AMA - Big 4 TAS Financial Diligence

Hi all,

I've been looking around WSO for a while now but haven't gotten around to posting anything substantial/giving back. I'm doing an AMA for the next two weeks give or take to answer questions/thoughts you might have. Hopefully I can help despite my limited background, given the seeming lack of information on big 4 diligence groups. Maybe this will help someone decide that this is the career for them.

Going on a few years now I have been working in a transaction advisory services group at one of the big four professional services firms in New York.

The work varies significantly from one big 4 to the next (i.e. EY vs. DT vs. PwC vs. KPMG), and even moreso when looking at regional firms, so i'll stick to answering specific questions and areas of interest rather than giving a background at length.

I won't be answering some questions due to the nature of the work (M&A), firm policies/restrictions, and personal reasons. That leaves plenty to be discussed though, so ask away.

Comments (49)

Dec 18, 2018

Inc shit posts from peacock bankers

Dec 18, 2018

They're more among us than they'd like to admit ;)

Us diligence guys are more half-breed anyways. And increasingly called upon for operational/ad hoc transactional support that bankers don't do.

Dec 18, 2018

Thanks for doing this. Always curious about TAS. What's your end game here? Which group/market is the strongest per firm? What's the comp for a senior associate/manager in NY, CHI and SF?

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Dec 18, 2018

The end game varies drastically depending on how many years one has been doing DD. Typically people who leave after 1-3 years go on to analyst roles at banks/PE shops, 5-6 years jump to associate or corp dev, and 6+ years stay in diligence making a run for partner at their firm or try to switch over to be an in house diligence guy for their client.

Pay in NY/CHI/SF will vary though only by 10-15% depending on location. It also depends heavily on the firm, so on average senior ranges from 80-120k and manager ranges from 100-150k and this is for base + bonus im talking. Note that i said average, there are outliers as always but pay tends to land in the middle of those ranges i listed (bell curve).

Dec 18, 2018

How about CHI? asking for a friend? base + salary that is.

Dec 18, 2018

Know a guy that transitioned from a B4 FDD group after 1.5 years to an EB in a Tier-2 city after solid networking. What kind of exit opps are you getting in NYC? Do you plan on going into IBD?

Work hard, work clean, & most of all do not give up.

Dec 18, 2018

In NYC the opps are very different from regional firms. This applies to NY/SF, and to a lesser extent Chicago. After that it drops off substantially.

Speaking from a NY perspective, people tend to hop over to banking without much trouble and LMM PE though that's rarer. The easiest is to stay doing diligence, move to an FP&A role at a F500, or get hired by a client (PE or strategic alike). People also go to consulting as well. Regionally, the options are diligence/FP&A or in house corp fin but rarely banking. The key is what clients you are working on which is drastically different from one firm to the next, let alone the firm you're at, let alone the group you work with in your specific practice.

Personally, I haven't made up my mind on what to do just yet but i'm still getting valuable experience which is most of what you can ask for at this stage.

Dec 18, 2018

Hi,

Thankyou for doing this.

Was wondering how day to day is like? Are you on call or do you have structured work throughout the day?

Dec 18, 2018

No problem, happy to get discussion around big 4 due diligence...who knows, it may bring interest and exposure to the topic which helps me down the road.

Day to day varies widely. A week can be 9am-4pm mon-fri where you're leaving the office early but are still attached to your cellphone waiting for that email (on-call), or it could be 8am-2am mon-sun though that's rarer. It depends on the specific deal you're on, how many people are assigned to your deal, and how needy the client is. If you're working with a private equity client, then you have a much higher likelihood of work coming up on the weekend or staying late during the week. The average is about 50-60 hours a week though.

Dec 18, 2018

What would you say clientele is like? From my understanding:
- Firms that need Extra DD e.g. PE firms who may need some statements checked, any other company that needs to build a model
- Firms being engaged by PE
- Takeover defense ??

