Financial Sponsors Group

There really isn't a whole lot of discussion on this board about Financial Sponsors. Can anyone enlighten me on their experiences in the group? Maybe a day in the life? The type of work done?

Is this group known to be a sweatshop at certain banks?

How does it prepare you for various exit ops?

Financial Sponsors Group Investment Banking

The financial sponsors group is a coverage group. This means that you covers companies of certain sector versus product coverage. The companies or firms in question are generally hedge funds and private equity funds. The work is generally less technical in nature. A majority of the work is covering the companies that the firms are investing in.

Financial Sponsors : Exit Opportunities

Here are some advantages of working in a financial sponsors group. One, working directly with PE firms hedge funds and portfolio companies. Two, exposure to multiple industries that the client is invested in. Three, exposure to different client investment styles.
Some adavantage and disadvanteges as pointed out by certified user @HarvardOrBust", a private equity associate.

HarvardOrBust - Private Equity Associate:

Pros:

  • You will be exposed to a variety of transactions (IPO, LBO, M&A, div recap, etc)
  • Exit opps are generally strong and geared towards PE if you're in a group that "does everything" (MS/BAML/CS/etc)
  • More exposure to credit than most groups... very lev fin heavy

Cons:

  • Clients are PE shops and are very savvy which means a lot of the analysis is already done

Financial Sponsors Group Rankings

The following groups are the top ten financial sponsors groups.
Sourced from theJP Morgan

  • UBS
  • Jefferies
  • A note on interpreting league tables when weighing an offer by certified user @10x Leveraged", an investment banking analyst :

    10x Leveraged - Investment Banking Analyst:
    Strictly in terms LBO financings, then CS/JPM/BAML have the best financial sponsors groups for that. If you're talking about the entire spectrum of product offerings / dealflow related to financial sponsors clients (exits, securitization, hedging, add-on M&A etc.) then the league tables I've shown above are generally accurate. However, take the league tables with a grain of salt because the standings change frequently year after year.

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    Financial Sponsors can mean different things according to firm.

    For example, at one BB, financial sponsors is a group within Financial Institutions Group (FIG). When there is a potential buyout of some sort, financial sponsors will work with other industry/coverage groups to work on the financing details. It's a pretty neat position if you don't want to be stuck in one industry -- as you develop relationships with senior bankers in financial sponsors, the senior people tend to specialize in a few industries and if you play your cards right you can get A LOT of exposure to several different clients and bankers within the firm.


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    To add on to what was said above. The most common product that a financial sponsors group can offer its clients is financing. Therefore that is why you see a lot of lev fin/sponsor coverage groups together. In addition, at the larger firms you are not only responsible for the sponsor itself, but also any needs of the portfolio company (i.e. refinancings, commercial paper, etc.) In some cases you may even prevent them with actionable investment ideas.

     

    Any thoughts on exit ops for those of us in a financial sponsors group? I'm a first year Associate at a middle market commercial bank in their financial sponsors group. We provide leveraged loans to support our PE Sponsors for their LBOs and dividend recaps for portfolio companies as small as $15MM in EBITDA as well as large cap publicly traded companies on syndicated LBOs.

    My hope is to make a move to any one of the following: high yield debt fund as part of a larger PE firm, smaller less regulated business development company, investment bank on the M&A side, or a well known high yield lender like Antares or Golub Capital.

    Any thoughts or recommendations for how I can make this move? I'm only 6 months in as a first year associate with a former background as an underwriter in traditional corporate banking. Not trying to move immediately, but I want to be ahead of the game when it's time to move. Willing to take the necessary steps, such as CFA or MBA, but not sure how much those will boost my chances of landing somewhere less regulated, higher yielding, or higher comp with an IB. Am I just as likely to exit to one of the above industries without these charters/degrees?

     

    The answer is that it varies pretty significantly across firms. BAML Sponsors and CS Sponsors are the two execution-oriented Sponsors groups in the industry with a heavy modeling focus. Analysts from both groups consistently have some of the best PE placements on the street.

    Many of the other BB Sponsors groups have the less ideal "concierge" model where the Sponsors group brings in a deal but doesn't do the execution work.

     

    Much better to be in coverage or lev fin. At my BB, lev fin runs the model, coverage has the relationship with portfolio company, and senior banker in Sponsors has the relationship with Sponsor. The juniors in the group get very little exposure to deals.

