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Just curious, are these outsourced or inhouse?
What companies do this? Maybe big 4 or accounting firms offer this service?
Big 4s/big accounting firms, and some specialized boutique consulting firms. PEs, usually MFs, sometimes ask to audit models and do some DD and sometimes ask us to build the entire model from scratch.
I work in LMM PE so this doesn't happen at this end of the market. I haven't heard of this but I wouldn't be that shocked if the Bain's / KKR's of the world have resources like this.
Yes clients are usually MFs or UMMs.
Big 4 TS guy here. The big 4 sometimes get hired by PE firms to perform various types of work on their models.
Here’s an example from about a year ago. My firm got hired by a PE fund looking to place a bid for a company. They were time-constrained and basically wanted us to audit the mechanics of their model, the reasonableness of their assumptions, and a few other things.
Our corporate finance department was responsible for verifying the actual flow of the model and audit the formulas and mechanics. Our due diligence team spent some time calculating the EBITDA, net debt, etc. And our valuation department assessed the assumptions.
I would say these mandates are quite common. Most PE funds that use these services share common factors such as tight deadlines and limited resources.
SBed. In my company (not big 4), we cover the whole process: valuation, due diligence, model audit, model build, documents review, some advisory, etc. This is a really niche space and tbh I did not know there is an industry like this before I came on board.
From what I've heard before, is that generally a larger practice in Europe than the US? I'm aware of that in the US but was just wondering.
Intersting, do you guys have a ball park estimate on typically what a Model Audit Engagement would cost (mechanics, functionality, forumlas etc. for DCF, 3 Statement Model)? Also, whats the typical turn around?
Sorry for all the questions but I think it's a pretty interesting service, since our team is very resource constrained.
If the PE fund is under an extremely tight deadline, we usually charge by the hour. So there would be specified hourly rates for each level of employee. A big 4 M&A partner could charge as much as $1,000 an hour for these services (analyst between $150-250, associate between $350-450, etc.). So the payout depends on the hours that are actually put in.
Otherwise if the firm's help is sought out a bit in advance, we might establish a range of fees. For a quick audit of model mechanics and a high level quality of earnings analysis, we could charge around $50-70k for 1 or 1.5 week of work. Obviously this depends very much on the Client, the type of work involved and the depth of our work (all of which vary immensely from one project to another). Regional and national accounting firms would likely charge significantly less than that.
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