BIG4 Banking

Deloitte acquires Boutique IB

Monkeys, just read this morning that Deloitte bought a boutique IB. It appears the BIG 4 are making head way into IB, to the chagrin of many "observers". Numerous questions have been raised already about the independence of the Big 4 accounting firms. Do you guys think this will make things worse for the Big 4s independence image"?

Comments (21)

 
Jul 26, 2013 - 1:31am

Is that so? Damn i'm really behind, just read this on DealBook this morning! Apparently it was announced this Monday , according to DealBook anyways.

Mansa_Moussa

 
Jul 26, 2013 - 3:02am

peinvestor2012:

You just read this? It's nearly 2 months old. Who cares about independence? They are not allowed to conduct sell side transactions for clients on the audit side w/o disengaging first.

My knowledge on this isn't great but my understanding is these types of rules don't get enforced very well, especially when everythings under one company.

I did an IB internship and heard a lot about how when one firms represents both the buyer and the seller in an acquisition, the bankers representing them often illiegally share information on the companies.

 
Jul 26, 2013 - 6:51am

JDimon:

peinvestor2012:

You just read this? It's nearly 2 months old. Who cares about independence? They are not allowed to conduct sell side transactions for clients on the audit side w/o disengaging first.

My knowledge on this isn't great but my understanding is these types of rules don't get enforced very well, especially when everythings under one company.

I did an IB internship and heard a lot about how when one firms represents both the buyer and the seller in an acquisition, the bankers representing them often illiegally share information on the companies.

Please provide an example. That is highly unethical and violates FINRA rules. I have never heard of/seen this in action, whether it is a BB, MM, boutique or Big 4.

And you clearly don't understand the conservatism of which the Big 4 approach IB.

 
Jul 26, 2013 - 9:03am

peinvestor2012:

JDimon:
peinvestor2012:

You just read this? It's nearly 2 months old. Who cares about independence? They are not allowed to conduct sell side transactions for clients on the audit side w/o disengaging first.

My knowledge on this isn't great but my understanding is these types of rules don't get enforced very well, especially when everythings under one company.

I did an IB internship and heard a lot about how when one firms represents both the buyer and the seller in an acquisition, the bankers representing them often illiegally share information on the companies.

Please provide an example. That is highly unethical and violates FINRA rules. I have never heard of/seen this in action, whether it is a BB, MM, boutique or Big 4.

And you clearly don't understand the conservatism of which the Big 4 approach IB.

Well, obviously if they chose to buyout a boutique IB, they plan to start some sort of IB arm. What other reason would they have to buy it? I would suspect they are either merging it with their advisory arm or creating a separate IB entity that leverages Deloitte's brand.

 
Jul 26, 2013 - 9:21am

packmate:

peinvestor2012:
JDimon:
peinvestor2012:

You just read this? It's nearly 2 months old. Who cares about independence? They are not allowed to conduct sell side transactions for clients on the audit side w/o disengaging first.

My knowledge on this isn't great but my understanding is these types of rules don't get enforced very well, especially when everythings under one company.

I did an IB internship and heard a lot about how when one firms represents both the buyer and the seller in an acquisition, the bankers representing them often illiegally share information on the companies.

Please provide an example. That is highly unethical and violates FINRA rules. I have never heard of/seen this in action, whether it is a BB, MM, boutique or Big 4.

And you clearly don't understand the conservatism of which the Big 4 approach IB.

Well, obviously if they chose to buyout a boutique IB, they plan to start some sort of IB arm. What other reason would they have to buy it? I would suspect they are either merging it with their advisory arm or creating a separate IB entity that leverages Deloitte's brand.

You shouldn't post if you are clueless about what you are posting on:

http://www.deloitte.com/view/en_GX/global/services/financial-advisory/corporate-finance/

http://www.deloitte.com/view/en_XA/xa/about-us/leaderinglobalmiddlemarketinvestmentbanking/

The conservatism comment had nothing to do with the IB capabilities and everything to do with the misaligned incentives and conflict of interest that occurs between the accounting and IB side.