     

    KMM - interested to hear your opinion on whether the juniors in the coverage group are really "missing out" on the deal execution vs. LevFin. Could they fill in the gaps in their knowledge base or execution skillset from internal items?

     

    They're both great groups that should get you plenty of looks for PE. I'd talk to people in both, see who you like better. CS has one of the best Sponsors groups out there, and M&A always gets looks. Can't go wrong.

     

    Depends on the dynamics at the bank.

    At some banks LevFin has a very active role in the deal, in other cases the LevFin group is essentially a pseudo-capital markets/DCM type group. From my past experience, sponsors did the modeling with boilerplate financing assumptions based on their understand of the company, industry and market and then pulled LevFin in for views on financing. So LevFin would fine tune the financing package to be more realistic. Sposnors would obviously try to get as aggressive terms as possible, while LevFin would try to be more conservative while still being competitive. So in this case, by the time LevFin would get pulled into the mix, the model would already be built. They'd essentially supply the sponsors group with fine tuned capital structure inputs. Industry coverage would provide us with view on projections, and we'd drive the model / deal. In that case, it was all about who owned the relationship. Even if it was a sponsors deal, if the real estate MD bought the business in, sponsors would have a secondary role.

    In some cases, LevFin plays the role discussed above. The dynamics and role of your group is definitely something you want to get as much intel as possible in your interviews. Obviously its in their best interests to oversell the importance of the group to attract top candidates, but its upto you to ask the right questions to get a pulse on reality.

    Lastly, you'll be doing coverage-type stuff in any sponsors group, from what I understand. Whether your driving the deal and the modeling or not, you'll still be monitoring your top clients investment activity, portfolio companies, etc...

     

    I had several first round interviews w JPM Sponsors. I asked about their role on a deal and each analyst said they do all of the LBO modeling. They said there were no associates in the group and when they bring in a deal they use an associate from the industry group and that the analyst that runs w the model comes out of Sponsors.

     
    boutiquebank4life:
    You don't do much modeling in most sponsors groups. You take the sellside model or the PE model that they give you and data entry your own assumptions in (senior bankers give to you).

    You have no idea what you're talking about.

    Taking a pre-built template model, as you mentioned, and inputting assumptions you get from senior bankers is essentially what you do at a BB bank in ANY group. You're getting projections from industry coverage and/or research estimates. You're getting capital structure and pricing from LevFin and DCM guys. Once a transaction is live and likely to close, you're doing in depth projections and meeting with management etc... but most of that is industry coverage. Personally, I wouldn't do industry coverage for shit. Product side is where its at. Sponsors is itself a coverage group, but its not an industry coverage group I consider it covering a basket of products with those products being LBOs, sponsor exits, bolt-on M&A, dividend recaps etc...

     

    FSG is exactly what it is. There is no product involved, it is an industry coverage group where the industry happens to be private equity. Lev Fin is the product group for underwriting and distributing paper.

    Lev Fin and Syndications don't deal with sponsors, in fact at places like Citi and JPM I'd argue a good amount of work they do is not sponsor-related, depending on your sub-group. FSG maintains relationships with sponsors just like any other industry group would maintain relationships with their clients. Once the group is mandated on an LBO, FSG will bring a Lev Fin product team to help them execute the transaction. By that I mean arrange the financing, coordinate the bank groups, underwrite the loans or bonds, go on road shows, and distribute.

    Depending on what bank you're at, FSG or Lev Fin analysts could be handling the heavy lifting in the modeling, although I'll argue that most LBO structures without any immediate carve outs, refi's, hybrid products or dividend recaps are simple enough to do for any analyst, anyways. Where the FSG team adds value is the relationship with the sponsor and the knowledge of the specific transaction between acquirer and target. Where Lev Fin brings value is how close they are to the market and knowing what structure and subsequent pricing the market will be willing to take.

    Probably 7 times out of 10, FSG is where you want to be, though.

     

    At places like CS and UBS, you definitely want to be in Sponsors. I think LBO modeling is cake to begin with, but those kids place very well. Ditto for JPM, Citi (FEG) and Lehman.

    Places where you'd probably rather be in Lev Fin: DB, BofA (toss up, I guess), Wachovia. At GS, I would argue go industry group over FSG or Lev Fin. All my friends in industry groups are getting amazing M&A experience.

