ECM Independent Advisors: Tougher Police Than the SEC?

Imagine sitting in a board room with private equity firms, IPO issuers, Equity Capital Markets and investment banking heads and Managing Directors from across the Street.

Now imagine being in a “beauty pageant” meeting where banking behemoths such as GS, MS and JPM are bending over backwards to please you and your firm – and you get to review all the banks’ pitch books and give an opinion on which bank(s) to hire for your client’s upcoming IPO.

If you work for an independent ECM advisor, you get to “police” the investment banks and do everything above.

You’ll also learn how the IPO process works in-depth, the strengths and weaknesses of different investment banks, and you’ll get to network with ECM and industry bankers across all levels.

The only problem is that analyst roles at these firms are rare. So you’ll have to keep reading if you want to find out how to break in – and whether it’s worth the challenge.

Why Are Independent Advisors in Demand?

Post-financial crisis, many executives lost faith in the big banks on Wall Street (why they ever had faith to begin with is unclear) and started looking to boutique independent advisors for advice on how to go public.

These boutiques focus on long-term relationships, and they appeal to executives by appearing more “objective” – they don’t try to up-sell them on brokerage services, securities distribution, or anything else.

Conflicts of interest can arise when a bank does everything – just as one quick example, companies going public want to price their shares at as high a price as possible, while institutional investors want to buy those shares at the lowest price possible.

But since those investors pay huge fees to banks for their brokerage and sales & trading services, sometimes banks “misbehave” and do not act in a company’s best interest – which is one reason why companies’ share prices can fluctuate so much after they go public.

Independent advisors try to ensure that banks act in the issuers’ best interest – they manage the book runners to ensure that the issuer’s IPO is priced at a “fair valuation” and is marketed based on favorable timing for the issuer.

Time Savings?

Besides the objectivity, time savings is another argument for independent ECM advisors.

The entire IPO process is a huge time sink for management teams, especially since most executives have had no previous experience with IPOs.

By hiring a dedicated ECM boutique, the company can “outsource” the nitty-gritty bits of the IPO process and save its management team from a big distraction.

So What Are Some Independent ECM Advisors?

Some of the notable advisors include Asia Pacific Advisors, Ondra Partners, Rothschild, and STJ Advisors.

Note that some of these banks do more than just ECM advisory – STJ does equity capital markets and debt capital markets and Rothschild does more than just advisory work.

Some of these independent ECM advisors have won roles on prominent IPOs – in 2011, CVC hired Asia Pacific Advisors (subsequently acquired by Moelis) to advise on Samsonite’s $1.25 billion USD IPO in Hong Kong.

How Do Independent Advisors Work, and How Are They Different from Banks?

If banks are responsible for distribution and getting investors to buy the company’s stock in an IPO, independent advisors focus on advising the management team and managing the logistics of the IPO process for them.

They help the management team select their book runners, lawyers, and accountants, and also hold “beauty pageant” (also known as “bake-off”) meetings where investment banks pitch the advisors to get hired on the deal.

The logic here is that independent advisors, knowing something about the industry, should be more “objective” and should be able to better judge banks than executives themselves – and they claim to analyze the banks’ research rankings, ECM track record, and investor coverage to recommend banks.

Then, once the advisor has recommended a group of banks to run the IPO process, it continues to help the company by monitoring how banks are marketing the offering, evaluating investor feedback, and managing the book-building and allocation processes.

So far it might sound like these independent advisors are the same as banks – but keep in mind that they do not have distribution capabilities.

Unlike Goldman Sachs or Morgan Stanley, they can’t go out and set up a roadshow with 100 institutional investors across 20 cities because they don’t have the resources to do so.

Instead, they just work with investment banks to sell the deal – which some banks don’t appreciate, since they think the advisors add “extra work” and make it harder for them to earn their proper fees.

How to Break In – Who They’re Looking For

You break in by networking extensively on your own.

Since these independent advisory firms are small – fewer than 10 employees – and specialized (they would qualify as “boutiques” but may not be true “regional boutiques”), they use headhunters less than more established firms might.

Partner and MD-level bankers with over 15 years of experience in capital markets have founded and run most of these firms, so you need to know the space and be connected to them to get an interview.

Generally they want people who have worked in capital markets at a bank before – ECM is ideal, but other related areas like DCM or the equity syndicate might also work. Getting in without that experience is tough because they need you to hit the ground running.

