7/19/11

Can anyone already working as an associate in PE give an overview of the private equity lifestyle? Did a search on the forums and could not find anything recent. Looking for details such as:

Do you work at MM, FoF, Megafund?
What are your typical hours in a week?
How often do you work weekends?
What is compensation generally speaking for base + year-end?
What's the percentage breakdown between analysis, traveling, sourcing, etc.? (Or whatever is in the daily life of a PE associate?
Are there any special perks working at your firm? (I hear some PE shops organize sweet company trips)

Comments (90)

7/19/11

yeah

Private Equity Interview Course

7/19/11

no

7/19/11
  • Work at MM
  • At the office around 60 hours a week but always on the hook for calls at all hours (overseas work), almost
    always have something to do over the weekend but don't go to the office.
  • I doubt anyone is going to give comp numbers
  • Daily breakdown is always changing but i have been traveling a lot lately, do all the modeling as the young guy, zero sourcing... most of the days are spent on the phone gathering info and then nights actually working on shit...
  • Perks are awesome to fucking awesome
7/19/11
HFFBALLfan123:

* Work at MM

  • At the office around 60 hours a week but always on the hook for calls at all hours (overseas work), almost
    always have something to do over the weekend but don't go to the office.
  • I doubt anyone is going to give comp numbers
  • Daily breakdown is always changing but i have been traveling a lot lately, do all the modeling as the young guy, zero sourcing... most of the days are spent on the phone gathering info and then nights actually working on shit...
  • Perks are awesome to fucking awesome

Would you say you get more responsibility in a MM compared to large shops?

I like pickles...

7/19/11
mk2012:
HFFBALLfan123:

* Work at MM

  • At the office around 60 hours a week but always on the hook for calls at all hours (overseas work), almost
    always have something to do over the weekend but don't go to the office.
  • I doubt anyone is going to give comp numbers
  • Daily breakdown is always changing but i have been traveling a lot lately, do all the modeling as the young guy, zero sourcing... most of the days are spent on the phone gathering info and then nights actually working on shit...
  • Perks are awesome to fucking awesome

Would you say you get more responsibility in a MM compared to large shops?

http://www.wallstreetoasis.com/forums/why-do-ppl-c...

7/19/11
HFFBALLfan123:

* Work at MM

  • Perks are awesome to fucking awesome

Haha. Great line.

7/20/11

I work at FoF but focus most of my time on co-invests and secondaries.

  • 50-65 hours per week, the top end will usually include travelling time. A normal week at the office will rarely see me in later than 7.30pm (i get in around 8am).
  • Never except traveling and the occasional three line blackberry message or forward.
    *Compensation is fine, dont want to give details.
  • I spend 40% of my time on DD, 30% on monitoring portcos and funds, 10% on admin bullshit and the rest on travel/lunches/gym etc
    *Perks are mainly the lifestyle which is reasonably laid back and the access to senior partners / CEOs etc (as well as the fancy lunches, 5 star hotels etc - which actually lose their appeal fairly quickly).
7/20/11

Why are you guys so secretive about comp on an anonymous forum?

-MBP

7/20/11
manbearpig:

Why are you guys so secretive about comp on an anonymous forum?

Because, if you spent 10 mins tracking any of my posts and worked with me, it would be soo easy to figure out who i am.

7/20/11
HFFBALLfan123:
manbearpig:

Why are you guys so secretive about comp on an anonymous forum?

Because, if you spent 10 mins tracking any of my posts and worked with me, it would be soo easy to figure out who i am.

I would hope that people dont care that much to stalk you. im concerned about how to marjet myself compensation wise, not what you make

I Got a dollar and a dream...

7/20/11
BankMonkey21:
HFFBALLfan123:
manbearpig:

Why are you guys so secretive about comp on an anonymous forum?

Because, if you spent 10 mins tracking any of my posts and worked with me, it would be soo easy to figure out who i am.

I would hope that people dont care that much to stalk you. im concerned about how to marjet myself compensation wise, not what you make

I started right out of UG so slightly below BB but after 1 year are either out the door or given a raise to be on par with your BB peers. Bonus i'd say on avg. is the around the same but will have huge swings based on bonus pool (how the funds are doing, how valuable they think you are and what future you hold at the fund) Will answer more specifics if you pm me about anything. Not worried about being stalked just worried about being stumbled upon and them connecting dots...

7/20/11
HFFBALLfan123:
manbearpig:

Why are you guys so secretive about comp on an anonymous forum?

Because, if you spent 10 mins tracking any of my posts and worked with me, it would be soo easy to figure out who i am.

I'd be pretty concerned if there were people who actually did this on here.

7/20/11

I'm British and we dont believe it is polite to discuss one's riches. Plus I havent been here for a full bonus season yet so I don't know what the full comp will be.

7/20/11
samoanboy:

I'm British and we dont believe it is polite to discuss one's riches. Plus I havent been here for a full bonus season yet so I don't know what the full comp will be.

lol

-MBP

7/20/11
samoanboy:

I'm British and we dont believe it is polite to discuss one's riches. Plus I havent been here for a full bonus season yet so I don't know what the full comp will be.

+1

7/20/11

mostly co-invests and secondaries at my mm shop

7/21/11

I think 1st year associates, post-analyst stint (let's say 2 years) are usually poised to make 200-250k all-in for their first year. Beyond that, it's hard to put a number on comp as certain firms have huge swings on both bonus and base (and in certain instances, carry).

7/21/11

am in MM, 60-70hrs per week but a lot less intense than in banking and with lots of free time during the work day
never work weekends
base is just above what i had in banking (around $100K), dont know about bonus yet
almost no travelling, very little sourcing, mostly analysis
no amazing perks, some team events that juniors initiate but nothing else. but in larger pe shops they have regular off sites

cubiclecrowd.com
blog.cubiclecrowd.com

7/21/11

I'd search around this site and M&I to get a better definition of what are the different aspects of finance. There's plenty of advice and information.

