Thoughts on Starting Investment Bank/M&A Advisory for my Company

Hi All,

Been a while since I've posted. I used to contribute a bit more, but I have been out of banking and PE for 3 years now so have less to add recently.

I'd like to get collective thoughts, for those generous enough to share, on an opportunity I have to re-enter the space.

I left banking at BB for small PE firm (great experience I loved working with those guys), went into private credit for a mega fund's credit team to reduce hours but stay in the game/get deal exposure. I then left to one of their portfolio companies, which is a tech enabled service in the M&A space, to lead business development for a large region of the country. My clients are senior folks at PE firms, M&A teams at law firms, and CEO's and my day to day is effectively a high level sales job (not much different than banking at the senior level honestly).

Without getting into too much detail, I have the option of pitching to the Board that we should start an M&A advisory practice that I will head up and grow. There is a competitive advantage with our existing core offering and they would complement one another. I have CEO and my boss's thumbs up, if I want it, but it does need board approval (and we are PE backed hence my initial involvement with the Co. so this is not a guarantee but is in line with their box).

I had run my own investment banking process historically and had to leave one of my jobs to do it, and it was a fantastic experience. But I didn't see myself continuing with it to compete with the boutiques in my 20's. My only competitive advantage then was coming from IBD, I knew what sucked and didn't suck about the job. And frankly you remove some of the culture issues and reduce hours (or find ways to make hours tolerable) you could make the business fun. My idea would be to leverage this Company's brand and channel access across the M&A landscape to build a new advisory business. 

I'd also use our company's tech oriented culture to attract talent - WeWork office with couches / games / free beer with full work remote options, MD's help analysts if needed (ie on vacation), junior folks directly participating in deal fees and getting paid when we get paid as opposed to a bonus cycle, etc. and we build an investment bank that is fun and rewarding to work for. I envision a team where we all like the actual work of IB but only to a certain limit. Of course there will be moments of grind based on real client demands/deals, but the hope is that we are all comfortable with each other and a flat structure (where the analyst is not some bitch that gets sent work to turn around same night, but on par with me as MD but just does a different function on the deal most times). If you need to smoke some weed to break up the night and get back at it and you're actually more productive, don't need to hide it (funny/stupid example but I mention it because I knew another analyst in my day that would light up and come back to the office and grind out his best work, but feared that an MD would come back after a dinner or something and bring him into his office for a deal update and see him ripped). If you want to head out and meet some friends for a special occasion, me or someone else on the team will step up and help out. It's literally a real team as opposed to these IB's where effectively everyone is out for themselves. This is how WeWork actually built a fun culture and everyone made great money doing it (early on).

I have been out of banking for years now so it's been some time since I remember how much I hated my life at the BB. My current role today is pretty amazing - I work very few hours a week, the hours I do work are oftentimes pretty fun for my personality (golfing, dinners, drinks, coffee, office presentations, talking to folks about their active deal/specifics that we need to know, pricing the service, working with internal teams to relay client feedback on our services etc.) and I'm making pretty good money (not banking money, but $350-$450k depending on how good of a quarter/year I'm having). I set my own schedule and wake up late most days, get plenty of gym or sports time, plenty of time with my wife. But I am getting to the point where I'm not learning anything new at all in my career and becoming more and more reliant on the Company and less and less marketable to PE or IB if I needed to go back. I feel like I may be losing touch with the technicals and I'm probably too old for a top MBA program for a pivot if I needed to. This team would give me a sense of purpose in my career; but also bring me back to banking and more specifically the pain of building a team from l scratch in banking which would be a drastic change in my lifestyle.

Reason I am coming to you all for thoughts is that you are all the demographic who will have the best insights and even the type of folks we would want to hire. I would give up my easy lifestyle to go bust my ass again if it meant building a team where people come to work with a smile on their face as opposed to being effectively coasting through my career. I certainly have the ability to do it. But would be interesting to hear thoughts from folks currently in banking and me leaving the situation I'm in to effectively come back to it (albeit in a different manner).

Comments (33)

  • VP in IB - Cov
Jan 1, 2022 - 10:47pm

Starting from scratch is always a lot of work. Pitching to get clients / build awareness, doing all the boiler pages, comps, internal processes. Won't be just work for you but tbh the junior team dreamland is unreasonable too. Also lot of the times it feels like banking ppl themselves are wasting time, but lately with so much work, it's all client creation. EOD it's client services and not lifestyle friendly. Once you have P&L responsibility with client barking, analysts drinking beer at 5pm on a Tuesday will go down the toilet. Now if you want to just grind it and grind the team, it's worthwhile. 

