Q&A: Big Four Valuation Associate - Deciding Whether This Job Is Right For You
Mod Note (Andy) - This Q&A was originally posted last year but @SeekingAlpha180" said he can still take questions from you (+new questions about his transition) 3/7/16 update: WSO Monkeys - I just moved to a top MM IB doing M&A in one of the main sectors I covered in valuation; I'm happy to also answer questions about my transition As a long time reader of WSO, I want to take the opportunity to contribute to the forum. Since I started work in a big four valuation group, I have seen many posts on the forum that attempt to explain what these valuation groups do, what the exit opportunities are, and what type of graduate school placement these groups have. In order to shed some clarity on the aforementioned issues, I want to give back to the WSO community by highlighting my background, project experience, and observations after a year on the desk. Also, in order to provide candidates for these roles more clarity with their selection process, I will discuss some of the insider details I wish I knew when I was weighing offers.
The analysis that led me to accept the job was exhaustive and I will present my thought process as clearly as possible. This is only my personal point of view / experience and I understand that some WSO members may disagree or may have seen other things when working in valuation.
- Education: Top 75 (US News) University - OCR: Non-Target type positions - Extracurricular & Leadership: Solid finance focused club leadership positions / case competition wins / business school student leadership - Internships: 5 in total Policy / Econ Intern – U.S. Government (Senate/House), 2 Project Management / M&A integration SAs at a blue chip IB, IB SA at a blue chip IB, growth PE SA - Recruiting: Accepted MM PE analyst position, but unfortunately my graduation official diploma issuance date was pushed due to circumstances outside of my control. Had to give up the PE opportunity and ended up landing the valuation gig late in the spring of my senior year. I started that fall.
Background Of Valuation Associates
When I started around 14 months ago, > 70% of Associates hired into the position had work experience. Based on my experience with the national practice, previous positions of experienced hires is extremely broad including BB Credit Risk, Tax, IB, AM, Audit, and MM PE/Boutique PE. Campus hires had internships distributed across the same categories with only a few new associates that actually interned with the group. Our national practice has started focusing more on recruiting students out of undergraduate business school and well regarded MSF/MS Valuation/MAcc programs for internships. On campus recruiting for undergrads is held at large state schools and private institutions concentrated in the 20-50 range with a few outliers on either end. For interns, at least in my group, I've noticed that grades are extremely important. I haven't seen many with a GPA under 3.7 get an internship offer. Most interns have an internship at a blue chip corporate, transaction related boutique, or another group within our firm. Additionally, only finance and accounting majors are hired….. one of the few places where Technical Expertise > Pedigree when recruiting.
Purchase Accounting: 3 Pre-Deal PPAs, 3 Post-Deal PPAs Tax Structuring: Three 338(h)(10) election assessments, where we helped the buyer determine how much they should pay for the tax amortization benefit. M&A Advisory: 3 full scale M&A advisory projects, 3 pre-deal projects covering various areas such as Build vs. Buy, etc. MC Strategy: Two M&A related pre-deal strategy projects (i.e. "We are being courted by this banker….Are they misleading us to get a fee? Should we sell now? Or improve the company before we sell?") ROIC / Strategy Analysis: Two projects for large cap C-Suite. This analysis is straight out of the McKinsey corporate finance playbook if you're not familiar with it. Basically deconstruct shareholder returns in order to provide insight into the firm's capital allocation / operational abilities.
Notable Deal Experience
- Closed M&A Deal > $1 billion – My role included consulting on - Accretion/Dilution, Fairness Opinion (strategic purposes), Tax Structuring, Purchase Accounting, Earn-Out Structuring - Consulted MF PE on Roll-Up Model > $2 billion opportunity – Worked with the client on their LBO to improve accuracy and build in sensitivity analysis Breakdown Of My Hours By Project Bucket: Audit Support (15 - 20%), PPAs & Tax Valuations (15 - 20%), Everything Else (60 – 70%) Breakdown Of My Hours By Task: Presentation Creation (15 - 20%), Professional Writing (15 - 20%), Financial Modeling (60 – 70%)
• Most people aren't interested in lateraling to IB from what I've seen most people are thinking about Corp. Dev. / PE / MC and want to get there without having to do IB • There is a wide range of competency and talent amongst the junior staff • Like any big corporation, office politics will significantly affect your trajectory • Exit opportunities are as broad as the products the group covers
Myth Busters – WSO Commentary On Valuation Roles That I Think Is Misleading
"You are a glorified auditor" – See project experience above. If you come from an Audit or Tax background (internship, full time, etc.) and are transferring in…expect to get stuck on Audit related projects. Unless you work hard to up you're modeling skills and strategic thinking (i.e. case study type analytics), you're not going to be competitive for the more interesting work the group sells. That being said, one of the guys I work with spent a year in tax but is crushing it here so there are always outliers. Also, the trend that I've seen is to break out the Audit support work into separate groups, so there has been a firm-wide reduction in the Audit work channel from what I understand. "Valuation is a small step above Audit in terms of prestige and exit opportunities" – I tend to disagree with this……ultimately allot of what we do is becoming more strategy/transaction consulting focused where the mandate is outside of financial reporting considerations and audit support. A very technically focused strategy group, but