Although nothing's out of the realm of possibility, a private equity AND energy trading firm would be a bit odd with only $50MM AUM (I don't know if this is true but a massive firm like Blackstone definitely has PE and could possibly have an energy trading group, but they have something like a $250 billion AUM). $50MM for either trading or PE would be pretty small and unless they hire interns because they don't have other staff, hiring a few interns with $50MM would be a lot of staff for not much money and it would be difficult to recruit top tier college kids to it. Like I said, it's not impossible but it would be odd.

7/21/11

The $50M figure seemed a bit odd to me as well-- the article with that info was one of the first results I found. A Reuters article I just pulled up says the company had about $1.6 billion under management in 2007 until they had about a $500 million dollar trading loss about 5 years ago. What I'm getting from the article is that they lost almost everything due to those trades.

7/21/11

PE and trading don't go together. PE doesn't require quants.

You need to do a ton of reading. Start here:

http://www.wallstreetoasis.com/frequently-asked-qu...

"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."

7/21/11

Got it. Thanks for being straightforward.

7/21/11

This is sounding more like a hedge fund that might do some investments in private securities.

"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."

7/21/11

Depends entirely on the firm. Some PE firms are highly supportive of work / life balance and clear out by 6-7pm. Others work you similar to banking hours. From what I've seen and heard, the bigger the fund the more hours worked, although this is not always the case.

CompBanker

7/21/11

I guess talking about larger MM PE funds ($5 billion+ total AUM or $1 billion+ per fund)

7/21/11

Also think that it varies a lot. From my experience hours in PE are generally more cyclical even though that cyclicality can decrease a bit as fund size increases. That means that you can have IBD-like periods but then there will also be weeks when you can finish work at maybe 7-8pm. I think a big plus is that you are also a bit more flexible in planning your work and can shift it around personal appointments, etc - unless you are in a deal situation of course.

7/21/11

Depends on deal activity. Obviously if you're working a bunch of deals that are closing you'll be working a lot more than if you've got no deal activity. But it is going to vary wildly depending on the firm.

7/21/11

My hours in PE have been reasonable. Out by 7 most nights. Rarely come in on the weekend. Have had occasional crunches but overall nothing like what I've seen in IB.

7/21/11

Like Khayembii said and in my experience, it's all dependent on deal activity and the firm you work for. I work with a smaller group (~10 guys), and during the winter we didn't see very many deals that we liked. During this time I was in at 9 am and out by 5 pm every day - no weekends. It was great. However, over the past month and currently, we have been working on a few deals simultaneously, and I've been in at 8am and out at 9pm - midnight + weekends quite frequently.

7/21/11

Based on my experience in the middle market (I don't think it's like this at the megafunds) at two different funds through my career is that, like everyone else has said, it depends on the firm and how many deals you're doing at once. There's less face time and there's less of a chance of someone throwing something on your desk at 7 or 8 pm and saying they need it by 8 am the next day and you know how many deals are happening and at what stage they are so even though you may still have 70 or 80 hour weeks, you know when they're coming so you can plan your life a little better.

Private Equity Interview Course

7/21/11

anyone have a comment on this?

7/21/11

bumping.....

"Perfection breeds Perfection"

7/21/11

My understanding is that the hours are brutal at pretty much any bb pe shop...the main difference between lifestyle in banking vs pe is that hours in pe are more predictable so it tends to be slightly more managable although not easy by any means

7/21/11

At the associate level, there is effectively no difference between working for TPG/Carlyle vs. GS Capital Partners. Pay and hours are almost identical, although recruiting can vary slightly. GS Capital Partners will, from time to time, recruit direct from undergrad - but this is rare, since most GS Cap candidates are drawn from the same pools as those for TPG/Carlyle.

Best Response
7/21/11

Life in PE when Things AREN'T Going According to Plan (Originally Posted: 01/17/2013)

On Tuesday, I wrote a post about life in PE when thing are going according to plan. My focus was to give everyone a general feel and a high level overview for what portfolio coverage is like since it takes up a great deal of your time as an Associate. And, let's face it, the health of the portfolio is the lifeblood of a fund. It not only determines the net worth of the partners over the course of five to seven years, it also determines the true longevity of a private equity firm.

If your portfolios perform well, your valuations will show it. The value creation will be evident and you'll probably look at a couple earlier-than-expected exits. And when it comes to raising a new fund, this goes a long way. Locking in solid returns with timely exits is an absolute boon for fund raising, both for bringing back existing investors, increasing their stakes, and attracting new LPs.

But, what if the portfolio isn't performing up to par? What are the implications?

What is life like at a private equity firm when things aren't going according to plan?

As with my post on Tuesday, this post is primarily concerned with life as an Associate in PE. The stresses of an underperforming fund on a more senior employee of a PE shop are far different. Having money tied up in an underperforming fund can cause massive stress and shows what it really means to have skin in the game, so to speak.

Having several friends who work(ed) at various PE funds throughout the country, I've gotten to hear a myriad of perspectives. I was fortunate to work for a fund that performed pretty well, without any massive hiccups. Others were not so fortunate.

Or were they?

Typically, firms have weekly meetings in which all of the Partners of the firm, along with the junior employees, meet to discuss the state of the portfolio and any new deals that are working their way through the pipeline.

When things are going well, these meetings are pretty straight forward. The Partners have a pep in their step and act as the rightful masters of the universe that they are. Things change quite a bit when companies start shitting the bed.

Tensions rise. Tempers flare. And while things are analyzed appropriately with facts taking precedence over emotional responses, it's hard to restrain frustration and hard feelings when so much money is at stake.

Now, the vast majority of the time, a company's poor performance doesn't happen overnight. Like a floundering relationship, the warning signs have been there for a while and it's been on a steady decline. You try and work through the problems, and sometimes you can. But, when you can't, that's when things get tough. And, unlike a relationship, you can't just break up and move on. You're stuck with the company until you either fix the problems, exit via a sale, or it's forced into some sort of bankruptcy process.

