Group Selection - Terms of exit opps

Hi All,

Thanks in advance for your help. I have a question with regards to group selection for investment banking. In terms of exit opportunities, does M&A offer more flexible opportunities compared to industry coverage and product groups?

Thanks for your help!

 

LBO models and advising (pitching ideas) in the FS side. LF does all of the execution. They do the issuance, bridge loan financing, recapitalizations, structuring, look at the capital structure, markting the HY bonds, pitching. They do most of the special situations stuff. M&A and LF have the worse hours in banking and include lots of 3 am car rides and all nighters.

LevFin and M&A both have good exit ops for PE, I think M&A might have a slight advantage; but top LevFin banks like JPM or BAML would be just as good as M&A at another bank.

If you are going to BAML or JPM, I would personally choose LevFin over M&A because it would give you the same PE exit ops as M&A, but would also open up distressed debt investing or credit HF (M&A would open up Merger Arb HF).

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

Equity Capital Markets is usually less hours. In IB it's more like M&A and LevFin work the 110 hours weeks, while industry groups work 100 hour weeks......of course everything depends on the bank, exact group, deal flow, ect.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

DCM may take on the LevFin role and be divided into investment grade and high yield. Another option is that your Financial Sponsors group does all the Lev Fin responsibilities. Not every bank has a separate LevFin group, some banks combine the two functions.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

I have a friend who is doing LevFin at one of the two banks I mentioned. For exit opps, he said LevFin got several Mega PE funds (TPG, KKR, ect), debt/credit HF (2 of them being tiger cubs), and lots of big (but not Mega Fund) PE firms. Like I said, do M&A, unless you are at BAML or JPM, and then you can choose which group.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

At a bank where LevFin is in a Capital Markets group instead of IBD (BAML, MS have this I'm pretty sure), will the analysts make the same starting base as IBD? Is this true of capital markets in general? Do they make the same base as analysts in IBD?

Also, does anyone know if its possible to move from a Capital Markets group at a BB to a Global Macro Fund (like Moore), with connections of course? Do Global Macro Funds recruit from capital markets, or do they recruit from S&T, IBD?

looking for that pick-me-up to power through an all-nighter?
 

I believe S&T/IBD/CM base salaries are all virtually identical. Bonus depends on the firm, but the more junior you are, the less discrepancy there is.

Does anyone know any specifics about BAML's LevFin group? BAML and JPM are the top two LevFin teams, but how much of that deal flow is execution of leveraged loans to non-investment grade companies, versus the more "technical/complicated" deals like bridge financing, restructuring, etc?

I know for instance that BAML has "industry silos" within the LevFin team, as well as a separate leveraged acquisition finance group (for VP's and above).

 
Best Response

It's about time someone answers these questions. It amazes me that some people speak about this confidently like they know about it beyond a shadow of a doubt, and it's even worse that others believe this misinformation. I'd really like to clarify a bunch of points. I used to work at JPM/BAML in one of the LF/FSG groups. I have since left for MF PE. PM me if you have any specific questions.

Something a lot of people don't realize is that Leveraged Finance has two pieces to it - Leveraged Finance Origination and Leveraged Finance Capital Markets. In a leveraged finance transaction, the origination team will craft all of the marketing documents, do the heavy credit analysis, diligence the asset, and coordinate with the other investment banking groups such as Sponsors and/or an industry group like Industrials. This may or may not involve building the model. In fact, often in lev fin deals, all you really need is a quick Sources & Uses and Pro Forma Capitalization. However, there are also times when a full blown model is necessary.

Once all this work has been done and the deal has been signed off internally, and the deal is ready to launch, then Capital Markets gets involved. Once again, Leveraged Finance Capital Markets is NOT DCM. DCM is a label that generally applies to Investment Grade credits. In nearly all of the banks I've worked with in a Lev Fin deal (and I've worked on a lot of these) this is clearly separated. Anyway, Lev Fin Cap Markets will get involved with syndicating the debt, having a pulse on the flows of the loan or HY market, speak with investors, and place the paper. You'll actively watch the lev fin market trade. Your role "on the desk" is not deep credit analysis - it's understanding the product and monitoring the market so that the origination team can develop a good read for how the financing market is evolving and what rates they could potentially pitch to clients.