Would be cool if you could elaborate. I'm looking to get into TAS next year.

Thanks again !

Dec 18, 2018

It varies by firm, but in NY your client is often a PE firm, and not necessarily because they need "extra" DD - In fact, some PE firms rely on us so much that they outsource tasks typically assigned to their associates, including modeling and general non-financial diligence.

Corporations looking to make strategic buys also come into play as clients, though not as often for obvious reasons.

Dec 18, 2018

Thanks for doing this. I'm in audit at at big 4 and in the process of switching to financial due diligence after busy season.

Does work experience/ deal flow and exit opportunities differ depending on the city? Is being in a big finance city (thinking NYC, Chicago, SF) significantly better for ones career than a smaller office/ city such as LA, Denver, Cleveland, Dallas, etc? Or would I get similar experience in any city?

Dec 18, 2018

Good luck, that seems to be a very common move (people promised to move over in exchange for one more busy season) or bankers who wanted to get more technical on the accounting side.

The city is arguably the most important factor. NY is by far king for this business, as there is so much deal flow. SF for Tech, though NY is still strong surprisingly. We are beholden to deal flow, even though we do get paid regardless of whether the deal goes through. If you want a career in diligence, start in a big city and then move to a smaller city once you get some deal experience.

Dec 18, 2018

I'm currently with a Big 4 Valuation team (not in the US though). Thanks for the summary of FDD ranking in NYC. In my country, the general ranking is also EY + PwC vying for the top spot, then D + KPMG.

I'm wondering whether you know (whether from official news or your colleagues/friends):
1. Which Big 4 has the strongest Valuation practice in NYC/US?
2. Which Big 4 has the strongest CF/Lead M&A Advisory practice in NYC/US? (Heard it's Deloitte then KPMG then the rest)
3. What is the usual make up of a TAS/Deals team over there? For example, in my city across all Big 4 firms, FDD guys usually make up over half of the Deals Advisory team, Valuation and M&A each 10-15%, then the rest are CDD, Forensics, Restructuring etc.

Dec 18, 2018
  1. PWC or EY
  2. EY or PWC/KPMG....unsure....i hear KPMG may have connections that are now "aging"
  3. Mostly M&A and val guys. CDD/forensics/restructuring are usually called on in specific situations or for entirely different projects. It also depends on the firm, but cross selling is huge, that is, the firms get dealflow from their other practices including the audit clients they have relationships with.
Dec 18, 2018

As for question 3, if I understood correctly, there aren't many FDD guys?

In addition, I've read that the consulting practice of Deloitte US is strong -> does that only refer to strategy/management/tech consulting? From your answer it seems that Deloitte isn't that strong in the Deals/M&A area.

Dec 19, 2018

How does your team perceive the CF team? In your opinion, which is more redundant?

Dec 19, 2018

The CF team is essentially MM IB (more than just DD). The DD team is due diligence on M&A transactions, going in depth to look for potential adjustments to EBITDA or reverse suggested adjustments if they aren't favorable to the client.

They aren't redundant as they have different goals and serve different clients - The DD guys are typically working on bigger clients than the CF guys (e.g. sales of 100m vs. 1b).

Dec 19, 2018

Thanks for the answer. I come from CF M&A at a Big 4 and always wondered about the difference between the two groups aside from DD. Interesting stuff.

Dec 19, 2018

Couple questions:

  1. How much MM work/small client work do the Big 4 do? I work in FDD at a global non-audit firm (think Houlihan Lokey/A&M) with a decent reputation in TAS, but I've started to get frustrated with how shitty the data our clients give us is. This is especially irritating because I want to specialize in healthcare, and it's frustrating to build waterfalls/cut data when the billing data is damn near unusable. Is it going to be more of the same with larger clients or would moving to the Big 4 be an upgrade from that standpoint? I imagine there's always add-on work that B4 handle for their PE client's portfolio companies, but is the majority of the work like that or are there more $700M+ deals out there?
  2. On a related note, which cities tend to be stronger in Healthcare and which B4 will allow you to specialize more into a particular niche? As an accountant, I want to avoid NYC/SF because it's very expensive to live in those cities for what we get paid. Are there other options (i.e. Chicago/Boston) that would give me those opps and be more cost effective?

