Pitches/Beauty Pageants

I'd rather not have any aspiring monkeys answer this, even if your Vault and contact extrapolations are really good. Primary sources are the best.

in my expereince its definatley the latter, md looks at the deck and just wings it, kinda a been there done that mentality...however i'm sure there is no specific rule of thumb

Usually, the analyst and associate do know the most about the specific company's valuation, but the MD has so much experience, he can figure it out in a few minutes. The real story of the pitch is the positioning of the company, and, obviously, industry expertise is paramount there. So, the MD can glance at the book that you've spent 36-hours straight on, and can spin the story from there.

analyst's rule of thumb:

"do not speak, unless spoken to"

MD drives the meeting, analyst tries to stay awake.

In my experience, the MD never just wings it. He may not be in constant intimacy with the deal, but by no means is his first glance at the book on the plane.

Agreed with the above.

It can depend though...a straight pitch is usually led by the MD (or most senior banker(s) present), and if a junior guy comes along, his role is largely muted--despite his familiarity with the analysis.

And in good meetings, the books are hardly opened at all.

On the flip side, if you're beyond the pitch stage and working on a real transaction, the analyst/associate can play a bigger role. I was in a meeting recently where I had the laptop open, model in front of me, and we all sat around a table and stress-tested every assumption that had been made. So I'd make the changes, maybe add color of my own (you can do that and fool people with your knowledge after you've been at it for a while), and keep going like that for the entire meeting.

Not to hijack the original subject of the thread, but how would you view your decision to do corp dev vs. PE/HF? Do you think you'd be able to go over to PE post corp dev, and if so would you start at a junior assoc level or senior assoc?

I hate working on a book knowing entire sections are going to get flipped over. For example, spending hours on a financial buyers section when you know that they will most likely say "not interested in an LBO" and you will skip 15 pages.

additionally, just to provide a little bit more color on my previous post above, simply following industry news and knowing that xyz corp acquired abc industries or that jkl inc. decided to build a new greenfield facility doesn't qualify any banker as "knowing" an industry.

in addition, not even knowing things like multiples or average industry ratios will qualify a banker as "knowing" an industry. in fact, you don't even have to do actual comps to derive a multiple--a dumbass 7th grader could just as easily as any bulge bracket md tell you what the average multiple for automakers is by going to yahoo finance and looking under the key statistics section for each automaker and then averaging.

i'm not discouraging anyone from doing banking (in fact, i think it's an excellent career path that teaches you a wide variety of skills), but you do need to understand that at the pre-analyst level, many of you are looking at banking through rose-colored glasses and assuming that deals are done because of sheer "strategic advisory brilliance" or "industry knowledge."

in the real world, most corporate development guys won't look at your pitchbooks--they'll throw them away or just look at 1 to 2 pages tops. the previous poster was right when he said that in the best pitches, the pitchbook isn't even opened. not once.

in the real world, most industry guys won't respect your "industry knowledge." even your md really doesn't know "sh!t" about how his coverage industry REALLY works--this extends from goldman all the way down to Wachovia. you have to keep in mind that an MD is a salesman first and an advisory guy second. although they might tell you they do, MDs don't really care about strategic rationale or culture at the end of the day as far as acquistions are concerned; all they really care about is getting A deal done so that they can bring home the fee income.

thus, at the end of the day, decisions on who to award business to really don't boil down to industry knowledge or strategic advisory savvy. what it really comes down to is 2 things:

1) which banker do i like better? who's the better guy? who's my golfing buddy or buddy from school?

you'd be shocked to see how many deals are awarded simply to due to friendships or relationships.