A friend of mine's fund had just such a company. It was an industrial services business that was crushed by the slow economic recovery and a slow but steady displacement of its technology. Over the course of six months to a year, the problems grew larger and larger. And their weekly firm-wide meetings grew more and more intense.

It started slowly, with the lead Partner on the coverage team putting the company's management team on notice. As things continued to erode, it led to weekly update calls. Before long, the banking group was starting to get nervous. This is where PE can really get interesting for an Associate. While it's definitely stressful and Partners are starting to lose their shit, an Associate can really dig into some unique stuff.

As the company continued to falter, my buddy got to work on some really interesting stuff. For one, he worked with a Partner and a search firm to find potential replacements for members of management. The management team was great during boom times, but seemingly impotent in dealing with the company's trouble areas. He was sent to work with the company on-site for weeks at a time, pitching in on just about any project he could. This meant getting his hands dirty in the real nitty-gritty details. Digging through the rawest financials imaginable to help better understand what areas management needed to focus on to right the ship.

With the banks' worries growing, it was up to the PE firm to work up a short-to-medium term action plan to restructure the business. This meant putting in additional equity and diluting returns, but it also gave the banks confidence that the fund was serious. The Associate worked alongside a group of turnaround consultants and the lead Partner on the coverage team to help put together a thorough turnaround plan for the banks. After several months of hard work and some time under the turnaround plan, the company's performance started to improve. While the return on equity will be diluted, it's still better than the alternative.

My friend who got to work on this company said it was among the best work he's ever been involved in. Challenging, interesting, and very unique amongst his peers. For a guy who wants to go to b-school, this ought to go a long way towards helping him craft some fantastic essays. It's also a great deal more interesting than my experience was. So, while you want to go to a winning fund, it's worth noting that a fund with challenged portfolio companies can lead to a unique and potent experience for an Associate.

Anyone on WSO get to work on any challenging portfolio companies? Anybody have any PE war stories they'd like to share? Or better yet, does anyone have any fun stories of Partners going wild when their companies start to shit the bed? Leave your thoughts and questions in the comments.

7/21/11

I'd love to hear from someone at a PE firm which has a debt desk who have thought about or executed debt purchases through their other desk, and not on the behalf of the portfolio company.

"After you work on Wall Street it's a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side." - David Tepper

7/21/11

Oreos:
I'd love to hear from someone at a PE firm which has a debt desk who have thought about or executed debt purchases through their other desk, and not on the behalf of the portfolio company.

You mean a firm that bought some distressed debt and flipped it a short time later? If you're getting at that, I have a buddy who worked at a place that did that. His main focus was middle market buyouts, but as I recall, they made a monster return flipping some debt in like three months.

7/21/11

TheKing:
Oreos:
I'd love to hear from someone at a PE firm which has a debt desk who have thought about or executed debt purchases through their other desk, and not on the behalf of the portfolio company.

You mean a firm that bought some distressed debt and flipped it a short time later? If you're getting at that, I have a buddy who worked at a place that did that. His main focus was middle market buyouts, but as I recall, they made a monster return flipping some debt in like three months.


Not really. More enabling the PE firm to have a voice at the restructuring table when things get messy. E.g., buy a blocking stake c.>25% of the fulcrum debt and try to swing the process in the favor of their original equity participation. So not pure loan-to-own.

My initial comment wasn't clear. So you'd LBO, it goes bad, your other desk buys its debt, you (as a firm, hopefully working in cohort) have a voice later on.

"After you work on Wall Street it's a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side." - David Tepper

7/21/11

Oreos:
TheKing:
Oreos:
I'd love to hear from someone at a PE firm which has a debt desk who have thought about or executed debt purchases through their other desk, and not on the behalf of the portfolio company.

You mean a firm that bought some distressed debt and flipped it a short time later? If you're getting at that, I have a buddy who worked at a place that did that. His main focus was middle market buyouts, but as I recall, they made a monster return flipping some debt in like three months.


Not really. More enabling the PE firm to have a voice at the restructuring table when things get messy. E.g., buy a blocking stake c.>25% of the fulcrum debt and try to swing the process in the favor of their original equity participation. So not pure loan-to-own.

My initial comment wasn't clear. So you'd LBO, it goes bad, your other desk buys its debt, you (as a firm, hopefully working in cohort) have a voice later on.

Ahhh, gotcha. I'm not so familiar with that. To be honest, it would seem like that would present some level of a conflict of interest and that the existing banking group might not allow it. But, I'm really shooting in the dark here. Ideally, someone on WSO has either experience doing that or works for a firm that does. I'd be interested to learn that as well. Good question.

7/21/11

TheKing:
Oreos:
TheKing:
Oreos:
I'd love to hear from someone at a PE firm which has a debt desk who have thought about or executed debt purchases through their other desk, and not on the behalf of the portfolio company.

You mean a firm that bought some distressed debt and flipped it a short time later? If you're getting at that, I have a buddy who worked at a place that did that. His main focus was middle market buyouts, but as I recall, they made a monster return flipping some debt in like three months.


Not really. More enabling the PE firm to have a voice at the restructuring table when things get messy. E.g., buy a blocking stake c.>25% of the fulcrum debt and try to swing the process in the favor of their original equity participation. So not pure loan-to-own.

My initial comment wasn't clear. So you'd LBO, it goes bad, your other desk buys its debt, you (as a firm, hopefully working in cohort) have a voice later on.

Ahhh, gotcha. I'm not so familiar with that. To be honest, it would seem like that would present some level of a conflict of interest and that the existing banking group might not allow it. But, I'm really shooting in the dark here. Ideally, someone on WSO has either experience doing that or works for a firm that does. I'd be interested to learn that as well. Good question.


There is a conflict, that's the point. But the existing lenders have no say in it, you only need at a max., borrower's (ie, your fund's) consent (for bank loans) to buy the debt. However, debt buy-backs by the issuing company can be limited; depending on the docs.

It does happen, but it'd be interesting to have an insiders view of when to pull the trigger.