Thanks!

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Dec 19, 2018
  1. It depends on the firm really. The Big 4 obviously work on bigger transactions, with the biggest clients/megafunds being guarded/catered to with the most resources (no surprise here). Data doesn't always get better with size....trust me. That depends on the reporting systems/controls of the company honestly, though with bigger companies you do tend to see better reporting systems. You can get some companies that have so many entities/segments that their reporting systems are in some cases not cross compatible which leads to nightmares. Moving would likely be an upgrade on that front, though your pay may not upgrade if youre at A&M specifically (given their payout structure versus most other firms).
  2. Boston is also a choice for healthcare (especially biotech). The big4 are organized differently, but i'm unsure which one to aim for when it comes to healthcare - especially in Boston as i'm not too familiar with the big4 there. Keep in mind, Boston isn't much cheaper than New York and it's a lot smaller - but if you want healthcare it's definitely worth considering.
Dec 19, 2018

Boston is VC backed biotech. North Jersey is mature pharma.

Dec 21, 2018

Thanks for the insight. My other question is more general and I wanted to get the perspective of someone from the Big 4.

I'm wondering if you see much a future in FDD. In my brief time working in the industry, I fear the work is becoming highly commoditized and will essentially go the way of audit in the long-run. Lots of second and third-tier firms are entering the market and undercutting on prices. Plus, a lot of firms just see it as a check-the-box activity/formality that's necessary to get the requisite funding from lenders and not necessarily a value-add activity.

I personally disagree with this and feel a lot of value can be added with the right team/firm. FDD, and accounting in general, sometimes gets the unfair rep of being "conservative". I see it as trying to be grounded on verifiable evidence, versus pie in the sky projections on "growth" or "synergies", which usually never come to fruition and destroy value. That said, I fear a lot of PE funds don't feel that way and think they can project the long-term health of the business better than we can. One project I worked on was especially frustrating when we told the client's corp dev team that the backlog of revenue the bankers were projecting was 34% short of historical numbers, the growth projected on new facilities was much higher than other facilities, etc. and they still insisted on doing the deal, albeit at a slightly lower (but still outrageous) multiple.

Do you think this is true or are you pretty optimistic about the service line going forward?

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Dec 19, 2018

In addition to what Seamless mentioned, the type of size of deals depends on the city. At the B4 I was at, the NYC and Chicago offices wouldn't work on smaller deals because they were pretty tied up on larger transactions while the other offices would take small deals if the client had enough volume.

Also look at Nashville, they have quite a bit of healthcare as well.

Dec 19, 2018

I'm currently an associate in NYC at a Big 4. I'm in valuation, specifically tangible assets(think personal property). Albeit we work on the same deals, I am much more in the weeds and our approach to value( think cost approach for machinery and equip) is different then say core val(dcf- income approach). Most of my group is engineers and some finance background people but I don't want to get pigeonholed. How do you suggest networking or asking to get exposure to core val or even an FDD group this early on into my career(4 months in)? My end goal is to get into banking or infra banking. I know guys on RE, FDD, Core val etc I just am wondering what you think my next steps should be...

Dec 20, 2018

Your best bet is reaching out to people you know (you said you know guys in RE/FDD/Core val/etc.) and asking them what their work is like. You'll get a feel for what you'll be interested in which will be important for performing (especially since you didn't start in one of those groups...this is not a pure con btw, just something to be aware of).

By being more knowledgeable about the different groups and knowing people in those groups you'll know their clients and exit opportunities which is going to give you the biggest hints at what's possible on the other side. Since you're already at a big4 it's infinitely easier to lateral to another position within a big4 than it is to get a job at a different place entirely.

