Sellside Models - Useful?
Just out of curiosity, how often do PE funds actually rely on the models sellside bankers make? I always assumed people on the buyside would always recreate their own models anyway but interested to see what others think.
EDIT: I'm referring to operating models that bankers develop during an M&A process, not equity research models
Ignore flair.
At one of the large MMs as an analyst in L/S. We use SS models as reference and sanity checks when building our own models. Obviously our assumptions are going to be different since the sell side is often very bullish about the companies they cover.
That’s helpful to know it’s not just completely discarded like half of our decks are :) how often would you say the SS has a model that closely matched yours?
When we really, really wanted to buy an asset
We’ll sometimes use the SS model as the start of our operating model build assuming the drivers are relevant. Will always leave the management case out there as a reference point but always build out 2-4 other cases that are actually relied on.
Exactly this, we use SS model as the basis, then develop our case, and then develop probably 1 or 2 other cases (maybe one for lenders and one for downside)
How do you get these sell-side models? Is it available on a platform like CapIQ or would some one on the sell side team need to actually send you the model?
Sorry, wasn't talking about equity research models, but operating models used during M&A processes and sent out to prospective bidders
Ping your BB FSG banker. They should be able to hook you up with access to their research platform, which includes the equity research models. Note if you're not at a large platform - since they have all-inclusive subscriptions - you will likely have to shell out a few hundred bucks for every report / model update.
Sellside bankers send you the model along with the CIM etc.
I think OP is referring to the sell side models PE firms get in sale processes and not the ones that equity research teams post / update on a quarterly basis. I work at a MF and we obviously refer to the sell side models, but 100% build our own models. It’s helpful to see how management thinks and forecasts out the business, but that’s all it is.
Thanks and yeah, that is what I was referring to. I think what you described is pretty much what I assumed, not sure why us bankers spend so much time developing highly detailed operating models when it feels like they are rarely used (besides seeing how management thinks about the business).
To be fair, private equity firms do the same thing when they get ready to sell the company so it kind of works both ways
We use their models as a starting point for drivers/segmentation and then layer in our own assumptions and build out new 2-3 new cases
Worth noting, most banker models have 5x more drivers / unnecessary bells & whistles than I need / am comfortable walking the partnership through. I usually use key outputs / figures from banker models for reference when building my own (usually just to make sure I project past this) & will look to understand the build upfront to decide on 5 or so key drivers that I want to drive my model to keep it simpler for IC / partnership.
Then there are extreme cases where eg. tight deadline, just use the provided William Blair model, tweak assumptions, and copy & paste outputs into memo
I haven't found them to be very useful, especially when projecting out multi-year periods
In private credit, our shop usually uses the lender model as the base for building out downside model and as basis for presentation to the IC, the management model is used to screen the investment initially and form questions for management
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