project finance vs leverage finance vs M&A - Exit Opps Q. (reloaded)

I have read most of the project finance exit opps threads here and I notice:

1) the lack of response from the WSO community
2) if there is a response, the answer is PE energy/infra funds

Because of 1), I want to try again, as there might be other people like me, an explorer in this field.

My concern is 2). From someone not in the field, when it comes to how PE energy/infra funds profile those who want to get in, how does project finance analyst look against leveraged finance and energy/infra M&A analysts?

When commenting between PF, LF and M&A, if answers can be themed around factors such as:
- skill set
- intensity of work
- identity (e.g. how the street views PF analysts?))

... that would be appreciated.

I would like to hear from those with direct experience in this field.

Thanks
C

 

I worked in an M&A group. The experience is probably the best you can get as an analyst. You will get worked mad hours but you will become very technically adept. A year into the job I was sitting with VP's and Associates from the industry group and explaining to them valuations and models and telling them how we should look at things. You also work a lot on due diligence. A lot. Also, you don't waste as much type pitching as some of the industry groups. If we were involved in the pitch, it was usually for a quick and dirty lbo model plus dcf to spit out a preliminary valuation and a page on process timing in the deck. Overall, you'r experience is everything a PE would want. They don't care so much about follow on offerings and what not. HF's as well appreciate the experience, but if it's an industry focused HF they might prefer someone from an industry group with solid M&A experience in it. Not to mention I worked a ton with PE firms and came to understand how they look at opportunities.

Lev Fin guys are strong technically but they're not as familiar with equity and I don't think they were as knowledgable about valuation either. LF definitely places kids into the buy side, but I think it sets you best up for credit PE or HF. On an M&A transaction, you're really only looking at the financing aspect and that's it. Doesn't help you understand the drivers of value creations. Guys with LF backgrounds, please feel free to let me know.

I really don't know anything about PF but I don't recall meeting anyone on the buyside with that sort of background if you're looking to jump to PE or HF after a couple of years.

 
Best Response
cocktailking:
I have read most of the project finance exit opps threads here and I notice:

1) the lack of response from the WSO community 2) if there is a response, the answer is PE energy/infra funds

Because of 1), I want to try again, as there might be other people like me, an explorer in this field.

My concern is 2). From someone not in the field, when it comes to how PE energy/infra funds profile those who want to get in, how does project finance analyst look against leveraged finance and energy/infra M&A analysts?

When commenting between PF, LF and M&A, if answers can be themed around factors such as: - skill set - intensity of work - identity (e.g. how the street views PF analysts?))

... that would be appreciated.

I would like to hear from those with direct experience in this field.

Thanks C

I worked in a PF related group in the past and moved over to PE (though not a pure infra/energy fund) and will try to focus on PF angle in my response:

Personally, I think the PF analyst experience in a good team/bank leads to a very strong skill set with the big caveat being a lack of valuation/equity exposure compared to M&A/LevFin. PF models tend to be fairly complex and good PF teams will put a lot of emphasis on developing this skill set. In addition to modeling, you also spend a lot of time on due diligence and documentation which I think is generally more productive/interesting/helpful than your typical analyst responsibilities on a sell-side M&A deal for example.

The intensity of work and identity depends a lot on the team/bank and whether PF is positioned more towards commercial or investment banking in the respective organization which is reflected by the caliber of people/comp/deal experience. You want to be in a strong PF that takes the lead on originating/structuring/executing transactions and has advisory capabilities whereas the reality is that a large part of roles will be with organizations/teams which only participate in transactions and take on a credit/portfolio monitoring role. I think the latter is where you see a lot of weak (and unhappy) analysts trying everything to move out to IBD/PE and complain about being pigeonholed in PF.

It's difficult to generalize about exits because you simply don't have the size and structure of traditional IB analyst classes. Many of the mega infra funds still have a preference for recruiting from just a handful of BBs (usually the respective industry team) which puts you at a disadvantage coming from any other background. On the other hand you will see that the ranks of many infra funds/developers are filled with former PF bankers and those guys will spot/appreciate a strong PF analyst.

As mentioned in the beginning, valuation/equity is the only weakness but it's not impossible to bridge at the junior level given that you would usually have very strong modeling, industry and credit/documentation skills.