That approach will give you the most options - but if you're truly 100% on banking/infra banking in particular (only you will know if you're "interested" or actually passionate) then I would start preparing as if you were going to interview at a bank in the next 3 months (learn the material, buy a guide if you need to, etc.) and switch to an FDD or CF group asap (within ~1 yr). Not that the work is 1000% different and you'll gain a ton more than you will in your current position, but having transactional experience from that side is going to be more attractive to banks than where you are currently at. Moving to core val could help, but not nearly as much as moving to FDD or CF in a big 4 as moving to those groups is going to make your story more believable and the transition easier.

Dec 19, 2018

Hi,

Thanks for doing this!

I have some questions:
- Super noob inquiry: What exactly is Financial Due Diligence? My understanding is you "audit" the sell-side financial statements/records during a M&A transaction.
- How transferable are the works between Operational and Financial Due Diligence? Can I move freely between these two groups?
- I'm actually moving into an MBB consulting firm, but interested in FDD work. I do see people moving from MBB to Big 4 before, but only to do Operational Due Diligence. I was wondering if you see these people in your firm before, especially in FDD, and in which specific role they normally move into?

Dec 19, 2018

Hi xxx, but with your username + the fact that you're coming to MBB it's pretty easy to figure out who you are :D

Most Helpful
Dec 20, 2018
  1. FDD is not audit at all - the only real connection is that we sometimes review their audit workpapers (review meaning we have ~2 days to rifle through an entire digitally stored audit looking for specific things we want more info on, because the client doesn't always fulfill your requests or give the right information you're looking for so it helps to be able to see verified info rather than hoping they give you what you need....not checking off boxes or anything like that). So what do we do? We take existing trial balances, legal documents, operational documents, etc. and comb through all of that good stuff in the data room (and from meetings with management in person/conference call) to prepare analyses and reports. These reports are usually centered around a quality of earnings which validates a particular adjusted EBITDA figure, but there's a lot more than that which goes into the reports given that the price for the company is usually already "decided" and a lot of things important to the health of the company are not always quantitative, but qualitative. On a high level we look to normalize operating conditions, look at net working capital, cash flows, debt levels in the business, and reporting capabilities of the company. That makes up about 70% of the report and 30% is more abstract info ranging from supply chain/market analysis/other deal specific things. Bigger fees, more important clients, larger scope - more diverse and nonstandard analyses typically.
  2. You can't move "freely" but it's definitely doable. Be careful and talk to people before jumping as the work varies significantly between big 4, and within each big4 as well. "operational" can mean 100 different things depending on the group (could just be IT related things).
  3. People don't typically move from MBB to FDD unless they're hoping in at a director/partner level. MBB might hop into integration/IT consulting/management consulting at a big4 more likely.
Dec 20, 2018

Hey, first off, thanks for doing an AMA on this topic. There really isn't much information on Big 4 TAS roles on this site.

Now, onto my question. Recently, I have seen many opportunities to work in TAS (FDD) in large canadian cities (Toronto, Montreal, Vancouver, etc.). I have also had an interview for one of these roles and have been considering taking a position for 1-2 years. My ultimate goal is to transfer into IB. I know that the switch from TAS to IB is possible, but do you think it is possible to transfer as a TAS senior associate role into either a second-year analyst or first year associate role in IB?

Would the 2-3yrs experience in TAS be credited for some experience in IB? Or would I have to start again as an analyst?

Dec 20, 2018

I've seen both happen. Depends on your degree of exposure to deals and clients during your time in TAS.

    • 1
Dec 20, 2018

Cornelius is correct. Moving over to analyst is much easier, and you might get a year of credit (depends on what you did before big4 too). Moving over to associate is rarer, and usually you would be a manager at a big 4 before doing that (which would be preferable as well, given that you'd have better project management experience, technicals, and relationships as well).