Jan 2, 2022 - 10:25am

These are good points. With regards to the culture, I'd imagine the 5pm beer is pretty rare. It wouldn't really be a 9-5 so to speak. If a team member is not working enough / blowing off work frequently, that's simply just a problem. The idea is to make it more collaborative, open, and limit hours to an extent. If we need to hire more people to reduce hours, we will. My idea is to simply reduce some of the things I hated about banking - particularly since so many of them felt unnecessary. Some were specific VP or Director issues being overly anal (ie price updating the book several times even before it goes out to the client so that the MD can see the multiple at 12.78x vs. 12.81x) which kept me in the office an extra hour plus having to print and bind pitch books and send my carrier to an MD's home. Or having to do face time because I fear looking like I work less than others even though I am equally productive at home on many items at night. Being in the office and killing time as opposed to hanging out somewhere else / going to the gym. Unnecessary deadlines because VP's were overly cautious or nervous on the book or wanted to be overly supportive even if client on active deal says to enjoy the holiday (which has happened). Etc etc. A lot of these items come down to old school banking culture. We never leveraged technology outside of FactSet and CapIQ, or Bloomberg (Bloomberg is such old tech btw. I believe public blockchain networks will eventually replace them, but I digress). There is a lot to consider with the culture. Some professional sports teams have great culture/enjoyment working together and others hate each other and the team owners and how things are managed. I'd imagine being on the Lakers right now sucks. Being on the Warriors team a few years back would have been epic. Both teams work hard but one enjoys the experience and the other doesnt.

Most Helpful
  • Principal in RE - Comm
Jan 2, 2022 - 3:53am

I started a M&A practice in my 20s but it was not backed by any reputable firm so arguably was frustrating initially. 

I started a real estate M&A firm for a group of buyers my team were well connected to. Our buyers were large family offices that can buy up to $6B of real estate across US & Canada. They would consolidate many private REITS and private real estate funds. 

First 3 yrs of my M&A firm
1) I hired over 20 salaried Analysts with strong sales skills to be the group that will hunt for good real estate off-market.

2) I also hired a couple of traditional financial associates/analysts + Software developers for our underwriting and processing a deal to its finish line. 

3) I hired 2 MDs for a high salary. Their job was to find bigger portfolios to sell and strengthen the relationships with owners. 
4) I formed 2 offices (One in the US & One in Singapore) 

5) Our competitive advantage was the trust we had with the group of buyers who will buy $6B through us. 

As you can see, I was very much focused on growth 

How it all played out 

1) We maintain a profit margin of 58% 
2) Sold it to a large real estate management firm about 5 yrs since its inception for 7X of its average N.I. 

3) My job was to grow the firm and manage the team and network 24/7 with Owners only. 
4) We had a total of 6 MDs, 3 of those MDs were tasked with executing deals and the other 3 would mainly find new clients and some work with the Analyst team and etc. 
 

1) Short answer, Go for it. You can already see your career stagnating. By venturing off a new entity you will have a large leg up + some sweet equity in it too.
2) Getting clients and pitching why your firm is the one is hard and you need to focus a-lot more energy on the deal flow aspect because deal flow will be your M&A firm's life-blood!!!
3) Hiring a quality team is art and you don't have to be to go-to person to do it all. Build a team of guys/gals who can take care of each division of the M&A practice. 

4) Effectively using tech (proprietary and 3rd-party tech) will help of course but the real advantage will be how lean your team is and the control it brings you. 

5) Ownership of a newly built business can be a huge thing for you in your life. Think about it, when you're 60 and you look back, you can tell your grandkids how you built a company and became this self-made man. 
 

In short, BUILD THAT DAMN THING... Don't back out because of fear. Only back out if the business model doesn't work for you and your Company. 

  • Principal in RE - Comm
Jan 2, 2022 - 3:59am

Also note, I started the whole business by cold calling potential MDs and Analysts 

- I also paid and worked with a strong operations heavy Consulting firm to help me out.

- Flew to Singapore for half a yr to build the 2nd office. 
The first Year of this venture costed me 93% of total savings. It was insanely scary, I would sometimes get sweaty and minor panic attacks. 

The point is, you should take larger risks when you in your 20s, because you can reinvent yourself later and not be bogged down by debt and any other things that happen when you got a house, family, kids, parents in need of care, and etc, etc... 

  • Associate 1 in PE - LBOs
Jan 2, 2022 - 6:29pm

Very interesting. Some questions:

1) Where did that 93% of personal savings go towards when starting the business?

2)How did you find peace with the thought of potentially losing all your money? Also what amount are you speaking of here?

3) Was there ever a time when you finally felt that you had "made it" in this new venture and no longer panicking about whether it was going to work out or not?

Congrats on having the balls.

