by Brian DeChesare Comments (56)

From Cold Call to Closed Deal: How a Private Equity Investment Comes Together, Part 3 – The Dotted Line

How a Private Equity Investment Happens“She thinks $60 million is a discounted price? Can someone shoot her with an animal tranquilizer gun until she snaps out of it?” John says, looking around in disbelief at all the other Partners.

David turns to you and his eyes light up as a new idea percolates to the top of his head, and then sputters out of his mouth.

“You do know about the special analyst bonus, right?”

Everyone else in the room laughs, as you contemplate whether or not they really want you to tranquilize the CEO.

$60 million would be 6x EBITDA – a reasonable price for a larger company – but significantly higher than what you’d pay for a small, Founder-dominated business in a niche market.

David speaks up once again as the laughter subsides.

“And let’s not forget about her other demands: she wants to roll over 20% of her ownership and put aside 5% in an options pool for the management team.”

“So we’re paying for an overpriced business and then giving up 25% for no apparent reason. This sounds like a better investment than finding Google in 1998,” John replies while rolling his eyes.

Everyone else sits there in silence as you weigh your options before speaking up.

“Well,” you say, “On a positive note, I think I could call in a few chips to get the financing in place.”

“What bank would even look at this? It’s too small for any of the usual suspects,” David points out.

“Right now everyone’s desperate for business – in normal times they’d say no, but beggars can’t be choosers.”

Calling in the Chips

You crawl back to your office and wonder if you can pull off the financing for this deal – your line to all the Partners was a desperate bluff, and you don’t actually have much to offer bankers.

Plus, you’ll have to hear even more tales of $1500 bottle service bills now that you’re going back to the usual suspects to ask for help.

“This is definitely below the bar,” says your banker friend after you finish outlining the deal.

“I realize $30 million of debt is on the low side, but with the way the market is -” you respond as he cuts you off.

“Look, even if this were the apocalypse and banks were failing left and right, we still wouldn’t look at this – the fees are just too low and it’s not worth our time.”

“We’ve sent you guys a lot of business in the past few years – probably more than any other firm…”

“Yes, and they were all small deals. I appreciate the effort, but the MDs want us to pursue the big game from now on.”

You’ve left your door open for this call, so your favorite unannounced visitor happens to be walking by, overhears your conversation, and steps into your room.

David motions for you to step away and then puts the call on speakerphone.

“We’re willing to give you all future business from our firm over the next year, including refinancings and all sell-side mandates. No competition at all for you,” he promises without hesitation.

“Can you… actually guarantee that?” the banker asks with a rising tone.

You fold your arms and squint at David, wondering what he’s gotten himself into this time.

“We’re planning to flip it in a year or two, and possibly do a refinancing before that – should be at least $10 million in fees for you altogether,” he states without so much as a blink.

“OK then. I’ll run this up the chain and see what they think. Thanks for the offer,” the banker replies.

You turn off the speakerphone, spin your Aeron chair around to face David, and wait for him to explain what just happened.

“Don’t worry,” he reassures you, “They’re bankers – they’ll all be fired or will be at another firm in another year or two anyway. No harm done, and now this deal goes through if we can work out the price and rollover.”

Setting Expectations

“Sorry, but we just can’t get our heads around $60 million,” John says to Nancy, who’s sitting at the head of the table in your conference room in front of all the Partners.

“We could get to $50 million max, but even that’s pushing it. Nothing personal, but the numbers just don’t work out in that range.”

Nancy continues staring at the slide presentation in front of her and attempts to make sense of the returns analysis, but it might as well be Martian to her.

“Understood, but $60 really is the bottom of my range here. With the margins we have, I could just keep running this business for years and make more money than what you’re offering. And unless I can retain at least 20% ownership, my incentive just isn’t strong enough.”

Both sides of the table stare at each other for a few seconds before John breaks the silence.

“We’ll be in touch if anything changes.”

Nancy stands up and walks out of the room, waving goodbye to everyone before closing the door behind her.