Dec 20, 2018

Thanks for the feedback. By the time I leave, I would have 2 years of TAS experience and I would be a CPA and a CFA charteholder. So if I can be credited at least 1 year of analyst experience it would be great.

Dec 20, 2018

What background do you recommend in switching to TAS? I want to make the switch after 2-3 years in forensics (ideally business valuations but haven't crossed off FDD) - do investigations, forensic accounting and transaction disputes that are accounting heavy and M&A focused. I have CPA/ABV and can model (DCF, comps, etc.).

Aside from networking within the practice at my firm, what else do you recommend in the switch? I know the typical person switching internally comes from audit or tax, so I'm not sure if having a different experience puts me at an advantage or disadvantage. Thanks!

Dec 21, 2018

A few years in audit, a specialized industry accounting role, or transactional finance role that requires accounting knowledge. Your role is arguably more than enough to move over to FDD, so networking is really the only thing I can think to recommend as forensics guys with a couple years of experience tend to be pretty smart even if it isn't "prestigious".

Dec 23, 2018

They did an interview on Mergers and Inquisitions with a Big 4 TAS guy who mentioned that TAS is a more well regarded practice than it is in the states. Is that true in your experience, and if so do you face any pressure to transfer to European offices?

Dec 24, 2018

That's because the job is apparently a little different over there (in the U.K. i'm assuming you mean though you didn't mention) as a result of rules and regulations (dealing with and preparing PFI/forecasts/etc.). So it's even easier to switch into banking/PE than it is in the U.S.

That's most of what I know about it though, as i'm not terribly familiar with the differences. Oh, and there's no pressure to move over there at all.

Dec 24, 2018

I think the interview was with a guy on the continent but could be wrong, although I see how it would apply to the UK too.

Dec 30, 2018

I worked in London TAS

From what I've been told by colleagues who have worked in both regions differences stem from regulations in the US are tighter so scope of work is slightly more limited and is also more restricted in how much "advisory" based commentary you can provide within the report. Another difference I've been told is this the US style reports seem to gear towards more explaining movements in detail (probably to overcome the limitations in restrictive advisory) whereas there is more of a focus on materiality in UK reports.

I also think that the accounting profession has been seen as more respected in the UK due to this historical background. It started there after all. Similarly the CFA is better regarded in the US than it is in the UK.

Dec 26, 2018

Suppose I want to get a job in a similar role? How different is the whole process (networking, interviews, applying for jobs) when compared with I-Banking in areas like SF, NYC etc.? Which schools/industries do you guys tend to recruit most of your analysts/associates from?

Get busy living or get busy dying.

Dec 27, 2018

It's very similar to banking in all respects for recruiting. It starts way before your final year of college and there are almost no spots because most people didn't come to the group straight out of college, they did audit first and were a top performer or worked in finance elsewhere then lateralled into a big4. This doesn't ring true for everyone though, as those who were qualified for banking but didn't aim for it/didn't get it also come to these groups despite not doing previous internships and events throughout college. It's not similar to audit recruiting in this way, as people with attractive finance backgrounds consider the role as well which raises the bar substantially (i.e. coming from OCR if you have a 3.5 you're not only below average as a candidate but almost certainly won't get an interview unlike in audit/tax...it would be an uphill battle).

For schools it tends to be target schools, but including top accounting schools (think Notre Dame, Chi-Illinois/Urbana school, U Chicago, University of Texas/mccombs school, etc.). Just not many if any ivy league, unless it was an MBA for someone already working at the firm/lateralling to a senior position. You'll see people that are senior and don't fit into this bucket, but that's because they did 2-5 years of audit before switching over to the group and were a top performer that "paid their dues".

Feb 19, 2019

What level would a Senior Associate in Big 4 financial diligence lateral into at an IB? Would they come in as an Associate or an Analyst? How about a Manager?

Mar 6, 2019
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Mar 13, 2019
Apr 27, 2019