 

Thank you for the answers, everyone.

kingb, I am interested in the comment that a strong PF organization/team has "advisory capabilities". Care to elaborate on that? I am thinking that it is distinct from transaction work but comes hand-in-hand with transaction work for teams with strong relationships with clients who trust in them.

 
cocktailking:
Thank you for the answers, everyone.

kingb, I am interested in the comment that a strong PF organization/team has "advisory capabilities". Care to elaborate on that? I am thinking that it is distinct from transaction work but comes hand-in-hand with transaction work for teams with strong relationships with clients who trust in them.

Compared to your typical corporate loan/bond, PF transactions are highly structured and labor intensive. Depending on the transaction, you will typically have either a designated financial advisor (this can be one of the lead arrangers or it might also be a specialist boutique or a BB team at times) or one of the lead banks (usually the institution capturing the largest chunk of the deal economics) structure the deal by preparing the financial model, working with the sponsor on the info memo, coordinate due diligence, documentation etc. On the other side of the spectrum you will find many commercial banks who are simply there to participate and provide balance sheet to "baked" deals.

 

only do PF if you're really into it. it's far too reading / labour intensive for you to zombie through it with medium interest

"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
 

Anyone from either a Canadian or Japanese bank PF / syndication / structured finance desk? Would like to hear your views on how these national institutions are / will be performing relative to the usual suspects of European and US banks in the PF business going forward 2013.

Anything from compensation, culture, business growth (aggressive/or not) and street rep would be interesting ...

I looked at latest league tables and think, wow these Japanese banks do a lot of deals, and read recently on Power Finance and Risk (trade press) that these national institutions since 2011 have been taking market share from European banks due to the European sovereign debt crisis.

C

 
cocktailking:
Anyone from either a Canadian or Japanese bank PF / syndication / structured finance desk? Would like to hear your views on how these national institutions are / will be performing relative to the usual suspects of European and US banks in the PF business going forward 2013.

Anything from compensation, culture, business growth (aggressive/or not) and street rep would be interesting ...

I looked at latest league tables and think, wow these Japanese banks do a lot of deals, and read recently on Power Finance and Risk (trade press) that these national institutions since 2011 have been taking market share from European banks due to the European sovereign debt crisis.

C

In the markets that I worked in, the Japanese banks paid significantly below average - and culture was less aggressive and more bureaucratic than some of their peers. They will continue to grow given the retreat of traditional European participants but tend to stay away from the more aggressive/risky deals. The Canadian banks (and Australian in Asia-Pac) are quite strong close to their home and probably a more desirable place to work for.

MeerkatMerger:

1) If it is possible to go from PE => PF? If so, is it even worth the jump? 2) Is it common for people in PF (sponsor) to jump to the corporate side and into project finance divisions of the companies using the PF creditors?

1) Anything is possible but its a small market and not that typical to go from an equity role to a credit-focused banking group. It's quite a bit more common to see people from sponsor/developer side to go into PF on the banking side. 2) Don't understand the question - PF sponsors work closely with banks to finance projects and people often move over to PF banks (and vice versa) to cover their sector there.

 

most active PF lenders are Japanese and French banks. They are happy to dedicate huge chunks of balance sheet to relatively low yielding assets with poor regulatory treatment. Both are much better in terms of work/life balance vs. US peers.

Seconding the advice earlier, ideally you want to go to a bank who's good on advisory and capital markets take-out (i.e. bridge to bonds) but who can also do some amount of lending.

It's rare that sponsors will give an advisory mandate to a bank if they can't commit any balance sheet at all (e.g. Citi) even though they're a case in point in terms of capital markets take-out

Also, please remember that the timelines for those deals are VERY different and a lot of your clients are operating in emerging markets - you could easily spend 3 years on a petrochemicals greenfield mandate so that's something else to have in mind vs. levfin or M&A which has a much shorter fuse and therefore a much higher chance for you to see a deal from craddle to grave

 

hklevfinbanker

Seconding the advice earlier, ideally you want to go to a bank who's good on advisory and capital markets take-out (i.e. bridge to bonds) but who can also do some amount of lending.

It's rare that sponsors will give an advisory mandate to a bank if they can't commit any balance sheet at all (e.g. Citi) even though they're a case in point in terms of capital markets take-out

This is interesting. From your experience which are those banks that are best at bridge-to-bond structures? 

From what I observe likes of Citi and HSBC are mostly active in capital markets transactions indeed. Any thoughts on which bank takes what kind of role in the wider infrastructure market?

--

I can comment on Japanese Banks point; I work for one and total comp-wise I find it difficult to justify a switch to other European banks in the market unless there is something really promising about the grass on the other side. 

 

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