“It’s 100% posturing,” David points out, “There’s no way she seriously expects to get $60 million for the business and keep 20% for herself. And we know she wants to leave anyway, so it’s not as if she’s seriously considering running it for another 5 years.”

“That may be true,” says John, “But the numbers really don’twork at those levels – there’s so much uncertainty around the exit that this only makes sense at $50 million max. So we either convince her or we don’t do this deal.”

It’s time to don your Captain Obvious Hat and point out what everyone else is missing.

“What if we just flip it after a year or two? It’s much easier to get to a solid return over a short time period, and that way we can even tell her that she can leave the company after a certain period – once it’s no longer owned by us,” you propose.

David sits back in his chair and puts his hand on his chin as he contemplates your idea.

“That’s true – I doubt she’ll even understand why we’d offer that. And she won’t understand the risk to her if she does leave, so it might just work if we pitch it the right way.”

He cleverly fails to mention how the bankers doing the financing are already expecting you to flip it quickly – hearing that might cause John to toss him out the window.

“OK,” John agrees, “Go back to her and propose $50 million with a 20% rollover and say that in exchange for the lower price, we won’t make her stay beyond 2 years or sign a non-compete.”

Limited Partners = Limited Support?

“And we see this as an exciting way to start investing in the technology space – without all the risk that a bigger investment would entail.”

John is presenting IonX and a few other investments they’re looking at – all of which are much further away – and hoping that the LPs remain confident enough to keep investing in future funds.

Most of them produce nothing but poker faces as John goes through all his slides.

“We’re getting this at a discounted price, and we think it could be a quick-flip for a 20% return in less than a year.”

One of the LPs at the end of the table immediately stands up, slams his binder of materials shut, and scurries toward the door.

“Is… something wrong, Paul?” John asks while folding his hands in front of him.

About to open the door and leap away from the meeting, Paul turns around, drops his binder on the table, and grabs the door knob before speaking up.

“Yeah, you. You and your firm.”

Everyone else turns around to face him as whispers fill the crowded room.

“You raised $750 million for your new fund from all of us, claiming that you had all these great opportunities – and what do you do? You sit on that cash without doing anything for a year, and then you finally bring us a piece of dog crap, put a ribbon on top, and try to call it a gift.”

John raises both hand, blinks, and motions for Paul not to leave the room quite yet.

“I understand why you might be upset, but with the way the market’s been lately…”

Paul cuts him off before he can finish, turning around and removing his hand from the doorknob. “Then why are our other private equity funds still doing real deals? I can’t veto this or tell you not to do it, but I’m not happy about it.”

John walks toward him, binder in hand. “Look, I understand why you might not like IonX, but we have plenty of other…”

Paul opens the door, storms out, and slams it shut.

Back at the Office…

You and David are reviewing the loan documentation from the bank and are looking at different financing options for the deal.

“With the margins they have we should just pick the cheapest option – I’m more concerned with broken covenants than with interest payments,” David points out.

You turn toward your monitor and look at an LBO model with the different financing options built in before swiveling around in your chair and responding.

“That’s true, but we still don’t even know if Nancy is going along with this. I’m not convinced she’s gonna take the bait.”

Just as David leans back and prepares to respond, your phone rings. Time for the speakerphone.

“Hi, it’s Nancy,” the voice announces. “I’ve considered your offer and I’m prepared to move forward as long as you don’t make me sign a non-compete.”

You and David look at each other with your eyes widened and mouths gaping open. But there must be a catch – what would it be?

“But,” she continues, “Some of my managers have figured out what’s going on, and they’re not about to accept a new owner. They know me and like me, and they’re nervous about what will change.”

David puts his hands down on your desk and responds, “We’re not going to change a thing. You will still be running everything; it’s just that you’ll have all of our firm’s resources at your disposal…”

“That may be true, but I think they’d be more confident if all of you came to meet them in-person,” Nancy retorts.

“That would be a great idea,” David says while rolling his eyes and searching for your stress relief ball. “We’re all looking forward to flying out and meeting you.”

“I’ll be in touch with some dates,” she responds, “And please make sure it’s everyone – we should plan for at least a week so they can get to know your team.”