  • PM in HF - Other
Jan 2, 2022 - 2:56pm

May have missed this part. But where explained the upside of this role vs your current role. Like if you killing it in your current role (which it seems) why are you not on the CEO track, do they just value the tech side more so and you will never be seen as a leader?
New role, how much is it connected to the firm currently and how much ownership you getting.

Think you should do it, but think more so you have got the ephinany to abandon the straight path so not sure should jump at the first thing. 

As for the culture stuff it all sounds great but as someone else mentioned do not promise the sky day1, walk before running. The upside on deal fees and small tedious pain of banking/big company issues being negated should be enough to recruit talent. As you mentioned you want grinders but you want the dudes who are so disliked by "minor things" that they leave the industry. Versus the people seeking all the perks and then maybe will grind.

Jan 3, 2022 - 10:19am

May have missed this part. But where explained the upside of this role vs your current role. Like if you killing it in your current role (which it seems) why are you not on the CEO track, do they just value the tech side more so and you will never be seen as a leader?
New role, how much is it connected to the firm currently and how much ownership you getting.

Think you should do it, but think more so you have got the ephinany to abandon the straight path so not sure should jump at the first thing. 

As for the culture stuff it all sounds great but as someone else mentioned do not promise the sky day1, walk before running. The upside on deal fees and small tedious pain of banking/big company issues being negated should be enough to recruit talent. As you mentioned you want grinders but you want the dudes who are so disliked by "minor things" that they leave the industry. Versus the people seeking all the perks and then maybe will grind.

Wrt CEO track. It's something that's actually quite possible. I have an excellent relationship with the CEO and President. We have gone on travel golf trips together and there is great mutual respect. My CEO is a mentor to me. I am very grateful to have the opportunity to work with him for a variety of reasons. He is the sole founder of the business, expanded it into new segments, and sold it to PE. He is genuinely a nice guy and is supportive of my career entirely. That is actually how I got this job initially. It was not an existing role. It was an opportunity I saw after doing due diligence on the company as a new platform portfolio company and one thing led to another. 
 

I would say though after evaluating - there are some meaningful barriers. CEO's retirement should come in about a decade or so after my discussions generally with him. Then there is the President who has real executive management background that the PE firm brought in. Then there are office politics of people important to the Company that are considered. I am also not in the headquarters - I run a satellite office (with two people but we generate a good % of total revenue). There was a woman who I thought for sure would be set up as the next senior exec, and she was a bit neglected from the promotion even though she was actually an excellent fit. I think she just saw it would be a very long time and she could probably do it elsewhere, so she left for a competitor. 
 

Wrt culture - I agree. I should position it differently when talking to live candidates. It will not a slack off culture. But, maybe you'll be incentivized if we have a fun office culture that values your work life balance sometimes. And maybe you'll be incentivized if you're getting a direct cut of the deal. As you know as a PM, the motivational factor is entirely different when you get a slice. I get a slice of every deal today and I'm vacation now fielding client calls and writing on WSO because it's so exciting and the sky is the limit. Now in my current role there's a different discussion to be had because sky is not the limit - we are and have been limited on deal flow due to capacity restraints. Longer story there.

My exact ownership / split will be negotiated. VERY interested to hear what folks think I should ask for. I don't know this number for sure, but I think in my IBD groups the MD's take 35% of the fees. I think. So given the management responsibilities and the MD role id think 45% until we reach a certain revenue or ebitda target and then I cut down 35%. If I leave, I retain equity in the subsidiary of 5-10%. That's my initial thought. This way, I'm incentivized to start the business and grow it, and they have the option always to remove me for a small % of the pie. Again, very early thoughts and has to be structured appropriately (ie they can't put a pref class about my 5% equity ownership in the sub).

I wonder if folks look at that and think I'm asking for too much or too little. 

Keep in mind they are effectively funding me and providing their brand, BD licensing, marketing team support, etc. mitigating some of the issues the other poster here had when he started.

Jan 2, 2022 - 4:02pm

"tech enabled service in the M&A space"

You're going to set up Intralinks IBD?

"MD's help analysts if needed (ie on vacation), junior folks directly participating in deal fees and getting paid when we get paid as opposed to a bonus cycle, etc. and we build an investment bank that is fun and rewarding to work for."

How would you attract any top-shelf MD to work in this structure?

The obvious parallel here is the Big 4, who have tried for years to up-sell M&A to their txn services clients in various ways. It doesn't work because, frankly, the people in Big4 M&A teams are of pretty middling calibre. I don't see how you avoid the same issues here.

Jan 2, 2022 - 4:05pm

You also run the risk of massively diluting your valuation multiple. At the moment you are presumably pitching that this is a scalable xARR SaaSy business with high gross margins, not a lumpy hit factory with low margins on the way up and high fixed costs on the way down.