"After you work on Wall Street it's a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side." - David Tepper

7/21/11

Oreos:
TheKing:
Oreos:
TheKing:
Oreos:
I'd love to hear from someone at a PE firm which has a debt desk who have thought about or executed debt purchases through their other desk, and not on the behalf of the portfolio company.

You mean a firm that bought some distressed debt and flipped it a short time later? If you're getting at that, I have a buddy who worked at a place that did that. His main focus was middle market buyouts, but as I recall, they made a monster return flipping some debt in like three months.


Not really. More enabling the PE firm to have a voice at the restructuring table when things get messy. E.g., buy a blocking stake c.>25% of the fulcrum debt and try to swing the process in the favor of their original equity participation. So not pure loan-to-own.

My initial comment wasn't clear. So you'd LBO, it goes bad, your other desk buys its debt, you (as a firm, hopefully working in cohort) have a voice later on.

Ahhh, gotcha. I'm not so familiar with that. To be honest, it would seem like that would present some level of a conflict of interest and that the existing banking group might not allow it. But, I'm really shooting in the dark here. Ideally, someone on WSO has either experience doing that or works for a firm that does. I'd be interested to learn that as well. Good question.


There is a conflict, that's the point. But the existing lenders have no say in it, you only need at a max., borrower's (ie, your fund's) consent (for bank loans) to buy the debt. However, debt buy-backs by the issuing company can be limited; depending on the docs.

It does happen, but it'd be interesting to have an insiders view of when to pull the trigger.

Could other lenders not argue for equitable subordination based on that creditors obvious conflict of interest?

7/21/11

Awon Eleyi Awon Eleyi Won Bad Gan:
]

Could other lenders not argue for equitable subordination based on that creditors obvious conflict of interest?


Good point. There's nothing in the bankruptcy code to describes what constitutes equitable subordination so i suppose there's an argument. But the actions of the PE as a debtor wouldn't be to put other classes of debt in an obviously disadvantaged or deleterious position in that the PE action would likely, by not limited to, reduce debt-to-equity or to favour a plan including an equity injection (by way of rejecting plans to the contrary). Further, equitable subordination would infer that debtors of a same class were being treated differently, but in this example we're not trying to prioritisel liens over those that should be on the same level, just steering the process in a certain way while being in the fulcrum.

A classic case is if near to the brink of bankruptcy the debtor raises super senior (not DIP with the court's permission)when it is imprudent to do so as is ignoring its duty to the other debtors.

But please, I'm British, someone correct me if im off base.

"After you work on Wall Street it's a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side." - David Tepper

7/21/11

TheKing:
Oreos:
TheKing:
Oreos:
I'd love to hear from someone at a PE firm which has a debt desk who have thought about or executed debt purchases through their other desk, and not on the behalf of the portfolio company.

You mean a firm that bought some distressed debt and flipped it a short time later? If you're getting at that, I have a buddy who worked at a place that did that. His main focus was middle market buyouts, but as I recall, they made a monster return flipping some debt in like three months.


Not really. More enabling the PE firm to have a voice at the restructuring table when things get messy. E.g., buy a blocking stake c.>25% of the fulcrum debt and try to swing the process in the favor of their original equity participation. So not pure loan-to-own.

My initial comment wasn't clear. So you'd LBO, it goes bad, your other desk buys its debt, you (as a firm, hopefully working in cohort) have a voice later on.

Ahhh, gotcha. I'm not so familiar with that. To be honest, it would seem like that would present some level of a conflict of interest and that the existing banking group might not allow it. But, I'm really shooting in the dark here. Ideally, someone on WSO has either experience doing that or works for a firm that does. I'd be interested to learn that as well. Good question.

Most smart credit docs will impose 5-10% limits on sponsor ownership of a tranche. I've seen docs for a club deal that specified individual sponsors though, not total equity group, so between them and their co-invested LPs they were able to buy a blocking position.

Generally though, the sponsor just buys debt at cents on the dollar to retire it and try to hit covenants they need to be in compliance with to avoid rate steps, issue new debt, pay their special dividend etc.

Equitable subordination won't come into it given that the sponsor is now a holder of the tranche and if anything they are the disadvantaged party. The more effective limit on what you can do is your bank tends to get pissed because you being in the fulcrum can draw out bankruptcies and thus hurt their recovery, and you likely need them to sign off on some covenant waivers/extensions given how screwed the company is.

7/21/11

meabric:
[

Most smart credit docs will impose 5-10% limits on sponsor ownership of a tranche. I've seen docs for a club deal that specified individual sponsors though, not total equity group, so between them and their co-invested LPs they were able to buy a blocking position.

Generally though, the sponsor just buys debt at cents on the dollar to retire it and try to hit covenants they need to be in compliance with to avoid rate steps, issue new debt, pay their special dividend etc..

Another great point. Current LMA standard docs state that Sponsor Affiliates have no voting rights under the finance docs. I would assume this would aim to include Scheme of Arrangements (dunno though). But yea, this is the current standard, not too sure about the '07 standards.

The above also includes sub parts. However, I have seen banks with good sponsor relationships act for the fund but with no legal connection.

EDIT: just looked through a few of our loan docs from the '07 vintage and some post RXing ones where the initial LBO was '07, none of them had the Sponsor Affiliate language. In addition, a recent RXing (loan-to-own) has excluded it vs. LMA standard (for obvious reasons).

meabric:
[

Equitable subordination won't come into it given that the sponsor is now a holder of the tranche and if anything they are the disadvantaged party. The more effective limit on what you can do is your bank tends to get pissed because you being in the fulcrum can draw out bankruptcies and thus hurt their recovery, and you likely need them to sign off on some covenant waivers/extensions given how screwed the company is.

but them drawing it out is quite unlikely, incentives are generally aligned.

"After you work on Wall Street it's a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side." - David Tepper

7/21/11

Oreos][quote=meabric:
[

EDIT: just looked through a few of our loan docs from the '07 vintage and some post RXing ones where the initial LBO was '07, none of them had the Sponsor Affiliate language. In addition, a recent RXing (loan-to-own) has excluded it vs. LMA standard (for obvious reasons).

but them drawing it out is quite unlikely, incentives are generally aligned.