As she hangs up, you and David sit there looking at each other and David turns his gaze toward your window.

“Think they’ll have any beaches there?”

One Door Over…

John is cycling through the call history on his phone and looks down at the 15 unreturned calls he’s made to Paul in the past week. Limited Partners might be “limited,” but that doesn’t prevent them from being passive-aggressive and ignoring contact when it suits them.

He walks over to his whiteboard and looks at the pipeline of potential investments, noting that everything else is at least 6-9 months away.

His phone rings and he slides back to his desk to answer it.

“So, John, ready for some more news on IonX?” David announces.

“Can you start with the good news first?” John replies.

“No good news this time. Do you have a free week in your schedule anytime soon? They want us to fly out and meet their team.”

John glances back at his whiteboard and then the call log on his phone. “Whatever it takes – talk to Suzanne about my schedule,” he says before hanging up.

Leaning back in his chair, he dials the main line, finally resigning himself to his “Plan C” option.

“Get me the new guy, Martin.”

A minute later, Martin shows up at John’s door and attempts to open it three times before finally gathering enough strength to push it open on his fourth try.

“You… wanted to see me, sir?” he stutters while wobbling into the room.

John laughs, stands up, and walks across the room to Martin, standing an inch away from him as he recites his speech.

“There’s no need for formalities. I’ve heard good things about your family. I’d like you to tell me more.”

He smiles and stares Martin straight in the eye, waiting for his response.

Field Trip?

It’s the next week, and all the Partners have flown out to meet IonX in-person. Apparently “everyone” means “everyone except for the person who’s actually doing the work.”

But the office is quiet again, and no one is checking your calling logs now that you and Martin are the only ones there. You’ve been handing off all the grunt work to him – anytime a banker or lawyer has a question, he’s the one in charge.

David has been updating you the whole time, and it looks like the management team is growing more confident that nothing will change post-transaction.

And you’ve been forwarding the in-progress definitive agreement that the legal team has been drafting.

“You should have seen these guys when they saw us,” David says at the tail-end of one of his update calls.

“It’s like they had never seen people dressed in suits before. They were waiting for us to morph into Gekko or Bateman and start murdering people.”

“Sounds like a fun trip,” you say, putting the call on speakerphone and standing up before moving over to your window. “Is it going to close?”

“90% certain now,” David reassures you, “And since bonus season is only a few weeks away, you can bet that we’ll remember everything you’ve done here.”

Your eyes light up as you peer out the window and see a BMW parking right next to your usual spot.

“That’s great,” you say, “So are there any beaches there?”

Pension Power Play

Paul strolls into the entrance of the Ritz Carlton, going on about another investment on his phone and simultaneously typing like a fiend on his Blackberry.

He’s met by a tall, lanky man walking in with a grey suit and a binder of printouts in his hands. He walks over to Paul but gets rebuffed as Paul points to his phone and rolls his eyes.

Finally the call ends, Paul turns toward him and shakes his hand, and they walk toward the interior of the restaurant.

“I was surprised when you called,” Paul says in a cheery voice. “I didn’t think I would see you again after what happened on the Fincher account.”

“Let’s let bygones be bygones,” says the other man. “We’d both do much better as allies rather than enemies.”

They sit down and order medium-rare steak along with a $1000 bottle of 1982 Haut-Brion.

“So why did you really call me, Simon?” Paul asks as he sips his wine and arranges his napkin on his lap.

“I wanted to tell you about a few new investments we’re looking at. In this market no one’s doing any deals except for the distressed funds, which are a huge part of our portfolio.”

“So you’ve just mysteriously decided to extend the olive branch and give me access to all these funds that are actually beating the market?”

Simon turns to the bottle and pours himself a glass, holding it up and reading off the label.

“This is the 1982. Have you tried the ’72 before? I hear it’s even better.”

Paul rolls his eyes, puts down his glass, and then reaches over and takes the wine bottle out of Simon’s hands and places it down on the table.

“Cut the crap. I know you’re not just giving me this gift out of the kindness of your heart, so what do you want in exchange?”

