Comments (6)

Mar 10, 2015 - 9:23am

Usually, large transactions have a consortium of banks advising both seller and buyer. These banks can be both BBs, EBs and others. Often it will be dependent on the relationship the senior banker has with the given firm.

What specifically do you want to know?

Mar 10, 2015 - 11:23am

As far as I know, most of the larger deals the due diligence process is outsourced. Big 4 accounting firms provide transaction services specifically for this.

This article is a good one, not to bash GS, but it's an interesting article never the less:

When multiple banks advise on a M&A deal (i'm not sure about debt or IPOs), the lead bank (book runner) will prepare the CIM, and that bank would collect most of the fees. Other banks do little. So even though multiple banks may "share" a mandate, there's only one that's in charge.

In some cases there are co-leads, in which two banks do most of the work.

Best Response
Mar 10, 2015 - 12:40pm

I've worked at both a BB and an EB. Here are my tangenty thoughts:

The BB I worked at did a lot of capital markets deal to build relationships. These guys rely a lot on their balance sheet and building their network through lending / capital markets in hopes they will turn into M&A fees. Literally, when people go to a credit or debt committee, they factor in risked M&A fees. This company's wallet is X per year based on historic M&A transactions and their visions of growth in the future, we think we have a Y% chance of getting fees each year which equals $Z in total M&A fees over the loan/debt/product/etc. These fees plus capital market fees equal A and A divided by money lent shows our return. Let's lend them money! And it goes on and on until an MD get's rejected at committee because people know the client will never use their specific group for M&A and then someone gets fired over it depending on how hard said MD pounds the table. It's not a bad gig for a star banker to work at a BB to successfully execute capital markets transactions (i.e. building their relationship with C-Suite by showing their capabilities).

BB like the "one-stop-shop" approach to banking. Need debt? Here you go! Need equity? Here you go! Need M&A advice, here you go! How about hedging? How about equity research? Or, sadly,... you should do this M&A deal so we can make fees off of you for being your M&A advisor ($) and also for putting together debt ($$$) and equity ($$) packages.

So, to me, what the EB model offers is advice that is seemingly less biased and less conflicted. I think the eat what you kill mentality is also greater at EBs -- so their ideas are generally better and the caliber of people have seemed higher. The best products the EB offer is their advice. From my, very biased, experience, the MDs at EBs are hands on and involved; however, your MDs at a coverage group that play match maker between "their" client and product desks can be golfing 3 days a week and out 3 months during the summer because their revenue points just keep rolling in the door.

All this to say BB vs. EB is less of a "BB do big deals and EB do small deals" to BB buys their way into deals sometimes and EB earn it. EB also parade around their lack of conflict; hire us to do the deal because you will only pay us for our advice.

Banks work together all the time. It doesn't always mean they share the work equally...

Example 1: Private Company Preparing for IPO
BB #1 leading company on IPO lead (and helping with a dual-track process per Board request behind the scenes)
BB #2 helping company on IPO (and leading a dual-track process per Board request)
EB #1: Sitting with board and advising board on performance of BB to keep them honest and helping in anyway they can on marketing materials, review, selection of syndicate, etc.

BB#1 does a lot of work on IPO because M&A process get's sh*t on due to unforseen events. BB1 & 2 agreed previously to share fees 50/50 regardless of outcome of dual-track (pursuing IPO as exit and sale as exit concurrently). BB#2 does virtually nothing substantive.

Example 2: Giant Company Buys Market Leader in Growing Segment
BB #1: Pitches 231 times this exact deal to Giant Company
BB #2: Has a brand name and great relationship with board of Giant Company; but deal team hates them

Giant Company does deal with BB#2; gives BB#1 M&A cred and some fees because it was a good idea and they hate working BB#2. Next giant deal goes directly to BB#1 and BB#2 goes on other side. BB#2 would normally have been added as backup to "help" (retain relationship); however, they were conflicted as they already got mandated as sell-side advisor to new target.

Example 3: Company Divestiture Process
Different BBs and EBs get hired to sell different divisions of a company needing to clean up their business plan.

Example 4: We Can't Sell this Sh*t
BB#1 goes to market, sells half a business
EB#1 says, we can do it... BB#1 brought on board to help EB#1 as they've already been through process and there is a bit of "transitioning" going on.

I said a lot but probably didn't make any sense... hopefully it helped?

Mar 10, 2015 - 2:27pm
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