I hope not for fun.....sponsor Affiliate language is definitely a post-crisis thing though. Astounding that banks care more about that shit than the basic protections they give up in covenant-lite, but hey.

If you have a substantial sub debt position you and whichever shark bought up the fulcrum might get into a pissing contest. Banks would prefer you have no leverage so you quietly take the warrants for your worthless equity tranche. Regardless, they tend to demand you retire that debt you own ASAP (which very well might be what you want to do anyway) and tend to give you approval to do so without too much trouble.

7/21/11

meabric][quote=Oreos:
meabric:
[

EDIT: just looked through a few of our loan docs from the '07 vintage and some post RXing ones where the initial LBO was '07, none of them had the Sponsor Affiliate language. In addition, a recent RXing (loan-to-own) has excluded it vs. LMA standard (for obvious reasons).

but them drawing it out is quite unlikely, incentives are generally aligned.

I hope not for fun.....sponsor Affiliate language is definitely a post-crisis thing though. Astounding that banks care more about that shit than the basic protections they give up in covenant-lite, but hey.

If you have a substantial sub debt position you and whichever shark bought up the fulcrum might get into a pissing contest. Banks would prefer you have no leverage so you quietly take the warrants for your worthless equity tranche. Regardless, they tend to demand you retire that debt you own ASAP (which very well might be what you want to do anyway) and tend to give you approval to do so without too much trouble.

I enjoyed it, I like this stuff.

Banks'll give cov lite away because the obligor wants it so bad and the credit markets are crazy at the moment, but will try to get affiliate language in because the sponsor doesn't care as much about it (things are all gunna turn out rosy, right?), the banks can go to credit committee and go look what we've done, and not all sponsors would even contemplate that strategy. But I agree, letting the company erode value before you can step in, and have to wait for an actual payment default vs. a headache during restructuring, i'd go with the later.

"After you work on Wall Street it's a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side." - David Tepper

7/21/11

meabric:
Equitable subordination won't come into it given that the sponsor is now a holder of the tranche and if anything they are the disadvantaged party. The more effective limit on what you can do is your bank tends to get pissed because you being in the fulcrum can draw out bankruptcies and thus hurt their recovery, and you likely need them to sign off on some covenant waivers/extensions given how screwed the company is.

Great point here. You will definitely lean on the banks for covenant waivers and extensions. This will happen even if a company is doing decently well. First time they waive a covenant, it's not the end of the world, but all of this stuff comes at a price (i.e. a fee.) You obviously know this stuff, but I probably should've included it in my post. You can get into a real death spiral if you keep busting covenants and asking for waivers / extensions / a whole new set of them.

For those that are less initiated to the way debt works, when you borrow money from ABC bank to fund your LBO, the debt comes with a set of covenants. Covenants are a set of hurdles and rules that the company must comply with or else face penalties and problems. Typical covenants include meeting a minimum Total Debt / EBITDA ratio and a Total Senior Debt / EBITDA ratio. Total Debt, Senior Debt, and EBITDA are all very specifically defined in the credit documents. As mundane as this stuff sounds, you can spend a lot of time going back and forth with the banks agreeing on definitions and covenant ratios. And, again, as mundane as it sounds, you actually can learn a decent bit about negotiations by going through the process on a deal.

Last thing I'll add is that mezzanine players can really throw a wrench into things when shit starts to hit the fan. It's very personality dependent, but if they've got a little bit of equity in the deal, they'll start to rile things up during any sort of restructuring.

7/21/11

Another great one. Thanks, King.

7/21/11

I agree with you that these kinds of experience must be really interesting (as long as you don't have any money in !).
That's why I'm looking for a turnaround consulting job and not generic MBB or IB/PE.

7/21/11

I figure these types of situations are common at deep distress / value PE shops that engage frequently in these transactions.

7/21/11

Thanks for posting this. I was just at a conference a couple days ago where one of the sessions was dedicated to how sponsors should deal with distressed portfolio companies, so this post is a very timely inbound.

Too late for second-guessing Too late to go back to sleep.

7/21/11

brandon st randy -

Glad you enjoyed. It's really a fascinating process and I do envy my buddy who got to live through it. It's also something that's going to happen to even the best-run funds, so it's the sort of thing everyone should think about.

7/21/11

TheKing:
The management team was great during boom times, but seemingly impotent in dealing with the company's trouble areas.
How strange! What a truly unusual and bizarre phenomenon. I have never heard of this happening before in my life.

No but really, in all seriousness, great thread (this and the one before). I'd love to see more like this.

7/21/11

prospie:
TheKing:
The management team was great during boom times, but seemingly impotent in dealing with the company's trouble areas.
How strange! What a truly unusual and bizarre phenomenon. I have never heard of this happening before in my life.

No but really, in all seriousness, great thread (this and the one before). I'd love to see more like this.

lol, thanks. I do think the site benefits from this sort of detailed discussion. I'm always bugged by people that have a fanatical obsession with something like banking or PE without really understanding what the job entails, so this sort of stuff is important.

Any topics that you would like to see covered more in depth? Anyone else have any ideas that they'd like to see fleshed out? I'm always interested in hearing ideas.

7/21/11

TheKing:

I'm always bugged by people that have a fanatical obsession with something like banking or PE without really understanding what the job entails, so this sort of stuff is important.

Unfortunately it seems that most undergraduates aspiring to be in banking or PE just do not seem to get it. There is an idealogy of a "perfect" job that can only be found in these areas of finance. Frankly speaking, I feel that most of us learn better after actually experiencing it.

7/21/11

Just started in a PE firm in Asia so I'm not too involved with majority of the portfolio. However, one of the portfolio companies which was exited with an IPO ended up being plagued with accounting discrepancies. I heard that there was a huge scramble to salvage whatever they could and it was quite an adventure. Currently I'm tasked to work with one of the venture investments we made and I get to do some business development so it's pretty unique. The only downside is the time taken to do cold calls for business development purposes.