“I want you to look the other way on John and his firm’s performance over the past year. And when they raise another fund, I want you to invest – and I want you to let me into the deal as well.”

Paul starts laughing so hard that he snorts, with red wine nearly bursting out of his nostrils.

“So John put you up to this. Ignore his horrible investments, and you’ll give me a piece of these distressed funds.”

“I didn’t even hear about this from John,” Simon says, “But word of your… displeasure… has spread. They’ve had great performance in the past, and I want to get in on their next fund. The only way that’s gonna happen is if you continue to support them, and then bring me in as well.”

Paul stops laughing for a second, glances up at the chandeliers on the ceiling, and then over at Simon once again.

“Even if I were stupid enough to do this, what could you give me in return? No fund is up more than 10% this year…”

Simon opens up his binder, takes out a few documents, and tosses them across the table to Paul before he cuts him off with his response.

“Those 3 are up 50% year-to-date. They’re closed to new investors, but I can get you in – if you look the other way and keep investing in John’s fund.”

Paul stares at the fund performance documents before tossing them aside and looking up at Simon once again and smirking.

“This just seems too good to be true. And I don’t know why you’re offering me this deal. You’re sure your son isn’t working for John or something?”

The Dotted Line… and Your Bonus?

You stand outside John’s door, waiting for him to summon you in. It’s bonus season, and everyone in the office is acting like 10-year old kids on Christmas morning.

He opens the door and greets you in a cheery voice.

“Congrats!” he shouts, “We did it. The funds were just wired the other day, the loans are in place, and Nancy hasn’t even run off to a tropical island and abandoned everyone. Yet.”

He waves around the signed definitive agreement while leaning back in his chair and pointing to the dotted line on the page.

“So, about your bonus. We realize how much you contributed to the IonX deal, and we really want to reward you for your performance.”

This better be good – anything less than a 20% raise over last year might cause you to jump out your window after what you’ve been through getting this deal done.

He hands you a slip of paper, and you stare at it in disbelief as your mouth drops open and stays there until you look up to face him once again.

“This is down 10% over last year – I brought in the IonX deal and got it done. Without me, you’d have 0 closed deals this year.”

“We know that. But look at what happened to the market – it’s a train wreck everywhere. Everyone else’s bonus was down 30%. And let’s be fair, David also helped get this deal done. You know we can’t just give juniors arbitrary pay.”

An image of David sitting around on the beach while “getting to know” Nancy and her team pops into your head.

“And if it weren’t for Martin, we wouldn’t have had LP support. He did terrific work for a new guy!”

Up until now, you hadn’t even known that Martin contributed anything aside from confusion and answers to random due diligence questions.

“His family’s very well-connected. But I’m sure you understand that, right? You really have to be a team player to succeed as an investor.”

You thank John, turn around, and leave the room, trying your hardest not to slam the door behind you.

You walk back to your office, slump down in your chair, and pick up the phone to call your friend at a larger fund and learn what bonuses at normal places were like this year.

But as you place the call, you decide that there’s something else you’re more curious about first.

“Hey there,” you say, “Just wanted to find out about bonuses this year. But before we get to that, I just wanted to know – are you guys hiring?

The Full Series

In case you missed parts 1 and 2, you can get them right here:

Coming Up Next: The Web Series

I’m excited to announce that we are turning this 3-part short story into a 6-episode web series that loosely follows the storyline here, but is significantly different – “different” as in better.

I (Brian) am writing the series and financing it, and my good friend Goldie will be producing.

There were a few suggestions to write a novel, but I am much more interested in turning this into a series. And if you follow me on Twitter, you also know that I am borderline obsessed with serialized TV shows and films.

We are aiming to film and edit this by the end of 2011, and then release it in early 2012.

There will be a trailer, and if you’re good you might even get to read the script for the first episode.

Stay tuned!

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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by Brian DeChesare Comments (32)

How to Break Into Asset Management in Germany – from a Part-Time, Non-Target, Distance Learning MBA Program

Germany Asset Management Funds of FundsSo, what about those part-time MBA programs? Do banks and finance firms take them seriously, even if they’re online? What about continental Europe recruiting vs. the UK?