2) which bank/banks are extending me cheap credit and cheap financing?

since most banks are taking big losses on syndicated loans, bridge loans, and some high grade bonds, companies need to make them whole by giving them mandates on advisory work that WILL generate positive income on the bank's RAROC model.

banks aren't charities, so if your company is just sucking up income negative "free" credit without providing a residual positive income stream later, they'll dump you as a client. that's why aside from goldman (which has the "goldman" mystique), almost all the other top banks in the league tables are universal banks.

the universal banking model isn't the end-all-be-all by any means, but it works to a degree at witnessed by goldman's strategic alliance with a japanese bank with a strong balance sheet that can extend credit.

at the end of the day, the reason i specifically didn't choose private equity is because i hate the modeling process and building bullsh!t models.

i don't think it's a big surprise to anyone here that models are a total load of crap. every model you will ever build will be entirely wrong and all the operating builds and multi-tab depreciation schedules you create are simply wasting your time.

although i can't say this for all private equity shops, many of them are highly analytical and employ numerically rigorous modeling methods. although you will be exposed to other things (i.e. strategy, due diligence, etc.) your life will still primarily be numbers.

thus, i chose corporate development because i wanted to focus more on strategy and the operational aspects of a business as opposed to the numerical or quantitative side of a business. at the end of the day, i felt i'd get a much more tangible and less bs-type of experience.

as far as corporate development to pe goes, i have never personally witnesses such a transition, but that's not to say that such a transition wouldn't be possible.

however, i will say that corporate development is generally a good springboard to a line operating position within a company (you understand the industry, the company, and you're financially literate with a strong eye to the bottom line) and line operating positions (after enough time) can lend themselves to operating partner positions at private equity shops with an interest in your industry.

I think all of us spend hours upon hours reading thru research, polishing up a powerpoint deck for a pitch book and then ultimately 2/3rds of the work gets scrapped or redirected at the final hour. Frustrating.

Also, I can't agree more with the comments above. In the best meetings the pitch book isn't even opened!

Also, I'm not as enamored with the modeling process either. However, this time right now doing the scut level work is going to be the most painful time of my career. I'll be most in my element when I'm at the VP level and above doing more business development and less modeling.

Wow. Thanks for taking the time to make those posts.

I work in Real Estate Private Equity so my experience is different from yours. Nonetheless, I can relate to some of the themes of your post.

There was a discussion in another thread on this forum about whether or not DCF is BS.

Are you really saying that the numbers don't matter? My work revolves to a great deal around numbers and models and trying to put a value on a process or asset. It's what we do and is an aspect of our decision making.

I have to agree though, that it isn't just numbers. For more complex deals that I've worked on (e.g. hotels with other leisure elements) there is an element of judgement that isn't entirely model based. Having said that, we are financial players at the end of the day and are compensated according to our numbers.

Interestingly, I was offerred an opportunity to interview for a corporate development role not too long ago (M&A in an industrials/diversified group). I had declined as I didn't think that it was the right move for me strategically.

Your post and my experiences over the past year (am seeing some exits and they have been interesting) have let me to question my decision to at least interview and see what they were about.

Exits are interesting. It's funny how the deal that everyone was gung-ho about isn't really performing as per pro-forma, but the less touted deal exited with a bang (corporate PE-like returns).

I would disagree that an LBO/DCF model for real estate private equity is just as baseless or useless as a traditional corporate DCF, at least on a project level. On a project level, real estate is very cash oriented so that monthly cashflows and waterfalls are relatively easy to predict and sensitize. I would argue that allows you to get a little bit more creative with your structures and allow more flexibility in current pay or accruing interest or dividends. Because at the end of the day with good management and a semi-healthy environment, coupled with conservative assumptions on cap rates etc., you should be able to acheive your hurdles.

In corporate IB/PE modeling, you always have market risk. If you're a retailer, for example, people could just stop buying your product, or maybe you had a "fad" factor...just an example.

Models and numbers provide a basis in which you can talk about a general valuation of the company. They are by no mean "accurate", but gives the management an idea of value. Indeed, analysts spend disproportionate amount of time crunching models, but I personally benefit from doing them over and over.

GameThoery,

Very good points. I agree with you in particular when it comes to the ability to adjust structures etc... Sometimes I spend more time on that part of a model then I do on an asset/project level.

I've seen several deals where all of the current income under the leases has been split off to different parties with the sponsor keeping most the residual upside.

Still, I have seen valuations of the same asset that were completely out of sync with each other (e.g. 40% difference). Although these were distressed deals with possible development opportunities.

I've only been in the business for a few years and like discussing valuations with people who were around in the 80s/early 90s doing deals.

not to hijack the thread, speaking of MD and 80 and 90s, the MDs were the same pot smoking hippies of the 70s. lol