A couple of other pieces of knowledge:

1) The Leveraged Finance Group and the Financial Sponsors Group are two distinct groups at BAML. Lev Fin analysts will ONLY work on credit analysis for a wide spectrum of High Yield issuers, whether they're sponsor backed or not. In contrast, Sponsors analysts do any work relating to sponsors. Of course, a lot of this work will be lev fin oriented since sponsor owned companies have a lot of debt. But work flows also include potential sell-side M&A work and Equity / IPO experience, as sponsors also exit investments, on top of the standard LBO deals.

Some banks used to have this integrated (BofA, UBS). Since recently, I have not seen any bank that combines these groups. However often times there is junior cross staffing.

2) The model is generally run out of FSG on a sponsor deal. This is simply due to the nature of Private Equity guys - they have complex requests, like asking for a model that shows a strategic bolt on to an existing portfolio company, or showing what returns would look like if a dividend was taken in year one followed by a full exit in year 4. Lev fin models tend to simply show moving leverage / coverage over time.

However, in a sponsor related deal, although Lev Fin will run much of the execution, Sponsors will definitely also get involved in some of the execution. FSG analysts are invited to the roadshow, do tons of work on the marketing / syndication side as well.

3) In terms of the strongest Lev Fin banks, in terms of pure leveraged finance deal share, it's a dead tie between JPM and BAML. About 90% of the lev fin paper that's in market should have one, if not both, of these firms on it. Other active lev fin banks include DB, CS and Citi, although they participate moreso in select markets and industries. Barclays is trying to rebuild its practice, but again, they are not a true debt house (in the banking world. In the trading world, they are amazing). Often times we see them being a junior bookrunner on the deal, trying to get league table credit, but rarely leading them. However, they are definitely establishing themselves and are a good group.

Everyone always asks about rankings and where GS/MS are. Goldman Sachs's leveraged finance practice is really nothing amazing. Why would a company go to GS to raise Lev Fin capital? It's like walking into Evercore to open a bank account or get a small business loan - just doesn't really make sense. GS's only sweet spot is when the Lev Fin deal involves mezzanine. Since GS has a massive mezz fund always looking to invest in the debt of a deal, they'll often win deals by saying that their mezz fund will take down a large piece of an underwriting. Still a fine group to be at though, since it's still Goldman Sachs. Although - I do think your credit skills would be better at a JPM / BAML.

As for which banks do more of the "complicated" products like bridge financing and restructuring, it's identical. Same banks, same game. Not really too much more complicated since credit risk is similar across different tranches of the debt capital structure, they're all marketed the same way.

5) At BAML, I'm pretty certain Lev Fin is categorized under Capital Markets while Sponsors is in Investment Banking.

6) Exit opps for Lev Fin are clearly more geared toward credit opportunities. Lev Fin places great into credit / distressed funds, not as consistently into traditional PE. FSG places very well in traditional PE but headhunters also do approach FSG analysts for credit opportunities as well if they're interested. It'd be pretty difficult to move from Lev Fin into a pure macro hedge fund. The one major downside to Lev Fin is that you don't really come out understanding equity investing. You're only looking at one side of the coin, basically. Oaktree or Ares will give you some looks for sure, though.

7) Who works more? This is hard to say. Lev Fin analysts get in pretty early because it's more of a "markets" culture. That being said, both groups get crushed and also have down time as well, really depends on where your deals are at. You'll work a lot no matter where you go. I wish people would stop asking this question so often.

8) I wasn't an M&A analyst, but I think I can objectively say that M&A bankers' skill set is the most "general." You do the most thoughtful analysis, have to understand different scenarios, capital structures, valuations, across different industries. M&A analysts successfully go onto PE funds, distressed, HFs, Corporates, etc. That being said, other groups place well also. As a LF analyst you'll mostly be presented with credit opportunities, but strong analysts with good pedigrees will definitely be shown great PE opportunities as well. If you wanna go into a credit fund, go into LF. If you want PE, go into Sponsors. If you want to keep all options open, go into M&A. If you really like an industry, go to that coverage group, and you'll go far, and do whatever you want within that space.

 
werdwerd:
It's about time someone answers these questions. It amazes me that some people speak about this confidently like they know about it beyond a shadow of a doubt, and it's even worse that others believe this misinformation. I'd really like to clarify a bunch of points. I used to work at JPM/BAML in one of the LF/FSG groups. I have since left for MF PE. PM me if you have any specific questions. ...

Wow -- this is one of the most useful posts I've seen on WSO to-date! +1 SB sir! Great stuff.

Follow-up: do you find that the exit opportunities/general experiencies apply to those joining banks at the associate level as well?

 

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