Interviews at Independent ECM Advisors

Just like how interviews at boutique and bulge bracket banks are not that much different, interviews at these firms and interviews in ECM groups at banks are not that much different.

You need to know the equity capital markets space very well and understand how banks market IPOs to investors; they’ll also ask you for your thoughts on recent issuances, which offerings might be overvalued or undervalued and why, and all the usual accounting, valuation, and modeling questions.

Since the firms are so small, “fit” is also very important and you have to be comfortable working in a less structured environment.

So they’ll also ask you about that, and will assess how comfortable you are finding information from more “random” sources such as industry contacts, since they don’t have the resources of bulge bracket banks.

A Day in the Life – What You Do at an ECM Advisory Boutique

It’s just like the distinction between working at a bulge bracket and working at a boutique M&A firm: you get more “random” tasks and you must be a jack-of-all-trades.

You might build Excel models for investor and allocation lists, chase down investment bankers to get institutional investors’ feedback on the issuer, create presentations for issuers, analyze the investor lists, feedback, and allocation book, and organize bake-off meetings.

You’ll spend most of your time as an analyst in front of the computer crunching data and creating presentations. But unlike what you might do all day at a bulge bracket bank, you get a lot of exposure and you often attend meetings with the Partners – there’s less bureaucracy since the firms are so small.

Don’t think that you’ll be meeting important people and doing deals all day though; if you don’t like analyzing data and creating presentations, stay far, far away.

The hours can be long during the premarketing, roadshow, and allocation periods. You have to wait around for bankers to get feedback from investors – usually they get back to you around 8 – 9 PM – and then you have to take all the feedback and create a presentation for your client to update them on what investors think. That also helps the issuer set the correct price range before the roadshow.

During the roadshow itself, you still have to create presentations outlining the feedback and it gets more intense because you’ll closely monitor which investors are in the “book” (a document that shows which investors are participating in the offering).

And when the books are closing and banks are allocating shares to investors, expect the normal all-nighters (or at least very late nights) because you’ll be fully engaged in the process – even Partners at firms work crazy hours during this period because they want to ensure that the final offering price is fair and that the right investors are allocated the proper amount of stock.

Salaries, Bonuses, and Bottles

I would say, “It depends” for the pay, but I’ll be a bit bolder than that here and say that the base salary is around 30% less than what you would earn as an analyst at a middle-market or bulge bracket investment bank.

Bonuses also vary and tend to more unpredictable than what you see at large banks – some firms determine your bonus based on the number of deals you worked on and the quality of your work for those deals.

Overall, both base salaries and bonuses are lower because – similar to regional boutiques – there’s not as much money to go around and the Partners want to take a higher percentage of the fees for themselves.

If the Partners really like you they might offer to pay you more – and if you bring in business for your firm, you might also get paid more. But don’t hold your breath waiting for either of those because they’re not common at the analyst-level.

If you’re concerned with getting the highest salary and bonus possible, don’t work at an ECM independent advisor – but if you care more about the learning experience, that could make up for the difference in pay.

You get more exposure there than you would at a big bank, and you could leverage the experience to move to ECM groups elsewhere or even start your own firm one day.

What Next: The Golden Exit Opportunities

The most common path is to get a job in ECM at a bulge bracket bank – you know the issuers in the market, plenty of ECM bankers, and lots of other people in the field and you understand how the capital markets business works.

You’re not going to get into PE or hedge funds coming from an ECM independent advisor unless you’re going for a fundraising role– the skill sets are too different.

Your chances aren’t great even in something like corporate development unless the company was a client and they need you to help with fundraising or going public.

So is it actually worth it to work at an ECM independent advisor?

If you’re extremely interested in the capital markets and don’t aspire to work on M&A deals or get into PE, it could be a good fit for you.

I would not recommend starting out at one of these firms because you’ll earn more and have more options at larger banks – and it can be very difficult to get in at the entry-level anyway.

But if you’ve already worked in ECM, you want to stay in the field, advance more quickly, and possibly start your own advisory firm one day, ECM independent advisors may be a good option.

Just don’t expect to go out with the “appropriate arm candy” every night – 30% lower pay means that you’ll have to reduce your bottle budget accordingly.

Nicole Lee has worked in institutional sales, private banking, and investment banking in Hong Kong. When she’s not working, she enjoys kiteboarding at exotic beaches, jumping off planes and bridges, and shark-diving.

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