Hey guys,
I'm a little confused about why banking experience is so valued at PE firms. Do PE firms just want bankers because of their valuation skills? It seems like the PE firm values a company, structures the deal, executes, attempts to improve operations, and then exits at a profit.
Is the former banker just valuable in that he'll know what terms of the deal will lead to a likely profitable exit down the line? I guess I'm confused because it seems like this would be hard to know without knowing what improvements you expect the company to be able to implement.
Any insight would be great.
Thanks, Yodaddy
They are valuable because they have experience in valuation, but more importantly because they know how to crank... they've worked long hours, understand the expectations/execution details surrounding the deal process and more importantly don't need a ton of training... PE firms are looking for people who can come into the firm, and take on a lot of individual responsibility, whether that be screening possible investment opportunities, or coordinating diligence processes, etc... you aren't going to find that in a kid straight out of undergrad... the ones they do pull straight from undergrad probably exhibit a great amount of potential that they deem worthy of the tradeoff to banking experience (i.e. they are willing to invest more time and resources into your development).
Modeling experience, general financial knowledge, previous deal exposure. If coming from an industry group or M&A background, a general sense of how businesses work and generate cash/value, as well as an understanding of the competitive overview of the marketplace.
Fresh PE Associates aren't masters of the universe who can innately spot a good deal with a 2 second glance at a company's statements. They are there to spend hours modeling and evaluate deals that senior level people at the firm bring in. The only other profession that requires this attention to detail with its modeling is IBD.
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