Lower Lower Middle Market M&A and exit opps; how small is too small for a deal??

All,

I'd really appreciate your insight and career advice. I know there are several posts relating to "how small is too small for a boutique IB," but I haven't seen any threads that discuss how small is too small as far as individual deal size.

I'm interviewing with a lower (emphasis on lower) middle market M&A shop that targets deals in the $5-10 million range with occasional deals in the $25-50 million range. They have a headcount of 200 employees in about 10 countries, and the regional office that I'm interviewing at currently has 4 people in it.

I have 2 questions.

1) My primary question is, would the experience I'd gain as an Associate working on $5-10million deals form a non brand name firm be marketable at all to grad schools or provide any exit ops?

2) I do have other options, and I'd really appreciate some input from you wise monkeys.

As a brief background on myself, I'm a CFA Level III candidate and have always wanted to work on deals via IB and PE. I graduated from a non target school and have been working in FP&A / finance ops for a micro/mid cap company for 2.5 years. The company was acquired by a F500 and I got some exposure to the deal.

I'm interviewing for FP&A at a large cap company, back office at a hedge fund with $1.1 billion AUM, and a regional CRE shop as a RE analyst. Which do you think would have the most marketability to grad school and exit ops to front office/ IB / PE? Would any of them be attractive to a MM or BB investment bank after grad school?

Thanks for your responses. Greatly appreciated!

 
Best Response

Thoughts:

1) Does this firm truly have 200 employees under its umbrella or does it operate more as a network of loosely affiliated M&A teams that share a broker-dealer? Based on the size range, the economics make little sense for a firm to expand to that size with such a small target range for sizes. At best, that puts the blended fee at an average of $200-250K per deal, which is fine for smaller firms. If this is truly an integrated company, the comp must be below average with that kind of overhead.

2) For grad school, it depends on what you are doing and how you spin it. It may be an uphill battle to top schools (HWS), but you may be competitive for Kellogg, Ross, Darden, etc. if the rest of your stats and story are appealing. Alternatively, you could make the jump to lower MM PE or corp dev. It isn't as easy from the mid-levels from what I have seen, but it has been done.

3) Clearly if you want front office, you take a front office job. That means RE position or lower MM IB. That is up to you as they are different animals. I enjoy real estate and have thought about dabbling on the side with some investments, but it didn't appeal to me as a career (unless I became an individual investor). Hence, I am with a MM IB. But, if you like the idea of RE, go with that. Still a great career and you may be able to get into RE PE.

 
Bullet-Tooth Tony:

1) Does this firm truly have 200 employees under its umbrella or does it operate more as a network of loosely affiliated M&A teams that share a broker-dealer? Based on the size range, the economics make little sense for a firm to expand to that size with such a small target range for sizes. At best, that puts the blended fee at an average of $200-250K per deal, which is fine for smaller firms. If this is truly an integrated company, the comp must be below average with that kind of overhead.

This is spot on. My firm operates at the lower end of the middle market, and we wouldn't touch a deal in the $5 to $10 range unless it was a) an equity raise (which carry higher fees and lower workloads) or b) we were desperate to get a tombstone in a new industry vertical and thought the client had a good shot of getting picked up by a well known acquirer. M&A deals of that size are usually handled by business brokers rather than bankers. Obviously fee structures are unique for every deal, but the economics don't really start to make sense until you surpass the $20mm mark for a sell-side M&A, and we generally try to focus on the $50-100mm range as much as deal flow allows.

I would try to get some more info on the firm if you can. Feel free to PM me the name if you feel comfortable.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 
duffmt6:
Bullet-Tooth Tony:

1) Does this firm truly have 200 employees under its umbrella or does it operate more as a network of loosely affiliated M&A teams that share a broker-dealer? Based on the size range, the economics make little sense for a firm to expand to that size with such a small target range for sizes. At best, that puts the blended fee at an average of $200-250K per deal, which is fine for smaller firms. If this is truly an integrated company, the comp must be below average with that kind of overhead.

This is spot on. My firm operates at the lower end of the middle market, and we wouldn't touch a deal in the $5 to $10 range unless it was a) an equity raise (which carry higher fees and lower workloads) or b) we were desperate to get a tombstone in a new industry vertical and thought the client had a good shot of getting picked up by a well known acquirer. M&A deals of that size are usually handled by business brokers rather than bankers. Obviously fee structures are unique for every deal, but the economics don't really start to make sense until you surpass the $20mm mark for a sell-side M&A, and we generally try to focus on the $50-100mm range as much as deal flow allows.

I would try to get some more info on the firm if you can. Feel free to PM me the name if you feel comfortable.