strategy non-the-less. Also, Audit kids rarely get into my group…..FDD is the place where you have a strong case for transition from Audit after a few years of experience because you're ultimately just cleaning historical financials. "You will probably not be competitive for MBA business schools">M7 MBA programs" – False. Historically in my group there have been MBA exits to Wharton, Columbia, Chicago, MIT, etc. Harvard/Stanford will be tough to crack unless you are URM or are a rock star associate. If you get good project experience, are a top performer, and have good recommendations, you will be competitive for most MBA business schools">M7 programs. And you won't be competing against IB/PE…possibly MC, but valuation is a hybrid role which makes it interesting. MBA exit was one of the main reason I chose this offer when I was weighing my options. "You have no exit opportunities" – This is probably the most widely debated aspect of the valuation role. A few things to note about this consideration. 1. You are your project experience in this group. Similar to MC, you are staffed on various projects based on your networking ability, performance, and skill-set. Depending on the portfolio of project experience you put together in your first two years, exit opportunities will be different. If you only do PPAs, tax valuations, and audit support, transitioning to IB/PE/Strategy will be more difficult than if you're technically doing Strategy and M&A work already. 2. Rank Of Possible Exits From Most Common To Least Common: Corp. Dev. / Financial Analyst > MM IB / Tier 2 MC > MM HF > BB IB or EB IB > MM PE / MBB. Yes, you can go from valuation to MBB or PE with the right project experience. I know people who have done both. However these are the hardest moves to make. Again, in this case your progression and project experience will ultimately determine how competitive you are. And you will need to network. Corp. Dev. is the most common exit and many exits are to fortune 100 companies. MM IB and Tier 2 MC are also fairly common, specifically when candidates join right out of school. 3. Exit opportunities are generally worse for people who lateral in from other areas. This gig is fine for a year or two but if you want PE/HF I would lateral to a decent IB between one and two years on the desk.
Valuation Role – Pros
1. Broad project experience which you can "spin" when interviewing and go after what you ultimately want to do – unless you are a lifer which is fine 2. Brand name and a larger pool of candidates to out-perform which can make you more competitive for graduate school than smaller shops 3. Great training - we are continuously trained as associates in all of the areas we cover including LBO, Strategy, etc. 4. You will be unusually good at modeling if you get on the right projects because you spend more time on it than most roles to the point where multiple PE associates call my desk with questions 5. If you are doing well you will get responsibility more quickly than in most other entry level 6. Cash to GAAP modeling will become second nature if you work on many valuation aspects of the same deal 7. You get way more vacation at the big four than any other place I've heard of (5 weeks)…..and you actually get to take it 8. Great exposure to purchase agreements and the working capital/tax structuring aspects of deals
Valuation Role – Cons
1. The pay sucks. I don't think the "prestige" is comparable to Audit, but the pay definitely is. The silver lining is that your base accelerates more quickly and at my firm you are bonus eligible like the other consultants 2. Variable project flow means you have to constantly hustle to get good project experience it can be pretty random when you start 3. Not really a performance based culture. My firm rarely fires people – so even if you're killing it the rub is that a mediocre performer who has been there for four years may beat out the younger candidate for promotion just because they warmed the chair longer. I saw this happen in my group. 4. Better Projects = More Hours. I work just as much as any IB analyst and walk away with about 60% of what they would be paid after taxes. 5. Less exposure to the debt/credit analysis of transactions than a typical IB/PE analyst 6. Less exposure to the transaction process as you won't be managing the data room, LOI, NDA, etc.
Who Should Take This Role
1. If you suck at technicals but want to work on deals this is a good place to start. People are generally cool about training you on the job and there are significant firm resources at your disposal 2. If you are unusually technical but for some reason don't end up with decent IB/PE gig, this can be a good stepping stone with the right project experience. If you care about the business school exit but don't have offers from companies with strong brand names, this can be a solid place to apply from, or lateral to the job you couldn't get out of undergrad after a year or two 3. If you have experience with the transaction process from internships, but only landed boutiques, this is a risk averse place to leave the business school door open while looking for better IB gigs after a year or two 4. If you couldn't break into MC and have the technical skills to hold your own, this can be a good place to set yourself up for a lateral move internally or externally
Those Who Shouldn't Take This Role
1. If you're mediocre technically, this role may be a step in the wrong direction unless you commit. Boutique IB may be a better fit in this case just because you will be guaranteed pre-deal and won't have t0 worry about getting beat out for the good projects. 2. Auditors looking to move to IB shouldn't take this role in my opinion. Everyone will know you're from Audit and you will have to fight to get off of the Financial Reporting/Audit projects. FDD offers more consistent experience and the Audit skill-set actually helps in that group. 3. If you have a decent MM IB/ BB IB / MBB gig, don't be an idiot and take this role unless you want MC. Even then think seriously about if you can fight for the good projects. Feel free to ask any questions and I will do my best to answer. And apologies for any typos I'm not re-reading this.