Pros: 1. Building relationships with your clients, which are probably some of the places you might want to work at after banking 2. If you're in a good sponsors group, you will run the model 3. You will be exposed to a variety of industries 4. Learn a great deal about LBO's and financial engineering

Cons: 1. If you're in a bad sponsors group, you will not run the model 2. You won't be exposed to many strategic transactions (you will never have a client as a company, even in deals where a sponsor is exiting the portfolio company via sale, ipo)

 
Best Response
orangebull:

Pros:
1. Building relationships with your clients, which are probably some of the places you might want to work at after banking
2. If you're in a good sponsors group, you will run the model
3. You will be exposed to a variety of industries
4. Learn a great deal about LBO's and financial engineering

Cons:
1. If you're in a bad sponsors group, you will not run the model
2. You won't be exposed to many strategic transactions (you will never have a client as a company, even in deals where a sponsor is exiting the portfolio company via sale, ipo)

I'll take on a few things: Pros: - You will be exposed to a variety of transactions (IPO, LBO, M&A, div recap, etc) - Exit opps are generally strong and geared towards PE if you're in a group that "does everything" (MS/BAML/CS/etc) - More exposure to credit than most groups... very lev fin heavy

Cons: - Clients are PE shops and are very savvy which means a lot of the analysis is already done

 

Completely agree with Orangbull and I'd just add that it seems like it all hinges on the role that the sponsor group plays in the deals with sponsors. From what I understand at certain BB's the sponsor group really is just a relationship manager and at others it does everything. Also I know that at MS the Sponsor Group runs everything, including exits meaning you would have some exposure to strategic transactions in as much as you would advise a sponsor selling to a strategic buyer.

 

Your job as a BB sponsors analyst is basically to do as much of the PE associate's job for him as humanly possible. This means initial model, dataroom, Q&A, CIMs, process help, state-of-the-industry type books and substantially more human interaction than in other product groups. The people you interact with tend to be hardasses though.

 
longposition:
pacificali: if you are asking such a stupid quest. I wonder why you are a member of this forum

Can you guys remind me of what this recent stuff that everyone is talking about at the water cooler is about - it's like the market for lollipops or something isn't doing too well. Hey, but as far as Ic an see, there's no harm in it for the bankers. I mean, yeah - I don't have a clue about whats going on, but surely its no bad thing that all my stock price charts are heading south lately (yay, assets are becoming cheap :) and all my bond spreads are going north (yay - more money for the lending banks). So whats the problem again?


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In terms of PE groups:

Until recently it was pretty easy for a Private Equity firm to get a lot of money to finance their acquisitions. If it becomes harder to raise debt, PE firms needs to use more equity to make a purchase. More Equity = Lower IRR. If the PE firm can't get enough debt from lenders, they won't do the deal.

People who are more familiar with the system feel free to correct me if this is wrong.

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

It's pretty f'ing straightforwad

If the high yield market shuts down, PE shops don't do LBOs. If PE shops don't do LBOs Lev Fin and FS groups spend all their time pitching. If there is no hitting going on, there are no fees coming in. When there are no fees people get fired.

 

First, the sponsors have an aggregate of $280 billion under management, and they're not going to give it back, so they're going to do deals - maybe not $40 billion LBOs, but they're going to invest that money. Second, if you're going into financial services, you need to get comfortable with market cyclicality b/c - the last 4 years notwithstanding - it's a reality.

 
pitchmonkey:
First, the sponsors have an aggregate of $280 billion under management, and they're not going to give it back, so they're going to do deals - maybe not $40 billion LBOs, but they're going to invest that money. Second, if you're going into financial services, you need to get comfortable with market cyclicality b/c - the last 4 years notwithstanding - it's a reality.

You realize that they don't actually have that money yet? They have the right to collect it when they need it...

 

At my bank, M&A and LF deal flow is pretty weak right now. First year Analysts are doing nothing for the most part. I know 3 sponsors deals fell through at JPM a week or so ago too.

But if you still really wanna do PE, then i suggest go for it.

 

Pitchmonkey is right. PE firms are sitting on unprecedented amounts of cash, and they are going to have to do something with this cash. No deals are getting done right now because everyone is panicky, but deals are going to get done eventually, provided we don't go into a recession. The environment for these buyouts is just going to be different going forward.

 
luke77:
...PE firms are sitting on unprecedented amounts of cash, and they are going to have to do something with this cash.

For the most part, PE firms are not sitting on cash, but as aspiringmonkeyi.. said, the funds are just legal committments to invest. The LP would never release the funds unless they're certain the junk debt portion of the financing can be delivered. Besides, in the interim, the IB's provide the bridges for the equity and debt portion with the hope that the pension funds eventually come through, and that the junk debt can be completely issued. I don't foresee oversubscribed junk bond issues anymore and anytime soon.. not happening with international funds getting hit with subprime-related write-downs.

Bottom-line: Deals that have reached the definitive agreement stage would likely get done, with the pension fund LP's eventually providing the equity, but unfortunately, the banks would be left holding the bag of junk debt.. If things lighten up in the fall, the IB's would then try to push the debt through the leveraged loan/junk markets..

But new deals requiring debt financing, or "pay to play" bridges would have to wait indefinitely until the current backlog is cleared (mid 08', conservative guess). FSG/Lev Fin can keep pitching, but everything has to wait..Sponsors would never do deals if they can't meet their minimum promised hurdle rate.

..and bye-bye IOU's, and other PIK's.

 

I was interested in financial sponsors at first but overall I don't think that it is a wise choise except if you are only 100% commited to PE in anear future and if it's the case you should then try to get into PE rather than IB. Banks are very aware of that so they'll try to trap you during interviews about your interest in PE, they don't want to train you and to develop you to see you leaving after that.

Generally speaking I wouldn't consider the idea of going into financial sponsors because wherever you will end up in IB you will certainly work several times with PE firms as clients anyway so I am not sure the specialization (being in FS) is worth it and we are not sure what the evolution of the PE firms will be in the future...

 

People need to understand that you shouldn't join what's "hot" at the moment. So many people just follow the herd mentality of M&A, Lev Fin, FSG at all costs that they completely disregard the less "sexy" groups such as Industrials, Healthcare etc. Be glad you are in one of the most coveted industries and work hard. That's all you need to be worried about, not chasing the next big thing

 

re 'That's all you need to be worried about, not chasing the next big thing'

Worry about catching it !

Anything is one big deal away from being the next big thing.

http://stylizedfacts.com/coruscation/
 

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