 
Jul 26, 2013 - 10:08am

F. Ro Jo:

come on. they already have IB arms. its called corporate finance.

Here's what I heard from people close to the situation. Deloitte already had a corporate finance arm, but the culture there was not like an investment bank and they weren't winning alot of deals. In fact they were so bad they needed to be whipped into shape, so Deloitte bought the boutique with the hope that the bankers there would either whip their guys into shape or fire them and make money for them.

 
Jul 26, 2013 - 11:10am

TDSWIM:

F. Ro Jo:

come on. they already have IB arms. its called corporate finance.

Here's what I heard from people close to the situation. Deloitte already had a corporate finance arm, but the culture there was not like an investment bank and they weren't winning alot of deals. In fact they were so bad they needed to be whipped into shape, so Deloitte bought the boutique with the hope that the bankers there would either whip their guys into shape or fire them and make money for them.

It's much more complex than that. All Big 4 firms have significant turnover (lose top guys to boutiques like McColl). Why? Red tape (pay is also a problem). Think about the conflicts.

Audit partner hears that his client is going to sell. Does he sacrifice $100K of recurring work for a $2 million one-time fee? He should, right? But, he's not incentivized to do so. His book of business is based purely on recurring fees, not one-time charges. And, even if they changed that fact, he'd still get dinged the next year on his "core" business, which is recurring audit work. Aside from that, you have an inherent legal conflict where Deloitte should disengage from the audit well before it represents the client in an M&A transaction (particularly sell side). That takes time and automatically gives an advantage to competing IBs.

Then you have the conflict with TAS services.

It's quite messy, but if they can work things out, the firms can really make headway into the IB market, similar to other parts of the world where the presence is much stronger.

 
Jul 26, 2013 - 7:15pm

The Big4 is not trying to get into banking. All of these firms have advisory practices with many different areas of focus to help its many tax, audit, and consulting clients. Look under Deloitte's FAS services and you will see some services similar to banking such as BVal and M&A. These groups are merely on "retainer" to act on certain issues that arise which require specialists. These groups are called in to assist clients and/or aid in the M&A process rather than to take the place of banks.

 
Jul 26, 2013 - 9:22pm

mashaus92:

The Big4 is not trying to get into banking. All of these firms have advisory practices with many different areas of focus to help its many tax, audit, and consulting clients. Look under Deloitte's FAS services and you will see some services similar to banking such as BVal and M&A. These groups are merely on "retainer" to act on certain issues that arise which require specialists. These groups are called in to assist clients and/or aid in the M&A process rather than to take the place of banks.


This is correct. I was in an M&A group at a Big4. Trust me, the shit that's happening there by no means actually sell-side related. We work on models, we work on projections, we do market research and assessment and everything a little analyst would do. And that's about it. In fact, it's the IBs who are usually hiring the Big4 to do this work because it's easier to just outsource it to someone who has the expertise.
Currently: future psychiatrist (med school =P) Previously: investor relations (top consulting firm), M&A consulting (Big 4), M&A banking (MM)
 
Jul 27, 2013 - 9:35am

mashaus92:

The Big4 is not trying to get into banking. All of these firms have advisory practices with many different areas of focus to help its many tax, audit, and consulting clients. Look under Deloitte's FAS services and you will see some services similar to banking such as BVal and M&A. These groups are merely on "retainer" to act on certain issues that arise which require specialists. These groups are called in to assist clients and/or aid in the M&A process rather than to take the place of banks.

This is not 100% accurate. It really depends on where your work in terms of firm and location.
I do work in Big 4 Corporate Finance in Europe and, at least in a particular industry we cover, we do compete all the times with investment banks for sell-side and buy sides mandates. Obv., we are not there when an audit client is involved (i.e. we don't advise our audit client on sell-side transaction or buy-side transaction) and we are not usually able to get a mandate in jumbo deals where large capital increases or large debt issuance are used to finance the transaction.

I'm grateful that I have two middle fingers, I only wish I had more.
 
