Can anyone share any real life examples of typical value creation activities in the business and asset light financial services (insurance brokerages, wealth management, payments etc.) industries by PE sponsors? Any info is appreciated.
| +99 | Mid Level Career Freeze | 31 | 18h |
| +49 | Working on Juneteenth | 22 | 7h |
| +28 | Left PE for an operating role and starting to regret it | 6 | 2d |
| +24 | From Public Equities to Private Equities | 4 | 2d |
| +21 | PE Portfolio Management/Ops - pros and cons | 1 | 6d |
| +20 | Stealth-Listening Devices | 1 | 10h |
| +19 | Best Path to PE from BB Coverage w/ Outsourced Modeling | 7 | 5d |
| +18 | Weighing exit from LMM PC/PE | 1 | 1d |
| +17 | Becoming a great VC/PE investor - advice | 4 | 4d |
| Search Fund Internship Vs. Internship at my family's Family Office | 8 | 17h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Work in a FIG team at a MF, the single largest value creation opportunity is lever it up to the tits with M&A roll-up. No other initiatives comes close to having the same impact.
Wouldn't organic growth like rolling out new product lines and expanding into new markets create more value than roll-ups? Although risky, you are using your current assets more efficiently and fueling growth on capital generated internally and the upfront capital requirements and integration of M&A are high. Just curious, I'm just a student lol.
Original response was direct, but not at all wrong. Kudos to you on your response though. Especially for a student, you're asking smart questions.
In professional services, the two thoughts aren't mutually exclusive. The most important assets of these businesses are people and M&A is very much about talent acquisition. Take insurance or wealth management as the prime examples, as these in particular have become darlings of the PE roll-up strategy. To grow you simply need more clients, or more client assets coming in the door, you don't really need investment in hard assets. You either need an exceptional mousetrap that is scalable but low touch (i.e. involving minimal human engagement and thus minimal additional investment in expensive people). Or you need to hire more people to source and service clients. Acquiring firms or books of business is far and away the most efficient and impactful way of doing that. Top brokers/advisors aren't putting their resumes on linkedin, they're running their own shops already.
To your specific examples, you're exactly right that new products and new markets create value, but that is the core thesis behind the M&A strategy. You might identify an attractive geography based on centers of wealth or even existing client presence, but instead of building out an office, hiring a team, and hoping that it scales up and becomes profitable, just buy an existing business in that geography. Additionally, you might contemplate building out a team to offer enhanced services (e.g. a WM buying a trust company or institutional consultant). Of course you could do that, but if you have a capital partner you might as well buy one.
PE won't blink if the deal makes sense and the multiple arbitrage, while compressing, is still extremely favorable. The great ones are doing this with volume and the elite ones are doing this with volume, while also prioritizing integration (which is not easy nor always obvious). Most of these companies produce stable recurring earnings, with a largely variable cost structure which is why they're so attractive to begin with. With a discerning capital partner, deal consideration debt servicing should be more than manageable (famous last words).