So I've resolved to spend the rest of my (13/14 month) tenure as an IB analyst thinking from the perspective of a PE associate. In its pure irreducible form, this basically boils down to the following: What data points are needed to make an informed investment decision? What is the associate on the other end of the deal plugging into his model?
Given my experiences on the sell-side, I would assume a PE associate has to make do with incomplete information. Sell-side bankers are masters of withholding the truly useful data points until later stages of a process. How does one properly construct an operating build without access to detailed information (gross margin/volume by product line, fixed vs variable cost structure, project/SKU level revenue information, etc.)
How can you possible submit an intelligent/substantive bid without these conrete underlying metrics (i.e., only the summary level data available in a CIP)?
Not in PE, but an acquisitive Corp. I wouldnt make broad assumptions that Bankers are masters of much in the deal process and infer they're smarter than the buyers. I don't say that to be insulting, but Bankers are marketers and counsel on sell side deals.
Being Strategic we usually know the companies that we're interested in. We probably already know the margins, almost always know the customer base well, etc... The out of the blue deal sheets where we dont know the company are much less likely to close. Obviously, this may be different for Financial buyers.
If we're serious about an acquisition and the banker has withheld information we just put in a conservative estimate and move on with the process. We know this will be disclosed later and we'll true up purchase price. I havent seen any studies, but this probably hurts the seller in the long run on average because once we're re-negotiating price based on new information we'll walk if it doesnt go in our favor.
I think of bankers VERY similarly to a real estate agent. If the listing on Redfin doesnt include a picture of the kitchen I either skip to the next house or assume it's going t cost $100k to renovate. Either way, probably not good for the seller since I'm going to see the kitchen anyways if I'm a real buyer.