Here we are in March and, as expected, investment banking summer internship questions continue to roll in. In addition to more guidance on how to decide between different summer internship offers, I also cover the transition from the world of nonprofits into private equity, as well as the role of accounting firms in investment banking and mergers & acquisitions specifically.
Typically I stay away from explaining the actual job because I think it’s more interesting to write about how to break into banking or just how high investment banker salaries are, but feel free to send in more questions on what investment bankers actually do. :)
Nonprofit To Private Equity
“Hi there. For the past 5-10 years, I’ve done nonprofit work, specifically in microfinance and international development. I’ve done a lot of consulting and due diligence work and have worked with many international governments. I’m trying to change careers now and want to work at a boutique private equity firm focused on emerging markets.
How hard is it going to be to transition into private equity, and will my background help me at all? I realize this is a very nontraditional career path. Also, how critical is it to develop financial modeling skills before starting?”
You certainly have a unique background. It’s going to be tough to break into very large private equity firms, but it sounds like you’re not interested in them anyway. The boutique PE firms you are targeting will definitely be your best bet, although you will still face an uphill battle.
The biggest issues will be your lack of financial experience and not being used to the lifestyle/environment at PE firms, so you should focus on how to overcome those and present a “story” that shows you can handle the hours and have studied some finance independently.
One advantage you have is your consulting background – many consultants get into private equity, so if you can spin yourself as being an “international/emerging markets consultant,” you can get your foot in the door more easily.
I don’t think they would expect you to be able to model like a bulge bracket investment banking analyst or anything, but it is important to develop some of those skills before you start interviewing because they will ask you to build models in interviews.
It’s not that difficult to learn how to build a relatively simple Leveraged Buyout Model, so you should focus on that as well as learning the necessary accounting/finance concepts (mostly how to link the 3 statements and how different items flow through the statements).
I would focus on using your alumni network and all the friends/contacts you have. It’s probably not worth contacting headhunters for someone in your position as they’re most helpful for people with traditional backgrounds.
It’s going to take some time to get in and it will be an uphill battle with your background, but I would continue to focus your efforts on networking and developing a “story” that proves you can handle the work and know enough about finance to jump straight into the job.
Much of the advice in those posts applies to any job in financial services.
What Do Accounting Firm Do?
“I’m interested in M&A/advisory work after I graduate. I’m curious to understand what roles the auditing firm (PricewaterhouseCoopers, Ernst & Young and Deloitte), the investment banks, and the strategy consulting firms (McKinsey, Boston Consulting Group and Bain) play in M&A work. Who does the valuations, negotiations and integration work? Is it spread out among the three or does each one compete for different parts? I’ve talked to people on all sides and they give conflicting reports.”
Generally here is how it works for a sellside M&A deal:
- The investment bank will do the upfront marketing work and prepare sales documents for the company, contact buyers and set up management meetings. They will also do some valuation work to set price expectations.
- The bank will conduct an auction process with multiple rounds of bids until the buyer is finalized.
- As each buyer moves further into the process, they will bring on board accountants, lawyers and consulting firms to do diligence on the seller and look at the seller’s accounting, legal issues, market dynamics and pretty much anything else of interest. Audit/accounting firms will be involved with due diligence and verifying that the seller’s financial statements are accurate.
- The bank and the law firms involved will negotiate the purchase agreement with the buyer and seller. Generally the accounting and consulting firms are not involved with this at all, it’s really just the investment bank and the law firm.
- After the parties reach agreement and the deal gets done, the accounting firms will again get involved in deciding how to allocate the purchase price and perhaps with some of the financial integration work.
The likes of PwC would never be involved with the negotiations or the marketing/positioning of a company. Even with valuations, they just allocate the purchase price and value intangibles like customer relationships, patents and intellectual property rather than valuing the whole company like bankers do.
The only exception occurs when an accounting firm is hired as the financial adviser on the deal. Most of the big accounting firms have financial advisory practices, and in that capacity they act as the M&A bankers on the deal. However, they are not as well-known or well-developed as the bulge brackets‘ M&A divisions.
Startup Business Development Internship vs. Marketing Internship
“I’m debating between two opportunities this summer, and I’m wondering which one will ultimately look better on a resume for applying to banking jobs next year. My two choices are to either do Marketing / Public Relations for a large, blue-chip company and handle advertising and working with a sales executive, or to go do business development for a tech startup. The blue-chip one sounds more prestigious, but the business development one could give me even better experience. Which do you think I should do?”
I think it really depends on what the Business Development internship will offer you – specifically what you’ll be doing on a daily basis.
If it’s just going to be assisting the other people and you won’t learn much about making deals happen or evaluating partnerships/acquisition opportunities, I would go with the big company marketing opportunity.
However, if you do get a great deal of responsibility it would be better to just go with the startup.
From an interviewing / banking resume selection perspective, seeing the title “Business Development” in your work experience to me implies that you did something much closer to banking compared to a Marketing/Public Relations type role.
However, many startups are poorly managed and are not great learning opportunities. Others, by contrast, are fantastic environments in which you can grow and develop, so it’s critical to do some diligence of your own and figure out what category this one falls under.
I would lean toward doing the Business Development internship because it is more similar to a banking job, but I would ask a lot of questions first and establish exactly what your role will be, because it’s often vague at startups.
If you get the hint that it’s poorly managed or you’ll just be doing menial tasks, go with the marketing internship.