What exactly is "executing" deals?

I have heard alot of regional BB offices do not "execute" their own deals, or that bank A (not in New York) is good because it "executes" their own deals.

What does this mean?

What is Deal Execution?

Certified Investment Banker @deal_mkr" explains how deal execution works:

IB Sends Out Teaser and CIM

  • Send out brochures (with lofty titles such as "teaser" and "confidential information memorandum") to prospective buyers
  • Highlight a uniquely well positioned company with attractive margins, strong FCF and growth outlook (espc on a "adjusted" basis") in an attractive and growing industry with an exceptional management team, brand awareness and customer / supplier relationships

IB Contacts Potential Buyers

  • Iterate NDAs with potential buyers
  • Sort potential buyers into meaningless tiers
  • Track a contact log and make weekly update calls with client to show how much hard work you are doing
  • Organize and prepare presentations between mgmt and potential buyers ("management presentation")

Potential Buyers Conduct Due Diligence

  • Populate and organize a virtual data room
  • Respond to hundreds of diligence questions, upload critical documents from company to data room (janitors contracting agreement, earthquake evacuation plans, etc), listen and take copious notes on endless diligence calls

IB Compares Bids

  • Bid letters come in
  • Model and compare bids to see which is best
  • Narrow list of potential acquirors to 1-3
  • Organize site visits and more diligence

IB and Buyer Close Deal

  • Negotiate iterations of deal terms and definitive merger agreement
  • Plan closing dinner and design deal toy

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Deals typically come in two "parts", 1) origination, and 2) execution.

Origination is the "pitch" where you go to clients and actually have to sell them on the idea. Pitching is labor intensive and monotonous--it sucks. Regional BB offices do a lot of pitching because they have physical proximity to their clients: why fly a team out from NY when you can drive 10 minutes from Houston (energy), Chicago (industrials), San Fran (tech), Boston (healthcare), or Charlotte (uh... middle market / the boonies... slightly kidding on this one haha) ?

Execution is referred to as the technical / "fun" part: you build the model, run different structuring scenarios, working with the different product groups ECM / DCM / LevFin / risk, etc to get the deal done as quickly as possible (although this gets tedious very quickly as well). You might have to update some comps and populate a simple model for a pitch (origination), but 90% of the technical work is done after the mandate is received (execution). It's also the reason why 24 year-old idiots are worth two shits to a PE shop.

 
Solidarity:
You might have to update some comps and populate a simple model for a pitch (origination), but 90% of the technical work is done after the mandate is received (execution). It's also the reason why 24 year-old idiots are worth two shits to a PE shop.

Solid and informative post. What do you mean by that about the 24 year old idiots, though?

 
TDSWIM:
Solidarity:
You might have to update some comps and populate a simple model for a pitch (origination), but 90% of the technical work is done after the mandate is received (execution). It's also the reason why 24 year-old idiots are worth two shits to a PE shop.

Solid and informative post. What do you mean by that about the 24 year old idiots, though?

Like with the Charlotte thing I'm slightly kidding, but the culture and structure of investment banking actually results in a lot of paint-by-numbers idiots who skate by at the analyst / associate (and even VP+ lol) levels

 
Best Response

here is what "executing" an M&A deal entails (hold on to your seat here shits about to get exciting) -

  • sending out brochures (with lofty titles such as "teaser" and "confidential information memorandum") to prospective buyers highlighting a uniquely well positioned company with attractive margins, strong FCF and growth outlook (espc on a "adjusted" basis") in an attractive and growing industry with an exceptional management team, brand awareness and customer / supplier relationships
  • iterating NDAs with potential buyers
  • sorting potential buyers into meaningless tiers (lets face it, you just put a down payment on that apt on 72nd, you need to get this deal done at any valuation and you are going to call every sponsor and strategic not on the edge of insolvency in all tangentially related industries)
  • tracking a contact log and making weekly update calls with client to show how much hard work you are doing (we made 3 phone calls this week!) and how literally PE shops and strategics are banging down your door to get a look at this deal, despite the fact that the head of corp dev at the deep pocketed strategic your cousin went to college with hasnt accepted your linkedin invite and the PE manager you called to pitch the opportunity expressed wonder at how you got through to him after he explicitly told his assistant to screen your calls ever since that last garbage deal you showed him
  • organizing and preparing presentations between mgmt and potential buyers ("management presentation")
  • populating and organizing a virtual data room
  • responding to hundreds of diligence questions, uploading critical documents from company to data room (janitors contracting agreement, earthquake evacuation plans, etc), listening and taking copious notes on endless diligence calls
  • actual maybe fun part -> bid letters come in, model and compare bids to see which is best
  • kicking yourself for not asking for a higher minimum fee in the engagement letter
  • Narrowing list of potential acquirors to 1-3
  • Organizing site visits and more diligence
  • using buzzwords as you "cultivate a competitive dynamic" to "drive synergy recognition" and "optimize client valuation outcomes"
  • Negotiating iterations of deal terms and definitive merger agreement (key provision - making sure your firm is in the press release as "exclusive financial advisor")
  • Planning closing dinner and design deal toy (actual fun part)
  • acquiror misses earnings estimates and terminates acquisition to focus on organic growth

6 months of your life gone for a 250k retainer, free meals on seamless web and cab rides home (not much better off than that girl you took out last weekend?) : ) Murders & Executions baby

 

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