Today you’ll learn about those and other topics from a reader who recently broke into the finance industry in Germany.

This reader also did an internship at a Fund of Funds (FoF) so as an added bonus you’ll get a crash-course in all things FoF as well.

That’s quite a lot to cover in one interview, so let’s get started.

Walk Me Through Your CV

Q: You mentioned before we started that you had a unique history.

Can you tell us about your background and where you were coming from before getting into finance?

A: Sure. I started out doing engineering at a non-target university in the UK – finance firms ignored it, but engineering and technical companies and even the government recruited there.

It was right after the dot-com bust when I graduated and the job market back then wasn’t great for IT people – so I went to the UK Government and worked there for around 8-9 years as an engineering project manager.

A few years ago I had the opportunity to go work for the government in Germany – around that time I had realized that engineering wasn’t for me and that I wanted to move into finance instead.

Toward the end of my contract working for the government, I started a part-time (2.5 – 3 years) distance learning MBA program from a university in the UK. The goal was to re-brand myself and get a business background in the process, and then to use the degree to move into finance.

I did a lot of networking to find contacts while in Germany, and finally found a private equity fund of funds that was looking for English-speaking interns.

I worked there for half a year, and recently landed a full-time offer at the German office of a US-based asset management firm.

Q: That’s quite a story. Before we jump into recruiting and how you got your current role, let’s take a step back: why did you like Germany so much and what made you want to stay there? I’m just curious personally.

A: It was quite random – I was just placed there by the UK government and happened to like it quite a bit. I had also spent 3-4 months there previously, so I jumped on the chance to move back.

Q: And you managed to get the internship and the full-time role without being from Germany originally and without knowing the language?

A: I do speak German conversationally, but I’m not quite good enough to use it for business. So if I were applying for an M&A role at an investment bank, I would never get in (see: more on investment banking in Germany).

They are looking for native-speakers there because you’re working with domestic German companies all the time and for the times they do deal with English-speaking companies in Germany, the level of English of most German graduates is of a very high standard, so they have little reason to recruit a non-native speaker.

A lot of HR departments here list the German language as a requirement, but outside of IB/M&A-type roles it’s rarely required to do the job.

When I applied to the asset management firm I just joined, I went through a recruiter – the original ad I saw asked for a native German speaker, but then when I spoke with the recruiter they indicated that it wasn’t really necessary.

You can get away with this because in fields like trading, asset management, and so on you’re dealing with global investors where English is the standard language.

Recruiting and Breaking In

Q: Right, that makes sense. I think in most countries for traditional IB/PE roles you need to know the local language but outside of that you can get away without being a native.

So what were the key steps to breaking into finance in Germany? Did the part-time distance learning MBA program actually help you to re-brand yourself?

A: It helped a bit and allowed me to meet people who worked in the industry, but overall it wasn’t terribly helpful in terms of actually getting interviews through the degree. My program was not very consulting or finance-centric so there wasn’t much of a benefit for those fields.

Networking also proved to be quite difficult – I reached out to a lot of contacts via LinkedIn and similar online databases, and made plenty of cold calls and cold emails, but most people were simply confused as it is not as common here.

That is a big cultural difference and traditional networking is not accepted like it is in the US / UK. I made some good connections for the future, but wasn’t able to find anyone who could directly help me to get a job.

I found both my positions and won interviews by looking at job postings and ads online and then contacting the recruiters directly – you’ve mentioned before that that’s not a good use of time in the US / UK, but unless you’re currently a student at a well-known university here, that’s about all you can do to get in.

Q: I’m surprised that the degree didn’t help you at least in terms of being taken more seriously when you contacted people in the industry. Did they just not respect distance learning programs?

A: Actually, the main issue was that MBAs are not viewed the same way here as they are in the UK and US.

The university system in Germany is much different and you complete the equivalent of Master’s-level study at the undergraduate level – so getting an MBA won’t necessarily get you more points.

The other factor working against me was that I had an engineering degree from undergraduate – many places here won’t even consider you unless you’ve studied accounting or finance in undergraduate.