Jan 3, 2022 - 9:36am

Yes on multiple dilution. This will be the issue with the Board. I won't get into too many details but we don't (and didn't) actually trade like a software business. I don't believe the board is thinking we'll fetch a revenue multiple or anything greater than 20x realistically. But that being said, M&A advisory shops certainly trade at lower multiples so there will be dilution.

I will be working on realistic projections to show how much EBITDA contribution this business could add. The idea would be that by the time the existing PE firm looks to sell, they can do the simple analysis of selling a consolidated entity with a total platform incl. advisory at a lower multiple or spinning off the advisory business and selling the core business via SOTP analysis. It will be set up as a separate sub. We already have a broker-dealer subsidiary so are familiar with setting those up and can likely just add our sub under the existing BD (I looked exhaustingly into this process when I originally looked at doing my own shop after my first deal. By the way a little digression but interesting info; a BD is not required for pure M&A advisory, even though technically you are soliciting and dealing with securities. 2014 SEC no action letter carves out rules for M&A brokers specifically, even though when reading through FINRA's actual regs it would suggest that you'd still need a BD license for pure M&A intermediary work.

Jan 3, 2022 - 9:49am

WB97

"tech enabled service in the M&A space"

You're going to set up Intralinks IBD?

"MD's help analysts if needed (ie on vacation), junior folks directly participating in deal fees and getting paid when we get paid as opposed to a bonus cycle, etc. and we build an investment bank that is fun and rewarding to work for."

How would you attract any top-shelf MD to work in this structure?

The obvious parallel here is the Big 4, who have tried for years to up-sell M&A to their txn services clients in various ways. It doesn't work because, frankly, the people in Big4 M&A teams are of pretty middling calibre. I don't see how you avoid the same issues here.

Ha! This is why I'm avoiding sharing *too* much info on the business itself. Not quite Intralinks.

Great thought on Big 4 TA. But, how much do you think those teams realistically bring in? Sure they're not BB IBD caliber and probably operate at slightly lower margins with less deal flow. Maybe not though - there are so many MM businesses out there. The other consideration is that the elite boutiques and BB typically do not take an engagement for anything less than $3mm in fees. I know this for a fact from two places I was at plus I tried to team up with a boutique on a $100mm capital raise for an independent project I was looking into (as I needed their BD license) and they weren't interested since their fee would only be about $2mm.

Unlike a pure M&A boutique, we also have our core business to supplement growth of this segment. We can take engagements on for $500k-$1mm and compete directly with the smaller firms. Need to do more work on revenue per head / pricing and where exactly we would target, but our core offering gives us exposure across the entire market.

I will also have the support of our existing marketing team to craft the best go to market approach and communication. I'd think we will be out there touting that we are Citi, Goldman, MS, JPM but maybe a comprehensive solution for sellers that includes M&A advisory (JPM, BofA and Citi also do this i.e., Treasury, lending, FX, M&A, but our services are different). Last consideration is because of our deal structure and comp structure for staff I believe we can attract team members from prestigious names and sell ourselves a bit as that caliber/experience but at a different price range (as opposed to Big 4 where a high performer in Audit can transition to TA). 

Jan 3, 2022 - 9:58am

I also realized I hadn't answered the MD question.

It's something we'll need to figure out. My initial thought is that our MD's will actually be younger team members who aren't used to bringing in multi-million a year but who are capable of doing the job. The idea is that our existing offering and our grind up top will get us enough deal flow to start. My independent deal I was engaged partially because I was actually not a grey haired banker. I was a younger high energy guy and I was able to display that I knew my stuff from banking and PE and essentially gave the management team confidence that I'd sell them. In reality once engaged I did not have a Buyers list but I busted my ass on CapIQ screens and outreach after building initial materials to find folks. It ended up working very well and our client ended up absolutely ecstatic all around. 
 

Some clients will not trust the early-30's guy and want the gray haired banker. But many will especially in certain industries. Tech and consumer clients of mine tend to be more accepting of my age. 
 

Essentially the idea is to bring in VPs who don't want to wait it out to MD or even BD folks from PE or other industries who can sell and know the players and space. There will be some pivoting but I personally like the approach as most of our competition will be folks much older than us and they can't get any younger. Again, we won't be a fit for everyone but I'm not initially looking to add 20 deals a year. 

Jan 3, 2022 - 10:28am

What's the profile of juniors you're looking to hire? Amazing stuff btw and keep me posted :)

TBD. The support on here so far has been exciting. The challenge questions are exceptional as well. If this gets off the ground, maybe I'll do a post on here for interviews. Obviously, it's a bit too early and without board approval this entire thing is dead (unless of course I decide to do my own).

Jan 3, 2022 - 8:37am

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  • Analyst 1 in IB - Cov
Jan 6, 2022 - 10:37am

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