Jul 27, 2013 - 10:13am

That's interesting and good to know. I have only experienced and spoken with people from the US entities so it might be different. I know the Big 4 are all under the same corporate umbrella globally but are not under the same ownership and are considered to be separate entities (i.e. US partners get US profits & German partners take German profits) for many reasons. Do you know if the European Big 4 firms run their operations differently outside of the standard tax and audit groups?

 
Jul 27, 2013 - 11:52am

Yes. My country has its own business plan and run its own operations. We just share same back office function with other european entities and some training processes. I had the feeling, for instance, that some country are not heavy m&a focused while some other put there more effort.

I'm grateful that I have two middle fingers, I only wish I had more.
 
Jul 27, 2013 - 12:46pm

chicandtoughness:

mashaus92:

The Big4 is not trying to get into banking. All of these firms have advisory practices with many different areas of focus to help its many tax, audit, and consulting clients. Look under Deloitte's FAS services and you will see some services similar to banking such as BVal and M&A. These groups are merely on "retainer" to act on certain issues that arise which require specialists. These groups are called in to assist clients and/or aid in the M&A process rather than to take the place of banks.

This is correct. I was in an M&A group at a Big4. Trust me, the shit that's happening there by no means actually sell-side related. We work on models, we work on projections, we do market research and assessment and everything a little analyst would do. And that's about it. In fact, it's the IBs who are usually hiring the Big4 to do this work because it's easier to just outsource it to someone who has the expertise.

These are inaccurate statements. It may vary by location or group, but I worked at a Big 4 before MM. We led the sell side process from inception to completion, the same way we do at the MM IB.

We built models, wrote CIMs, built buyer lists, ran a structured process and aided in the negotiation of terms.

Most of the work was for existing clients (80%, if not more), but we charged a retainer and success fee. All of this was coordinated through the broker-dealer.

 
Jul 27, 2013 - 3:33pm

peinvestor2012:

These are inaccurate statements. It may vary by location or group, but I worked at a Big 4 before MM. We led the sell side process from inception to completion, the same way we do at the MM IB.

We built models, wrote CIMs, built buyer lists, ran a structured process and aided in the negotiation of terms.

Most of the work was for existing clients (80%, if not more), but we charged a retainer and success fee. All of this was coordinated through the broker-dealer.


I stand corrected in terms of geographies (or perhaps it varies by Big4 company?) The one I worked for definitely did not engage in the sell process in the way that an IB would.
Currently: future psychiatrist (med school =P) Previously: investor relations (top consulting firm), M&A consulting (Big 4), M&A banking (MM)
 
Jul 28, 2013 - 12:36am

chicandtoughness:

peinvestor2012:

These are inaccurate statements. It may vary by location or group, but I worked at a Big 4 before MM. We led the sell side process from inception to completion, the same way we do at the MM IB.

We built models, wrote CIMs, built buyer lists, ran a structured process and aided in the negotiation of terms.

Most of the work was for existing clients (80%, if not more), but we charged a retainer and success fee. All of this was coordinated through the broker-dealer.

I stand corrected in terms of geographies (or perhaps it varies by Big4 company?) The one I worked for definitely did not engage in the sell process in the way that an IB would.

Peinvestor is probably going to jump on me, but I think there is quite a bit of misunderstanding about the finance related groups at accounting firms in the US. Deloitte, for example, has an M&A group which handles the due diligence. They do tasks like spot financial landmines and make sure the quality of earnings is what a company claims. Their valuation group might do pre-deal work but alot of their jobs are going to be post deal valuation for the purchase price allocation.

While the valuation or M&A groups might involve tasks that are similar to what one in banking would do, as someone said above, they do not take the place of the investment bank.

The investment banking side is completely separate. These companies are not under the same umbrella in the business structure as M&A and valuation groups. i.e. Deloitte Corporate Finance not just Deloitte, and I'd venture to guess that many people within any given firm don't even know about the corporate finance arm.

 
Jul 28, 2013 - 6:19am
I'm grateful that I have two middle fingers, I only wish I had more.
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