Has anyone on here sourced a deal on the buyside that ended up closing? I am particularly interested if you achieved this in an environment outside of a Summit / TA Associates model, where I understand the compensation is firmly defined for sourcing a deal.
How and when did you negotiate your compensation for your successfully closed deal? Did you also happen to have carry in the fund at your level? Feel free to PM me if preferred.
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I have not started FT yet but ill share what I observed and I assumed that you are referring to LBO shops. Based on my understanding, for LBO firms, sourcing a deal would be much easier if you are in the lower MM to MM range.
With regards to the compensation, it depends on what you meant by deal sourcing. The following are the 2 possible scenarios which I had seen. 1. Sourcing for brokers who happen to have a deal that you firm likes (Referral Fee) 2. Sourcing for the deal by meeting the owners directly / proprietary deal (Buy-side Mandate)
For Scenario 1, the compensation is usually a fixed fee which mainly depends on the transaction process e.g. it depends on whether the deal is proprietary/limited auction/auction (Chances of you getting a higher fixed fee is more likely for a proprietary deal compared to an auction). Other factors include whether you can give your company an edge in the process e.g. a meeting with the sellers that your company have only access to.
For Scenario 2, the compensation would be similar to a buy-side mandate e.g. ~1% AUM with an upper cap depending on the firm.
I am currently an intern and I had brought in some deals that are in the process at the moment so I am not exactly sure about the part on negotiating the compensation. carry and co-investments are usually available to associates but it is firm dependent.
Is this a firm where part of your job responsibility is sourcing? Either way - I wouldn't expect anything more than top tier bonus at your firm and the respect of the senior folks. Even at Summit or TA - there isn't a fixed fee (or even variable fee) you get for sourcing a deal - it purely moves you into a different bonus bracket
Sourcing Compensation (Originally Posted: 11/06/2008)
Does anyone have any insight into the dynamics of compensation as a pre-mba associate at a MM fund with a sourcing model? I am curious how the comp works there. My understanding is perhaps a lower base, with more upside, but how much upside, and are there any figures on how often assoctiates are able to successfully source deals? Obviously this is extremely market sensitive, and the current conditions are probably not ideal for a sourcing role, but if anyone has any info on the % fee or however the bonus comp works upon sourcing a deal, I would be very interested to hear. Once again, I am mostly interested in pre-mba associate positions in $500mm-$5B firms (I know, not exactly MM). Thanks guys
Usually depends on the firm that you work for. A typical market price for originators in the middle market ($5-$50M deals) is about 0.5 - 1% of the FUNDED amount. This is straight commission based (ie. no benefits or anything else). Some firms (like HIG) were working on draws (meaning that they would advance a "salary" that would be offset against a closed deal; usually includes benefits). However, word on the street is that HIG didn't do that well (their originators were drawing too much, weren't able to close deals, and quit with a draw balance, which the firm had to eat). It's not uncommon in the market to have a draw and if you are not performing in 2-3 months, they can you.
As a entry level guy, expect to work under someone's draw at a very low salary ($40-50) with a bonus on each deal that you close (not very significant to your comp either; about $5-10 for each deal that you are able to source and gets closed). The thing is that being a junior guy, you really don't understand the products, you need to learn how to structure a deal (ie. if you get pitched a mez transaction, you need to think what other alternatives your firm would fund), you need to be able to sell the benefits of the firm and most importantly, you need to develop your relationships in the market, which takes a VERY long time (cold calling to the max). Developing relationships is the only way you will be able to source quality deals, and like I said, it takes a long time (1.5-3 years). All this info is on the PE side with a sourcing model.
Expect to close about 2-4 deals for a middle market firm in a year, and more if the deal market picks up (closer to 8, provided the firm has the appropriate analysts, associates, partners to support this).
The IB side is a little different and I'm not sure how it works too much; but IB's usually get a 3-6% closing fee on the deals. How this is split between the team, I'm not sure, but you can probably guess.
My advice, if you know you'd like to do sourcing, it is a great platform to become a Director. Directors usually are the ones bringing in the deals and structuring the transaction. Partners, associates and analysts close the deals. This structure is dependent on the firm. Unfortunately, all firms have a different sourcing / origination model, but I hope this gives you an overall look at how the front end works.
Thanks to both.
Slickmac - my role is definitely not sourcing related which is why performance measurement or incentive compensation is not specifically defined to include sourcing. What you describe as bonus brackets at Summit / TA is perhaps what I have been explained in the past related to sourcing incentives. I certainly have not heard of bonus brackets at other firms - basically every place I know of has a target bonus communicated at the beginning of the year which ends up being paid (sometimes with a de minimis increment).
i've sourced solid leads (in a non-origination role) and while none of them have panned out to be deals yet i'd be happy with a great review and wouldn't expect a bonus.
I worked at an intermediary firm before and can tell you it's either feast or famine. Most of the fee agreements my firm had were with MM and LMM PE LBO firms. The structure was similar to a Lehman/modified Lehman, depending on the client. It's a lot of relationship building though (w/ buyer and seller) and there's obviously a very small chance a deal closes. On a typical, normalized year, my firm would close 4 deals (employing ~6 senior deal guys in 1 office). I've noticed a significant opportunity for commission on add-on deals, but since those are generally smaller than platform acquisitions, you're going to get a smaller commission. Some PE LBO shops I know of have a built-in deal team (typically business development/deal sourcing roles), so I imagine the "finders"/"intermediary" space is having a tough time
I'm a CRE broker. I brought a pretty big development deal to a PE firm. They said there would be a fee to me. It's early in the deal. Very early. But they want to sign a CA and start negotiating. I'm going to represent the seller as a broker and hope to collect a referral fee of some type on the equity side. I have my own ideas but am not certain as to what is the norm with regard to referral fee.
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