     

    FSG will do alot of the work to get the deal mandated (lev fin will of course help but FSG drives the process), that means pitching, getting credit approvals, dealing with the sponsor, and running with the model. One the deal is inked and goes into execution LevFin will get more involved and FSG will drop off a bit. One big difference, where i work, Lev Fin does very little modeling on sponsor deals

     

    not fees specifically, but for lbo loans the 2010 US league table for banks is:

    1 Bank of America Merrill Lynch 8,149,270,831 35 18.1% 2 Barclays Bank Plc 5,706,233,331 20 12.7% 3 Credit Suisse 5,068,499,999 17 11.3% 4 General Electric Capital Corporation 3,376,037,891 47 7.5% 5 JP Morgan 2,720,816,667 12 6.0% 6 Deutsche Bank 2,529,999,999 9 5.6% 7 Goldman Sachs & Company 2,000,937,500 5 4.4% 8 RBC Capital Markets 1,938,377,500 11 4.3% 9 UBS AG 1,863,500,000 9 4.1% 10 Citi 1,318,333,333 5 2.9%

    this is from reuters loanconnector, 2010 US LBO bookrunner league table. Jefferies is 12, wells fargo 13, morgan stanley 15. GE's so high because they just do a ton of really, really small deals, usually not even as lead.

     

    ltm sponsor m&a, us announced

    Rank Financial Advisor Transaction Value % of Total Number of Deals 1 Barclays Plc 47,681.6 45.73% 34 2 Goldman Sachs & Co. 33,075.1 31.72% 35 3 Bank of America Merrill Lynch 30,593.6 29.34% 43 4 JPMorgan Chase & Co., Inc. 25,340.4 24.30% 21 5 Credit Suisse 20,474.9 19.64% 18 6 Deutsche Bank AG 18,771.1 18.00% 16 7 Morgan Stanley 16,906.6 16.22% 18 8 Centerview Partners LLC 10,817.1 10.38% 4 9 Lazard 9,544.1 9.15% 16 10 Perella Weinberg Partners LP 8,814.4 8.45% 4 11 Evercore Partners, Inc. 8,478.9 8.13% 6 12 UBS AG 8,273.5 7.94% 13 13 RBC Capital Markets 7,167.0 6.87% 11 14 Citigroup 6,365.3 6.11% 15 15 Jefferies Group 4,699.9 4.51% 23

     

    disclaimer: purely my opinions and few 1st years on the street

    i hear cs fin sponsors was the top sponsor group to be on the street... until people began to leave (getting fired or voluntarily). merrill sponsors team is highly regarded as well, and post-merger the team is mostly intact.

    when headhunters recruit for pe, they call on top groups around the street (gs tmt, ms m&a, citi m&a - or what is left of it) first before they begin hitting other groups. merrill sponsors is included in the "top groups" category.

     

    ms overall is strong franchise - lacks funding that merrill got from bofa. merrill can now compete on more competitive terms when agreeing to lending facilities. but, cs has great sponsor relationships in both u.s. and europe - afterall, it's a relationship driven business. i'm still split between cs & merrill.

    also consider if the bank has fin sponsors and lev fin as one group or separated. baml, citi, cs and gs for sure have them separated. can't speak for other bb's. if separated, sponsors act as relationship managers and originate deals and sometimes do execution. if together, the group is both product and coverage so it will for sure originate and execute deals. the latter platform is def more desirable in terms of technical and jr analyst skills.

    almost forgot - be careful of bb's pe arms being overly aggressive. ms' pe arm competes more heavily with sponsors than merrill or cs does. ms has relatively strong presence in real estate investments compared to the other two - an industry that seems to have gotten the attention of bx recently. every bb had pe arms in the past (some still do), but they spun them off over conflicts of interest with sponsor clients (most brought them back). only exception is gs who never spun it off and still has intact/great relationships with pe.

     

    Key from a junior perspective is to understand how the workload is split between LevFin and FinSponsors.

    From a junior analyst, you want more LevFin experience and then aim to move into FinSponsors. Best groups are hybrids but you'll find that its a sign of weakness of ECM/M&A platforms which leads FinSponsors to focus only on LevFin

    Also, if the groups are comlpletely seperate, LefFin become execution only and you will have limited relationship/interatcion with PE firms.