This is true. Generally we try to stay away from equity raises at that level b/c they are typically more venture-like. If there is an established company with EV of $30-40mm or larger, usually equity isn't a huge need unless they are in distress or a SS where they are strapped for cash, in which case we look to place a combination of debt and equity (only done one of these so far).

That being said, have you guys had any success w/non-venture raises at that size? Most of the groups we come across have wealthy owners or connections to some pool of private capital.

 

Definitely the M&A shop or RE gig if thats what you are in to. I worked at a small firm and all I could list on my resume was two sub-15MM deals. Got plenty of interviews for various FO roles at well-known MM and boutiques before landing a couple and lateralling. Although these were analyst positions, so it is probably different for you.

From what it sounds like, the shop may be bordering the business brokerage/M&A line. So if you do end up there, make sure you supplement their typical processes with banker work you might have to initiate on your own. If the firm is something like a Generational Equity, the quality of work (CIMs, technicals, etc.) is significantly less than what is expected at investment banks.

That said, with M&A experience, CFA and some story about how you got to work on your firm's acquisition by another company and how it got you all excited about M&A can all combine to make a compelling case for lateralling or b-school. PE as a next step is probably unrealistic, I'll never say never.

 

probably houlihan. they generally only deal with private companies and do a high volume of these smaller deals.

I don't throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought- GG
 

First, this market is not "really heating up". There were far more sales in Q4 (b/c of tax changes). Right now, there are quite a few mandates, but many are lacking in quality compared to last year and in 2011.

Secondly, lots of PE firms are stepping down more than up to find deal flow. The $500 million and up portion of the market has already been picked through heavily over the past decade.

Third, you need to narrow it down a bit. Are you looking at a specific industry, geographic location, or sale type?

 

The deal market in the first half of 2013 was absolutely abysmal for the middle market. I had lenders calling / visiting weekly looking for something to do. The bankers were bored out of their mind trying to generate deal flow that just wasn't there. Everyone had the same story -- large number of deals closing in the 4Q12, nothing in 1Q13. That said, some of the banks that I believe to be most active in this market (off the top of my head):

Fidus / BB&T Capital Markets / Harris Williams / Houlihan / Lincoln International / BlackArch / Baird / Raymond James (i think) / C.W. Downer / Greene Holcomb Fisher

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 
CompBanker:

The deal market in the first half of 2013 was absolutely abysmal for the middle market. I had lenders calling / visiting weekly looking for something to do. The bankers were bored out of their mind trying to generate deal flow that just wasn't there. Everyone had the same story -- large number of deals closing in the 4Q12, nothing in 1Q13. That said, some of the banks that I believe to be most active in this market (off the top of my head):

Fidus / BB&T Capital Markets / Harris Williams / Houlihan / Lincoln International / BlackArch / Baird / Raymond James (i think) / C.W. Downer / Greene Holcomb Fisher

What about William Blair?

 
DoctorAndre:
CompBanker:

The deal market in the first half of 2013 was absolutely abysmal for the middle market. I had lenders calling / visiting weekly looking for something to do. The bankers were bored out of their mind trying to generate deal flow that just wasn't there. Everyone had the same story -- large number of deals closing in the 4Q12, nothing in 1Q13. That said, some of the banks that I believe to be most active in this market (off the top of my head):

Fidus / BB&T Capital Markets / Harris Williams / Houlihan / Lincoln International / BlackArch / Baird / Raymond James (i think) / C.W. Downer / Greene Holcomb Fisher

What about William Blair?

Do you want a cookie? So he left off one of the best. There are others too.

 
DoctorAndre:
CompBanker:

The deal market in the first half of 2013 was absolutely abysmal for the middle market. I had lenders calling / visiting weekly looking for something to do. The bankers were bored out of their mind trying to generate deal flow that just wasn't there. Everyone had the same story -- large number of deals closing in the 4Q12, nothing in 1Q13. That said, some of the banks that I believe to be most active in this market (off the top of my head):

Fidus / BB&T Capital Markets / Harris Williams / Houlihan / Lincoln International / BlackArch / Baird / Raymond James (i think) / C.W. Downer / Greene Holcomb Fisher

What about William Blair?

I'm not sure how active William Blair is. The companies I listed are the ones that I'm seeing as the most active right now, per the thread. This is simply one perspective. It doesn't mean that William Blair isn't active, it just means that I didn't personally see a lot of deal flow from them. This could result from A) lack of a strong relationship with WB, B) the deals they are working on aren't a good fit with my firm and we didn't make the buyers list, or C) any other reason.

