Chances of entering PE without banking?

A question for people currently in private equity:

I was wondering how often do people break into PE without doing a stint in banking. I've heard of people coming in from consulting, but what about investment management or trading (without having to go back for a MBA)?

I did an internship at a PE shop and some people came in from industry (originating from accounting), but I've been told this doesn't happen as often anymore.

 

It's possible like you said. One of my friends is a partner at a big 4 firm and he mentioned recently that several of his empolyees have been lured away by regional PE players at salary multiples.

 

Thanks for your response, Bracketracer

I'm guessing for other professions, they may have to be a bit higherup before they get noticed for PE vs. coming out as an analyst at a bank?

 

Yeah, I'm hearing a lot about how students are landing PE jobs out of college, but I'm just wondering if they bother with analyst from other fields outside of banking. I'll be in something else within an bank's IB division, but it's not your traditional IB groups.

It's really too early to say if I want to go into PE after I've done my 2 years, but I would still like to hear about the chances of it happening from some people on this forum that are in PE now (but weren't IB analysts before).

 

The trick with PE is that only the biggest firms can afford ex-bankers. Smaller firms with less than a billion under management do not generate enough fees to satisfy huge teams of non-partner ex-bankers. One billion means only 20 million in fees. If each senior member wants to draw down a million per year to live on, you are left with only a little bit to satisfy junior people, pay rent, and run the business.

One billion is quite a large fund. With leverage, that billion can buy, say, 5-8 billion worth of companies, which translates to something like 50 to 80 billion of revenues. There are not many places you can look for 50 billion of revenues.

 
Best Response
Sabrine:
The trick with PE is that only the biggest firms can afford ex-bankers. Smaller firms with less than a billion under management do not generate enough fees to satisfy huge teams of non-partner ex-bankers. One billion means only 20 million in fees. If each senior member wants to draw down a million per year to live on, you are left with only a little bit to satisfy junior people, pay rent, and run the business.

One billion is quite a large fund. With leverage, that billion can buy, say, 5-8 billion worth of companies, which translates to something like 50 to 80 billion of revenues. There are not many places you can look for 50 billion of revenues.

i hope you're right sabrine. i am trying to get into mid-market PE from BB research and a top 3 undergrad background. it's definitely been a tough to get attention, but not impossible, and i think i have pretty compelling reasons as to why i want to do PE. well, even though research isn't really a target, hopefully PE firms can still appreciate perseverance and dedication these days...just gotta keep trying

​* http://www.linkedin.com/in/numicareerconsulting
 
Sabrine:
But still roughly on same order, depending on your industry.

If you disagree...how much does it translate to?

Say you pay 5x to 8x EBITDA. So 5-8 billion bought 1 billion of EBITDA, which, at 10% margin, is 10 billion. At 2% margin (distributors), it may be 50.

Love informative posts like this.

 

Just to clarify Sabrine - $1 BN in equity does not equate to $8 BN in enterprise value. Unless you're KKR buying Safeway 25 years ago, that's completely insane. Also, since when do PE shops scour the globe for distributors? Last I checked, businesses with high operating leverage and ridiculous working capital requirements weren't exactly the most attractive targets.

Even syndicated debt generally carries covenant restrictions that require equity to be at least 20-25% of total capitalization (i.e., Debt / Equity = 4-5x max).

 

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