Not too sure about the general PE landscape in the Asia Pacific region, but it seems that owners here are less keen on leveraging and also prefer to keep the business to themselves which makes buyout level deals less common. Growth equity and mezz financing seem to be more popular.

One amazing story I've heard was from a relative who runs a REPE firm in China. He closed a JV deal for a new shopping mall in an upmarket district and was due to make the first tranche of payment. Two weeks prior to the payment, he visited the construction site and everything seemed to be in order; i.e. scaffoldings were up, heavy duty machinery brought in. The day that the cheque was sent out, he was visiting a nearby city to source another deal and decided to drop by the shopping mall and check out the progress. Astonishingly, the whole area was empty. Furthermore, the CEO of the other JV company couldn't be found. Needless to say, the cheque was immediately cancelled.

7/21/11

Informative post. Thank you

7/21/11

Did you have any experience of re-investing during down rounds or would there always be an exit if a portfolio company was facing an impending cash flow issue? This question might be for younger companies, or ones with multiple investors, than the situations you have described, but always great to hear another perspective. An insightful post, it is much appreciated by the younger generation of contributors here.

Father to Junior EightAceTres, the projected top summer analyst in Gleacher's 2034 Investment Banking program.

7/21/11

Great post, very informative and detailed.

"For all the tribulations in our lives, for all the troubles that remain in the world, the decline of violence is an accomplishment we can savor, and an impetus to cherish the forces of civilization and enlightenment that made it possible."

7/21/11

Great post TK.

Out of curiosity, how many portfolio companies are you currently covering?

7/21/11

Falcon:
Great post TK.

Out of curiosity, how many portfolio companies are you currently covering?

I'm not with the fund anymore, but I started out with three companies and ended up covering five by the time I was done (due to two platform acquisitions that I closed.) I also completed three add-on acquisitions. My companies performed quite well, so I had a pretty clean experience. I'm hoping to share some alternate experiences I've heard about through friends about what it's like when things aren't going so hot. While I don't envy some of the stresses they had to deal with, they definitely learned a ton.

7/21/11

Great post - I was always interested to hear more about the day-to-day life on the PE side.

Quarterly valuations - how much of this is BS? Your fund's investor statements depend on it, but is this a similar game to IB where an MD has a ballpark figure in mind for how much a company is worth and your DCF / comps / model are there to support it?

If you went to your boss and said "my quarterly valuation says the Company is now worth 2% less" would your boss say "no, run it again"?

How dramatic are the changes in valuation on a quarter to quarter basis? If you are using public comps I would imagine there could be some pretty wild fluctuations.

7/21/11

grosse:
Great post - I was always interested to hear more about the day-to-day life on the PE side.

Quarterly valuations - how much of this is BS? Your fund's investor statements depend on it, but is this a similar game to IB where an MD has a ballpark figure in mind for how much a company is worth and your DCF / comps / model are there to support it?

If you went to your boss and said "my quarterly valuation says the Company is now worth 2% less" would your boss say "no, run it again"?

How dramatic are the changes in valuation on a quarter to quarter basis? If you are using public comps I would imagine there could be some pretty wild fluctuations.

Yeah, I thought this sort of thing would be enlightening. So much focus is on PE at a high-level without a realization of what actually goes on at a nuts-and-bolts level.

Valuations are pretty thorough. Generally, you run the valuation, then get all your drafts together and have a meeting with the Partners. Valuations are discussed based on the output and how that reflects the reality of the company's performance. They can definitely swing from quarter to quarter due to public comps and (sometimes) precedent transactions that take place. The key is that they go out with written narratives and are discussed on a call with members of an Advisory Board.

All of the work in the valuations has a grounding in hard numbers along with a narrative. And, even though companies might fluctuate up or down a bit, it's important to remember that you're looking at an entire portfolio. So, even if a couple companies are lagging, the real winners of the portfolio can carry the day. That, and the fund's LPs know that a sale process will maximize value on exit. A well-run process can get you a valuation a good deal higher than what your valuation tells you. The CFO of my fund had stats on this, and it was something like companies tended to go for a 15% - 20% premium to our valuations of them (upon exit.)

Still, an important exercise because it keeps you on top of company performance and helps alert people to trouble areas and keeps Partners on their toes. It is, however, a giant pain in the ass, especially when you're really busy.

7/21/11

grosse:
Great post - I was always interested to hear more about the day-to-day life on the PE side.

Quarterly valuations - how much of this is BS? Your fund's investor statements depend on it, but is this a similar game to IB where an MD has a ballpark figure in mind for how much a company is worth and your DCF / comps / model are there to support it?

If you went to your boss and said "my quarterly valuation says the Company is now worth 2% less" would your boss say "no, run it again"?

How dramatic are the changes in valuation on a quarter to quarter basis? If you are using public comps I would imagine there could be some pretty wild fluctuations.

Quarterly valuations will be audited so this isn't an inconsequential banking exercise; methodology needs to be set/defensible and consistent between quarters. One major reason why a PE fund might want to fudge their unrealized gains is if they are already fund-raising for the next fund and want something to show for it but generally from my experience there isn't that much pressure to inflate unrealized gains as the goal is to have an accurate convergence towards your exit.

7/21/11

kingb:
grosse:
Great post - I was always interested to hear more about the day-to-day life on the PE side.

Quarterly valuations - how much of this is BS? Your fund's investor statements depend on it, but is this a similar game to IB where an MD has a ballpark figure in mind for how much a company is worth and your DCF / comps / model are there to support it?

If you went to your boss and said "my quarterly valuation says the Company is now worth 2% less" would your boss say "no, run it again"?

How dramatic are the changes in valuation on a quarter to quarter basis? If you are using public comps I would imagine there could be some pretty wild fluctuations.

