What’s the main difference between pre-mba and post-mba analyst positions as far as day to day work goes?
Danteshek Wrote: ------------------------------------------------------- > Numi, my questions were serious. I think a lot of > people who don’t have experience in PE think it is > very glamorous when in fact it isn’t. The firm I > worked in was more in the Summit mold, so I guess > I don’t really understand much about how your firm > or similar firms operate. I remain mystified with > how someone could add much value by *only* working > on transactions, and not bringing in business or > getting involved in the operations of existing > investments. I would be pretty pissed if I > brought in a deal and some guy just waltzed in and > took the lead on the transaction. Some PE firms do a LOT of analysis, and that’s where the ANALYST adds value. There is also a division of labor on deal teams b/w managing input/output from service provider (or proprietary) due diligence, documentation process, investment committee materials, etc. The reason it’s glamorous is b/c the pay is higher than most, you may be fast-tracked to being at the director level, you have direct relationships w/ leaders, etc.
abacus & ditchdigger2CFA – you’re welcome! Danteshek – not sure why you are “mystified.” It’s pretty obvious how dealmakers add value – the whole purpose of PE is predicated on doing deals and growing companies. Originators are often not involved in the deal process, which can be very complex and time consuming and require a very different skill set. Most people really have no idea how a deal goes down, and others don’t want to put in the time or horsepower to execute a transaction. Maybe you will have some type of understanding or appreciation for it if you ever get to work on a deal. Like the saying goes, “If you have to ask…” As far as your comment about private equity being or not being “glamorous,” I don’t think anyone familiar with it thinks it’s glamorous. There is a lot of work and some of it is more perfunctory and process-driven than others, but at the end of the day, the coolest part of the job is learning how to invest in companies from a control perspective and learn from experienced management teams and C-level executives. I suspect the “glamor” that you think is associated with private equity has something to do with pay or exit opportunities. Private equity professionals work hard to earn returns for their investors, and the whole process of doing so requires intellectual horsepower, creativity, leadership, and the desire to get the job done come hell or high water. Seems like a pretty good reason why people can and do get paid. artvandalay – whereas the pre-MBA private equity professional tends to be more involved in the research, due diligence, and financial modeling, the associate handles the set of responsibilities that’s on the next rung of the ladder. They’re responsible for reviewing the work that the pre-MBA’s do, and also play a more active role in drafting LOI’s and investment memos, coordinating information flow and communications with the sellers and other outside parties (lenders, attorneys, tax advisors, insurance, etc.), and drafting key components of the 100-day plan. Basically, the post-MBA already has all the skills that the pre-MBA has, and tries to learn more about the other aspects of the deal business by supporting the VP’s and above in things that they need, like arranging financing, drafting purchase agreements and other legal documents, helping to review and negotiate lender term sheets, and things like that. At the post-MBA level, private equity professionals aspire to stay in the private equity field and move up in the business, which is why it makes sense that they’re “closer to the action” than the pre-MBA.
numi Wrote: ------------------------------------------------------- > abacus & ditchdigger2CFA – you’re welcome! > > Danteshek – not sure why you are “mystified.” > It’s pretty obvious how dealmakers add value – > the whole purpose of PE is predicated on doing > deals and growing companies. Originators are often > not involved in the deal process, which can be > very complex and time consuming and require a very > different skill set. Most people really have no > idea how a deal goes down, and others don’t want > to put in the time or horsepower to execute a > transaction. Maybe you will have some type of > understanding or appreciation for it if you ever > get to work on a deal. Like the saying goes, “If > you have to ask…” I had some exposure three years ago in the run-up to the acquisition of a CRO in San Diego. I sat next to the guy (who is now at Summit btw) who originated the deal and then closed it with a principal. I did some comparable analysis on some of the public CROs. The emphasis was on getting the deal done as soon as possible and not wasting time doing too much analysis.
It’s true that some firms are more intensive with the due diligence than others, as VOBA also pointed out. I think my firm is towards the side of the investment spectrum that’s more analysis-focused. I’m talking about not only looking at the financials, crunching the model, and doing other valuation work, but also combing through the data room and looking at a bunch of information on products, SKU’s, customer lists, manufacturing trends, inventory and PP&E management, receivables, insurance policies, and so forth. There is a ton of information in some of these company’s data rooms – basically, it’s the type of stuff that if you were the CFO of a company, you’d be looking at all the time. We look at this information because we don’t want any rude surprises when we buy the company. Going through the motions of analyzing stuff in a company data room, however stressful it may be, helped me appreciate exactly how much goes on within a company and how information available to the public represents only a small snippet of what’s going on behind the scenes. It also helped me appreciate and forgive how often research analysts and public equity investors are wrong, simply because the flow of information to the public is so imbalanced. But this was ultimately another reason why I personally decided to leave the public markets space – there were too many instances where as a stock investor/equity analyst, my senior analyst’s calls or my calls were wrong, and the only way to tell was through retrospective review. People in private equity get stuff wrong too, but at least we can’t usually blame it on lack of information, assuming we were careful about our diligence (lack of insight or anticipation is a different thing, but I digress)… As can be seen, conducting an analysis is not a “waste of time” and is a critical part of the deal process. Investors want to know that you’ve done a thorough job reviewing a company, and a critical component of LP diligence is to understand the investment process of a private equity firm. In addition, careful due diligence isn’t mutually exclusive with getting a deal closed quickly – there are firms out there such as Audax that have reportedly closed deals in about two weeks. How this gets done is actually pretty simple – you load up on caffeine and work all the time till the deal gets done.
Thanks numi. I am actually going back into the world of private equity, this time in Russia on the fund raising / investor relations side. I wish you the best of luck with your business school applications.
Thanks Danteshek – congratulations and best of luck on your new role. Sounds like you’ve been looking forward to it for a while and I’m sure it was well deserved.
FWIW: PE shop will help you land into a good school… continuing into the field post-MBA is a different story. Like Danteshek alluded to, the end-game (up the ladder) is to build relationship and to get deal flows. Some of the best deals are not through “cold-calling.” It’s through your network. It’s not surprising that a fair number of principals have either built or ran companies with extensive experience and a large rolodex. Relevant industry experience (i.e. not research; consulting, etc) is highly valued in post-mba settings. For guys without industry experience (assuming post-MBA) you are a disadvantage, especially if the job outlook for PE is bleak in the intermediate future. At the upper level, no one really cares about the “transaction” side of the equation. The transaction side is “interesting” and intense at first glance but after a year, it gets rather dull. It’s more interesting than plain vanilla sell-side research, but it doesn’t bring home the bacon… Most shops require pre-MBA to seek new job opportunities or enter business school after 2/3 years… for a reason. Most candidates don’t get the opportunity to return to the field unless you have “superstar” quality.
Caveat: The exception is larger shops that want post-MBA for number crunching (long hours, lucky to get to work on 1-3 completed deals a year, looking at complex companies or larger ones). Most people leave after a couple of years.
Swtxlady, not sure where to start but your comment about dealmakers “not bringing home the bacon” suggests you have never worked in banking or PE. I mean I can understand how it’s easy to speculate on an internet forum where there really aren’t any major repercussions for saying whatever you want, but some things are just flat out wrong. I
I think what he is really saying is that the real “deal makers” are the ones bringing in the deals and not the ones simply executing them. To move up, I think you will need to get your hands a little dirty with origination (I know this may seem repugnant to you).
I have no fundamental objection to deal sourcing. I recognize it as an important and necessary component to a private equity firm.