Apart from acquisition financing, why do PE firms hire buy-side advisors? Might be a dumb question but a lot of these people (PE) are former Investment Bankers; you would think they know how to do a transaction without the need for outside opinions/advice. What is typically the buy-side advisors role to a sponsor?
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At my firm (top MM) we mostly get hired as a buy-side advisor mostly when PE firms want to find a way to pay us if we previously sold them a company that is doing / did really well. We do almost no work (usually diligence is done or being handled by themselves) and earn mid six - low seven figure fees as a thank you. This isn't always the case (sometimes it's more intensive) but not like a buy-side advising role at a BB.
I've worked a couple buy sides with top PE firms and there's usually a couple of reasons.
First, they're looking for intel. While top PE firms are obviously in the market a lot, they don't understand the markets like investment bankers do. If they're a prospective buyer in a process, they're going to want to hire someone that knows all of the other possible buyers and what they may be thinking. They also regularly ask their banker advisors what they're hearing in the market. This is extremely valuable intel for obvious reasons.
Second, industry expertise. PE firms might be great at doing deals but they look at so many different businesses in so many different industries that it can help to have an "industry expert" on your side. Coverage bankers can help identify bolt-on / merger opportunities and may even have connections to facilitate the process, they have a better understanding than the sponsor on who should be comps and how they should be viewed, they have better views on possible buyers at exit and to an extent they can help understand the cash flow profile relative to the industry.
Third, relationships. Buy side bankers are also sell side bankers, and sponsors want to maintain good relationships with them to facilitate deal flow.
It's typically a combination of the three.
+1. All of these. Another reason - Proprietary deals/Finders Fees. I'm at a MM firm that primarily does sell side, but every now and then I find a great asset that for some reason it would not make sense to run a broad process. However, knowing the buyer universe, I know the most likely incumbent buyer. I'll go to them and offer to represent them on this proprietary deal. Win/win/win situation.
PE Buyer - Win because they love proprietary deals (read: pay a reasonable price for the asset, certainty to close as the defacto lead buyer)
Client - Win. No huge process and distraction from day-to-day operations needed to weed through multiple buyers to end up with the most likely one.
Banker (me) - Win. Minimal (relative to a full process) work. Sure the fee is a bit lighter, but the "work" is WAY easier.
Last one: Financing.
Oftentimes M&A mandates for BB banks are just incremental economic incentive to be helpful on financing, ie de-risk the financing process and potentially achieve more attractive terms (through higher demand / competition)
We recently denied a BB their M&A fee because they pulled out on financing.
They rarely do any actual advisory work, potentially except for an exit paper (ie how to position and benchmark the business for eg IPO in 5 years). As mentioned above, key reasons are intel, “thank you”, financing etc
If the Buyside bankers are doing all of that - what is actually left for the PE firm to do besides write the actual equity check and sell at 3x MOIC in 5 years time :P
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