Q: Wow. I guess I should add a clarification to that “Your major doesn’t matter that much” advice.

What about the recruiting process itself? Is it similar to the UK with assessment centers and competency questions?

A: First off, since I wasn’t going through standard graduate recruitment, I had no assessment centers.

Beyond that, it was quite different for the Fund of Funds and for the asset management firm – the FoF process was relaxed since it was an internship, and most of the interview questions were “fit”-focused.

The investment managers sat down and spoke with me for 30-60 minutes each, and chatted about my background and knowledge of finance – but they never went in-depth into advanced technical questions or anything. A few weeks later I received an offer there.

Since the asset management firm was US-based, interviews were very similar to what you see at banks and asset management firms in the US – several rounds of interviews with people from different groups, with more technical questions thrown in and a more diverse set of questions overall.

This one was also not for a graduate-level position, so I imagine it would be somewhat different if you were just out of school or in school and interviewing for the same role.

Q: What types of people were they looking for? Were many of your co-workers also foreigners?

A: It varies, but at the Fund of Funds the investment team was mostly German with a few others from Europe and further afield. They wanted people who knew a bit of German and who had the technical skills to analyze investments – it was very small, so they were much more focused on fit there.

At the asset management firm, as I mentioned, the technical bar was higher and they were looking for people to spend more time at the firm and not just hop to the first exit opportunity that comes their way.

As with most other countries outside the US, there is not as much of an obsession with exit opportunities and hopping around constantly, so people actually stay at the same company for more time on average.

Q: Any other differences with recruiting in Germany that we should know about?

A: Oh yes, I could probably write a book about that one:

  • You need to include your photo on your CV here. Technically firms are no longer able to discriminate against you, but you’re at a huge disadvantage without a photo as everyone includes them.
  • CVs are usually at least 2 pages and emphasize Education over everything else – it’s at the top even if you have years and years of work experience. Sometimes CVs go on for 3-4 pages and list every single academic achievement.
  • If you’re a non-native German speaker, you should include your language skills in the Personal Information section; you also list your Date of Birth and Marital Status at the top.

Q: I think requiring that information in the US or UK would result in lawsuits.

A: Yeah, the culture is quite a bit different here.

In terms of language skills, if you see an advertisement from a multi-national company in English, you can assume it’s OK to apply in English and work there without knowing the language – but if it’s all in German then the language is probably required.

Job references are also very important here. After every job you’ve been at, you receive 1-2 pages of written references stating how well you’ve done there and what your achievements were.

Even at US-based and other foreign companies here they still expect to see these references, and you’re at a big disadvantage if you don’t have them or if they say anything negative.

Q: More lawsuit material if you requested those in the US / UK – and it’s written evidence, too.

What about CV review and interview selection?

A: In general, it’s difficult to get the first interview here but once you’re in you have a high chance of moving forward. They spend a lot of time reviewing CVs and selecting first round candidates based on those, sometimes inviting only 1-2 people to interviews.

That’s the opposite of what you see in the US / UK where they might invite dozens to interview, only intending to hire a few.

Finally, some advice for you if you’re not a native and you’re interested in working in Germany: going through recruiters can work to your advantage. They are actually helpful here and can get you past HR staff when you don’t meet the officially stated language requirements.

And as I’ve mentioned, go for asset management or trading rather than M&A.

All About Funds of Funds

Q: OK, that was quite a download of recruiting-in-Germany information.

Moving on, I’ve gotten a lot of questions about Funds of Funds, what they are, what you do there, and how you get in – can you explain briefly what a Fund of Funds is and the work you do there?

A: Sure. A Fund of Funds is simply an investment firm that invests in private equity funds rather than buying companies directly.

To give an analogy, it would be like an index fund that invests in other index funds in the stock market as opposed to the original index fund that picks individual stocks to invest in.

Funds of Funds may invest in anything from venture capital firms to small and large buyout firms to anything else within the world of private equity.

Most of the day-to-day work consists of due diligence – analyzing existing funds, seeing what kinds of investments they’ve made, and whether or not they would be a good fit for us.

