it is a $15bn merger vs. a $1m mom and pop, there will be, but when you get the middle of the range i.e. $300m vs $2bn deal, I believe this holds true.
Strictly speaking deal size doesn't affect complexity, however, sometimes, deal size goes hand in hand with bigger businesses, and bigger companies tend to have more activities/things to check.
In other words, there's no difference between writing 1bn in revenue in your model or writing 100% which could perfectly be 1k/10k/100k/1mm/10mm/etc. However, what is not the same is e.g. analyzing business-wise a plain vanilla $25M company vs. a 1bn company with 4 subsidiaries abroad, some pending patents, operational issues, a joint venture in another place, and other random lawsuits/risk of unknown contingencies.
In private markets, accounting book/statements are less homogenized because there is not the same oversight as for GAAP/public reporting, so this adds a layer of effort to rework some numbers/check for fraud.
Difference I see is that $100M deals tend to be just pure play sell-side to Sponsor type of deals. When you start getting to $1B deals there are a lot more corporate to corporate or corporate divestiture type of deals which are harrier.
I wouldn’t say larger deals are more complicated, but they’re definitely more complex.
One of the largest deals I've done was a 5 BUSD energy/infra. The broader deal team had some 70 people across multiple time zones, none of whom had met. At that point, the deal lead is effectively running a mid-sized company on a tight deadline, with all the coordination challenges that come with it.
I think most of the guys here are off on the modeling part. Modeling doesn’t scale much. Even smaller infra deals are complex on that front. Where complexity explodes is in the legal and technical DD. You might have 100+ departments or systems where something can go wrong, and with more assets and jurisdictions, every risk category scales exponentially.
The reason is materiality. De minimis thresholds are typically fixed, ie 25k or 50k, which could represent as little as 0.0005% of deal value. At that level, you're reviewing everything. More findings, more nuance, more judgment calls. Advisors can’t shrug off anything as immaterial which means more yellow/red flags, more commentary, and more workstreams to manage.
For comparison, on a 100 MUSD deal, de minimis might be 0.01% of deal value or 10k USD. That %point gives you room to ignore a lot more. Advisors can push back on immaterial findings, and you’re not expected to dig as deep across every function. Fewer assets, fewer jurisdictions, and a more manageable governance structure mean that DD is targeted, not exhaustive. You can run the deal with a leaner team, and the execution risk is far more containable. On a larger deal, the margin for error narrows significantly.
TLDR: From an investor perspective, the scale doesn't just require deeper DD. It requires much tighter coordination, more governance, and a significantly higher standard of execution across all advisors involved.
I hate to be that guy... but isn't the same thing? Complex and complicated are synonyms haha
No, there's a difference.
Copy-paste from the first Google result; a recent Harvard Business Review article by Gokce Sargut and rita Gunther McGrath offers these distinctions: “ … the main difference between complicated and complex systems is that with the former, one can usually predict outcomes by knowing the starting conditions. in a complex system, the same starting conditions can produce different outcomes, depending on interactions of the elements in the system.” For example, building a highway is complicated, but managing urban traffic congestion is complex. likewise, building a state-of-the-art air traffic control center is a complicated challenge in executing a project, while directing air traffic is complex, involving in-the-moment problem-solving.
Larger deals aren’t more complicated. The core tasks (DD, valuation, structure) follow the same steps as smaller deals, but they are more complex because of how those tasks interact. The number of parties increases and the risks multiply. Each piece on its own isn’t tougher. However, the relationship between them makes the outcome less predictable and more demanding from a project mgmt. POV.
Sub 2bn EV is not M&A, it's business brokering. 25bn+ is prestigious front page megacap
How many 25bn deals have been done L10Y by sponsors? Thx
Honestly, the subscale M&A deals can be a lot more work for the junior team vs. multiB deals just on the basis of the information, data and financials being so shoddy at that size. Trying to tie everything out is a headache.
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