Quarterly valuations will be audited so this isn't an inconsequential banking exercise; methodology needs to be set/defensible and consistent between quarters. One major reason why a PE fund might want to fudge their unrealized gains is if they are already fund-raising for the next fund and want something to show for it but generally from my experience there isn't that much pressure to inflate unrealized gains as the goal is to have an accurate convergence towards your exit.

Great point. Valuations are audited and you have to follow a pretty specific set of guidelines. It's essentially to ensure that you don't inflate values since this stuff does get used for new fund raising, especially if you haven't had an exit in your current fund yet.

Also - there can only be one King of WSO!

7/21/11

great king, thanks. and yes there can only be one king on wso

WSO's COO (Chief Operating Orangutan) | My story | My Linkedin

7/21/11

Thanks for this. Very accurate based on my PE experience as well.

7/21/11

I'm assuming this is for an LBO shop?

How would this differ at a growth equity shop?

Super Nintendo, Sega Genesis - when I was dead broke man I couldn't picture this

7/21/11

idragmazda:
I'm assuming this is for an LBO shop?

How would this differ at a growth equity shop?

I can't speak from experience, but I imagine it's quite similar. The biggest difference would be how you go about evaluating companies you invest in and your expected goals for them. That, and the type and amount of ownership you take. In growth equity, your capital is used in large part for growth, whereas in buyouts you are simply taking control of the business and providing liquidity to the existing shareholders.

Note, though, that management teams in PE almost always retain some level of ownership post-close so as to align incentives with the PE fund.

7/21/11

Great post!! Could you share some perspective on the operations management stratigies you perform on any of your current projects?

7/21/11

angelinajolie:
Great post!! Could you share some perspective on the operations management stratigies you perform on any of your current projects?

You might have to elaborate a bit on what you mean. Unless you are asking about the mythical "operations" aspect of PE.

If you're referring to the misc. projects I mentioned in my post, these can include the following:

--Digging into internal financials to analyze the company's revenue and profitability on a product by product basis (digging in and looking for trends, etc.)
--Helping with modeling and analysis for refinancings
--Misc. financial analysis / competitive analysis

Most of the work you'll do with your portfolio companies outside of add-ons and the other things I listed above will be financial in nature. I'm sure there are some different examples out there from other people, but this is generally the case.

I'm always bugged by the myth of operations in PE. As an Associate in PE, your main job is to work on and complete acquisitions (new platform and add-ons.) The rest of your work revolves around monitoring portfolio companies, helping out with misc. projects like the ones I listed above, and fund administration (i.e. valuations.)

Let me know if you have any more specific questions.

7/21/11

TheKing:
angelinajolie:
Great post!! Could you share some perspective on the operations management stratigies you perform on any of your current projects?

You might have to elaborate a bit on what you mean. Unless you are asking about the mythical "operations" aspect of PE.

If you're referring to the misc. projects I mentioned in my post, these can include the following:

--Digging into internal financials to analyze the company's revenue and profitability on a product by product basis (digging in and looking for trends, etc.)
--Helping with modeling and analysis for refinancings
--Misc. financial analysis / competitive analysis

Most of the work you'll do with your portfolio companies outside of add-ons and the other things I listed above will be financial in nature. I'm sure there are some different examples out there from other people, but this is generally the case.

I'm always bugged by the myth of operations in PE. As an Associate in PE, your main job is to work on and complete acquisitions (new platform and add-ons.) The rest of your work revolves around monitoring portfolio companies, helping out with misc. projects like the ones I listed above, and fund administration (i.e. valuations.)

Let me know if you have any more specific questions.

Thanks for your reply!

I guess I was talking about the 'myth' of operations management in PE. I guess that's what I though you meant by add-ons.
So your work is 100% financial based/ financial analysis? No process improvement/value creation for the projects you undertake?

Thanks again for your insight!!

7/21/11

angelinajolie:
Thanks for your reply!

I guess I was talking about the 'myth' of operations management in PE. I guess that's what I though you meant by add-ons.
So your work is 100% financial based/ financial analysis? No process improvement/value creation for the projects you undertake?

Thanks again for your insight!!

Well, when a fund like the one I worked at acquires a company, they often have third party consultants come in and develop plans for things like process improvements, sales force realignments, new markets to enter, etc. We review the reports they produce with the consultants and with management and provide support if necessary. Mostly, however, it's simply reviewing and letting the management team implement things.

Think of it this way, if you're an Associate with two - three years of banking background, and your fund buys a washing machine components manufacturer...what can you possibly do to personally deliver process improvements or create value? Unless you spent ten years in the washing machine business before joining a bank, it's gonna be tough and will mostly be left up to consultants. Note, again, that you will be involved in the process in so far as you'll have access to all the reports and sit on plenty of calls with consultants and management.

Sometimes when a firm buys a company, they'll bring in someone to sit on the Board of Directors because they have connections in the portco's industry. Oftentimes they can open doors for the company that they couldn't previously access. Sometimes Partners will call friends in the industry or old colleagues that work in fields related to the company they own to do the same. Again, it's the kind of thing that you can't really do much of as an Associate, so it's best to absorb as much as you can and find ways to be helpful.

That make sense?

7/21/11

TheKing:
angelinajolie:
Thanks for your reply!

I guess I was talking about the 'myth' of operations management in PE. I guess that's what I though you meant by add-ons.
So your work is 100% financial based/ financial analysis? No process improvement/value creation for the projects you undertake?

Thanks again for your insight!!

Well, when a fund like the one I worked at acquires a company, they often have third party consultants come in and develop plans for things like process improvements, sales force realignments, new markets to enter, etc. We review the reports they produce with the consultants and with management and provide support if necessary. Mostly, however, it's simply reviewing and letting the management team implement things.

Think of it this way, if you're an Associate with two - three years of banking background, and your fund buys a washing machine components manufacturer...what can you possibly do to personally deliver process improvements or create value? Unless you spent ten years in the washing machine business before joining a bank, it's gonna be tough and will mostly be left up to consultants. Note, again, that you will be involved in the process in so far as you'll have access to all the reports and sit on plenty of calls with consultants and management.