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 
CompBanker:
DoctorAndre:
CompBanker:

The deal market in the first half of 2013 was absolutely abysmal for the middle market. I had lenders calling / visiting weekly looking for something to do. The bankers were bored out of their mind trying to generate deal flow that just wasn't there. Everyone had the same story -- large number of deals closing in the 4Q12, nothing in 1Q13. That said, some of the banks that I believe to be most active in this market (off the top of my head):

Fidus / BB&T Capital Markets / Harris Williams / Houlihan / Lincoln International / BlackArch / Baird / Raymond James (i think) / C.W. Downer / Greene Holcomb Fisher

What about William Blair?

I'm not sure how active William Blair is. The companies I listed are the ones that I'm seeing as the most active right now, per the thread. This is simply one perspective. It doesn't mean that William Blair isn't active, it just means that I didn't personally see a lot of deal flow from them. This could result from A) lack of a strong relationship with WB, B) the deals they are working on aren't a good fit with my firm and we didn't make the buyers list, or C) any other reason.

Are you guys really seeing anything worthwhile from HW, GHF or Baird? I've heard they are all struggling (Baird doing well in cap markets though). Then again, who isn't in the MM right now?

 
peinvestor2012:
CompBanker:
DoctorAndre:
CompBanker:

The deal market in the first half of 2013 was absolutely abysmal for the middle market. I had lenders calling / visiting weekly looking for something to do. The bankers were bored out of their mind trying to generate deal flow that just wasn't there. Everyone had the same story -- large number of deals closing in the 4Q12, nothing in 1Q13. That said, some of the banks that I believe to be most active in this market (off the top of my head):

Fidus / BB&T Capital Markets / Harris Williams / Houlihan / Lincoln International / BlackArch / Baird / Raymond James (i think) / C.W. Downer / Greene Holcomb Fisher

What about William Blair?

I'm not sure how active William Blair is. The companies I listed are the ones that I'm seeing as the most active right now, per the thread. This is simply one perspective. It doesn't mean that William Blair isn't active, it just means that I didn't personally see a lot of deal flow from them. This could result from A) lack of a strong relationship with WB, B) the deals they are working on aren't a good fit with my firm and we didn't make the buyers list, or C) any other reason.

Are you guys really seeing anything worthwhile from HW, GHF or Baird? I've heard they are all struggling (Baird doing well in cap markets though). Then again, who isn't in the MM right now?

Well, I'm technically unemployed now because I'm heading back to b-school. However, the first five months of 2013 it was COMPLETELY dead for absolutely everyone. The names on my list included. However, in the past 12 months, HW was definitely quite active and GHF was as well. Baird I've only heard anecdotal evidence to suggest they are doing deals, so that one I'm less certain about.

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 
CompBanker:

Well, I'm technically unemployed now because I'm heading back to b-school. However, the first five months of 2013 it was COMPLETELY dead for absolutely everyone. The names on my list included. However, in the past 12 months, HW was definitely quite active and GHF was as well. Baird I've only heard anecdotal evidence to suggest they are doing deals, so that one I'm less certain about.

Ha, I forgot about you solid thread on going back to get your MBA (definitely enjoy it). Last year was great. This year, not so much. Was just asking since I tend to hear and see quite a bit of what those firms are working on since I'm in the MW MM.

 
peinvestor2012:
CompBanker:

Well, I'm technically unemployed now because I'm heading back to b-school. However, the first five months of 2013 it was COMPLETELY dead for absolutely everyone. The names on my list included. However, in the past 12 months, HW was definitely quite active and GHF was as well. Baird I've only heard anecdotal evidence to suggest they are doing deals, so that one I'm less certain about.

Ha, I forgot about you solid thread on going back to get your MBA (definitely enjoy it). Last year was great. This year, not so much. Was just asking since I tend to hear and see quite a bit of what those firms are working on since I'm in the MW MM.

I've only been unemployed for a few weeks, so I'd like to think that my data points are still quite relevant.

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 

This is kind of a weird question, because in the $10-100mm revenue range you have a ton of boutique banks (many of which you have never heard of) that account for a large portion of the deal flow. My firm does a ton of deal flow in several specific, niche industries - any funds that don't operate in those industries probably only see a few deals from us each year.

Deals have slowed in the first half of this year for us as well, but we have had a huge influx in client leads the past month or so.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 

I think what you'll find is that small boutiques will be willing to take on smaller deals that the larger players would not. This expands their deal population by a ton. The drawback is that they need to close more deals because the fees are so much lower.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 

A firm I know of is slightly smaller than what you mentioned. Currently, they have roughly 5 live deals. Two are tiny, the other two are $20MM+ and one is $50MM+. If you operate in a really small/loyal niche you don't have to do any "pitching". The phone rings and you just get deals done. Yes, the fees are small, but if you can close one big one then you're splitting a ~$1MM fee between ~6 guys. Not your normal Wall Street pay, but not bad either. So no, I don't think it's typical, but it does exist.

 

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