    In my mind, a good FinSponsor team is set up to give its junior bankers exposure on the execution side and have leading franchises in all products (LevFIn, M&A, IBD, Risk) so that your clients are keen to hear from you

     
    Best Response

    So here's some general thoughts on Sponsors. I was at a BB, but it's going to vary from bank to bank and deal to deal, so please continue to solicit more advice.

    Positives: - Sponsors, at least at my bank, was a great place to be for PE exits. A lot of kids I know moved from Sponsors and are at top shops. - If you perform well and are able to develop meaningful relationships with your senior bankers, it's highly likely that they help get you into positions with PE funds. They want you to grow up big and strong and become a client. - You should get to see a lot of deal flow, and you get to work with PE funds. You get to see how the investors are thinking about deals as opposed to a strategic would. - If I were to have stayed in banking as opposed to going buyside, I would have 100% wanted to do so in Sponsors. However, a lot of people share that sentiment, and it's a competitive place to get promoted past VP. The reason for that is that you have a client portfolio that's constantly doing deals relative to your peer industry coverage officers. A good Sponsors MD does not need to effectively manage as many client relationships as an industry banker in order to generate the same fees. - Deal toys for days

    Downsides: - Downside being I think a decent amount of kids that come out of Sponsors are light on technicals. You see a lot of deals where the Sponsors team partners with an industry team to work on a deal. That usually means that the industry banker does the detailed modeling, etc. You will, however, do a decent amount of "quick and dirty" LBOs. - Sometimes working with PE funds can be a pain in the ass. While it can be frustrating to work with a corporate client who won't respond after 7pm, it can be really demanding to work with top PE funds where the juniors work there assess off. You're a lot more likely to get late night emails and requests from PE clients than you are corporate.

    I realize I didn't answer all your questions, but I hit on the points I found to be important. In summary, I would go work in Sponsors. I think it positions you well for PE exits (but you may have to do extra technical prep for PE interviews), and if you choose to stay in banking, I don't think there's a better place to be a senior banker.

    Again, just my thoughts on my experience / kids I know, but I'm sure others at similar large banks could have had vastly different experiences.

     

    Yeah above poster is correct. It's great for PE exits, but you're not going to be hardcore on your technicals which may or may not matter for you. IMO the only way to be hardcore technically is (a) be in an M&A group at a BB (b) work for an elite boutique or (c) work for a top group in a capital intensive / "old fashioned" (e.g., not tech / biotech / etc) industry (e.g., prototypical example would be like GS industrials etc). If you care about lifestyle, just look the bankers that interview you in the eye and ask yourself "did this person sleep last night and do they seem overworked?" Do this for each interviewer and you'll be able to guess correctly. Also ask your interviewers "what do you do for fun?" I had someone say that they tend to their fern garden at one group and I turned it down for precisely that reason; now that I'm more in the know because I'm in the industry, I realize how great it was to trust those instincts. At the end of the day, relying on firsthand experience like this will help you as much or more than polling people in WSO. Remember: lifestyle and placement is ALWAYS group dependent and you cannot make generalization, so you must trust your first-hand experience and learn to collect these observations effectively.

     

    I think it is OK to state your intention to go into PE. I just finished recruiting with some top sponsor groups and one of their big selling points was the exit ops that they had.

    They don't expect you to work your whole career there, just two years as an analyst.

    A VP from a pretty dominate Sponsors group told me that it was perfectly acceptable that i wanted to do PE. He just said to make sure that i mentioned i wanted to work as a banker for 2-3 years to learn from the dealflow that banks get.

     

    You should talk about the "client set" that you would like to work with. Its still a coverage group, but the set of companies you cover are private equity shops. Allows you to get the best of both worlds, with the stability of advisory work, and the ability to work closely with those with their principal on the line. Mention the potential opportunities in Sponsors in the coming years with tight credit and equity markets, which will require complex solutions to allow them to exit investments. Obviously this is where the sponsors group comes in.

    BS like this, just get creative.

    --There are stupid questions, so think first.
     

    Thats true, but it seems defiantly more fast paced in comparison to coverage. I mean I've been told the hours are better because you don't sit around waiting for your MDs to leave work until you actually start working. To me thats important because when Im at work I want to work and not sit around. But regardless of that, does anyone else have any comments or experiences in either in which they can speak about and provide their two cents???

     

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