Sometimes when a firm buys a company, they'll bring in someone to sit on the Board of Directors because they have connections in the portco's industry. Oftentimes they can open doors for the company that they couldn't previously access. Sometimes Partners will call friends in the industry or old colleagues that work in fields related to the company they own to do the same. Again, it's the kind of thing that you can't really do much of as an Associate, so it's best to absorb as much as you can and find ways to be helpful.

That make sense?

Oh absolutely-I'm finding however, that more and more PE shops are performing the role that would have been done by consultants themselves, to cut costs. Maybe this is only in smaller shops who have a very specific emphasis on one industry though?

7/21/11

angelinajolie:

Oh absolutely-I'm finding however, that more and more PE shops are performing the role that would have been done by consultants themselves, to cut costs. Maybe this is only in smaller shops who have a very specific emphasis on one industry though?

Would be curious to see examples. I'm not saying it never happens, but people need to be realistic about what they'll actually be doing in PE.

If one wants to work in operations, they should probably work in operations / marketing / sales / whatever else at an actual company instead of working in finance / PE.

7/21/11

Another great post from TheKing - thanks a ton for this.

Could you talk about what you would be doing in a leveraged (or other) recap situation? I don't know if these were common with your fund but it would certainly be enlightening to learn more.

7/21/11

Plato:
Another great post from TheKing - thanks a ton for this.

Could you talk about what you would be doing in a leveraged (or other) recap situation? I don't know if these were common with your fund but it would certainly be enlightening to learn more.

My fund didn't do much in the way of recaps. I presume you mean dividend recaps? My understanding is that you can only really pull that off if the portfolio company is absolutely blowing expectations out of the water, you're way ahead of plan, and you're looking to take some money off the table.

Someone else might be able to chime in on this one with more / better info.

7/21/11

TheKing:
Plato:
Another great post from TheKing - thanks a ton for this.

Could you talk about what you would be doing in a leveraged (or other) recap situation? I don't know if these were common with your fund but it would certainly be enlightening to learn more.

My fund didn't do much in the way of recaps. I presume you mean dividend recaps? My understanding is that you can only really pull that off if the portfolio company is absolutely blowing expectations out of the water, you're way ahead of plan, and you're looking to take some money off the table.

Someone else might be able to chime in on this one with more / better info.

Yes, I was referring to dividend recaps; thanks for the insight. This gets bandied quite a bit in the financial press so I'm guessing it's not quite as prevalent as the media make it out to be...surprise, surprise.

Thanks again.

7/21/11

Plato:
TheKing:
Plato:
Another great post from TheKing - thanks a ton for this.

Could you talk about what you would be doing in a leveraged (or other) recap situation? I don't know if these were common with your fund but it would certainly be enlightening to learn more.

My fund didn't do much in the way of recaps. I presume you mean dividend recaps? My understanding is that you can only really pull that off if the portfolio company is absolutely blowing expectations out of the water, you're way ahead of plan, and you're looking to take some money off the table.

Someone else might be able to chime in on this one with more / better info.

Yes, I was referring to dividend recaps; thanks for the insight. This gets bandied quite a bit in the financial press so I'm guessing it's not quite as prevalent as the media make it out to be...surprise, surprise.

Thanks again.

It's not to say that dividend recaps don't happen, but they are much more typical at larger funds. Also, it isn't necessarily easy to pull them off since you generally have to get your lenders to sign off on these sorts of things. Though, during the hey-day of the bubble, all sorts of insane shit was going down.

7/21/11

TheKing:
Plato:
TheKing:
Plato:
Another great post from TheKing - thanks a ton for this.

Could you talk about what you would be doing in a leveraged (or other) recap situation? I don't know if these were common with your fund but it would certainly be enlightening to learn more.

My fund didn't do much in the way of recaps. I presume you mean dividend recaps? My understanding is that you can only really pull that off if the portfolio company is absolutely blowing expectations out of the water, you're way ahead of plan, and you're looking to take some money off the table.

Someone else might be able to chime in on this one with more / better info.

Yes, I was referring to dividend recaps; thanks for the insight. This gets bandied quite a bit in the financial press so I'm guessing it's not quite as prevalent as the media make it out to be...surprise, surprise.

Thanks again.

It's not to say that dividend recaps don't happen, but they are much more typical at larger funds. Also, it isn't necessarily easy to pull them off since you generally have to get your lenders to sign off on these sorts of things. Though, during the hey-day of the bubble, all sorts of insane shit was going down.

Dividend recaps are coming back, as we saw a number of covlite div recaps in 2012. I think you see them more often with companies that are middle market or larger with better access to capital markets.

7/21/11

HarvardOrBust:
TheKing:
Plato:
TheKing:
Plato:
Another great post from TheKing - thanks a ton for this.

Could you talk about what you would be doing in a leveraged (or other) recap situation? I don't know if these were common with your fund but it would certainly be enlightening to learn more.

My fund didn't do much in the way of recaps. I presume you mean dividend recaps? My understanding is that you can only really pull that off if the portfolio company is absolutely blowing expectations out of the water, you're way ahead of plan, and you're looking to take some money off the table.

Someone else might be able to chime in on this one with more / better info.

Yes, I was referring to dividend recaps; thanks for the insight. This gets bandied quite a bit in the financial press so I'm guessing it's not quite as prevalent as the media make it out to be...surprise, surprise.

Thanks again.

It's not to say that dividend recaps don't happen, but they are much more typical at larger funds. Also, it isn't necessarily easy to pull them off since you generally have to get your lenders to sign off on these sorts of things. Though, during the hey-day of the bubble, all sorts of insane shit was going down.

Dividend recaps are coming back, as we saw a number of covlite div recaps in 2012. I think you see them more often with companies that are middle market or larger with better access to capital markets.


and, not always a recap situation but where the sponsor has fronted a lot of equity then wants to lever the structure.

"After you work on Wall Street it's a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side." - David Tepper

7/21/11

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