You make 2 main types of investments at a FoF: primary and secondary.

  • Primary: You invest in a PE firm as it’s doing a round of fund-raising and looking for new investors.
  • Secondary: You buy an existing stake in a PE firm from someone else in the secondary market who’s looking to sell.

Most of the work on the primary side consists of due diligence, analyzing investment teams at PE firms, looking at previous deals, historical returns, and so on.

We did a lot of benchmarking of funds against the sector as a whole and against other funds within the geography we were looking at, and we discussed everything with General Partners. Most of my time there was spent writing up due diligence findings and there was a lot more qualitative work than quantitative work.

On the secondary side, there was more quantitative work since we were looking at funds that had already made a few investments. So there was some price modeling involved to see what was reasonable, what type of carry and management fees made sense, and so on; we also did some basic DCF analysis to verify the valuation but it wasn’t anything hardcore.

Q: So are Funds of Funds a big asset class in Germany? Is the industry there developed?

A: It’s not yet a big asset class here – there are quite a few buyout and VC firms, but only a handful of FoFs and most of them are part of bigger financial institutions here.

PE has been hit hard following the financial crisis and Funds of Funds suffered even more than normal PE firms – many institutional investors backed out or decided against investing, so firms never had a chance to grow properly.

Q: What about recruiting for FoF? What kinds of questions did they ask you?

A: They didn’t ask me much about investments, investment ideas, or which funds I would invest in – it was more about my motivations for wanting to move into finance, what my future goals were, and so on.

That was mostly because I was career changer – other interns received more technical questions about accounting and valuing companies, the economy, and the European debt crisis.

Overall I would say that FoF interviews are similar to investment banking overviews, but generally less technical even though they’ll still ask the normal accounting/valuation-type questions.

Q: What about the work culture there? I’m assuming it was quite a bit different from what you see in private equity / investment banking?

A: It was much more relaxed than what you see in banking or at direct investment funds (PE/VC).

There wasn’t much time pressure to do things because we weren’t competing for specific deals that banks were marketing to PE firms – so we had more time to discuss investment ideas internally and talk through things.

They delegated quite a lot of work to the interns, so we did many of the initial assessments and the screening, and then sat down with the investment managers to talk through ideas. They were quite receptive to well-thought out investment ideas, even though we were interns and had limited experience.

Q: And now I have to ask the obligatory hours / pay question…

A: Hours at the Fund of Funds were generally between 9 – 6 each day, with work sometimes extending a bit later depending on how busy we were at the time. Work came in peaks and troughs – if a lot of direct funds were fund-raising, we would have to analyze everything at once and make decisions quickly.

But during other times of the year (especially the summer months), things were very quiet because hardly any funds were fund-raising.

The investment managers themselves might work later due to internal investment committee meetings, but the latest was normally 8 or 9 PM, with weekend work extremely rare.

Base salaries were close to what you would earn starting out in IB or asset management, but maybe a bit less overall (possibly also due to being in Germany, which has a lower cost-of-living than the UK).

Bonuses were substantially less than IB and perhaps even other asset management firms – there’s just not as much money to go around since Funds of Funds don’t have the same levels of management fees and carry that you get in direct Funds.

Next Steps

Q: After working at the Fund of Funds, you moved onto asset management – but what do most people do? Is it possible to get into private equity from FoF?

A: Most people who start out in FoF stay there and build their careers there – you don’t really have the required skills (LBO modeling) to go into private equity.

If you do leave, the most common and obvious exit opportunity is moving into asset management – quite a few people from my firm actually left to move into larger asset management firms.

Q: So why did you make the move, personally, rather than staying in FoF?

A: I could have stayed there and had a comfortable lifestyle – but there were a few things I didn’t like:

  1. There wasn’t much career progression aside from becoming an Investment Manager and then a Partner – it’s not like banking, PE, or even trading where you have levels in between.
  2. I wanted faster-paced work because that suited my personality much better; I also wanted more of a front-office role where you make investments directly.

All along, I was actually more interested in trading but it was a long-shot where I live as the majority of trading desks are located in Frankfurt.

The job that I ended up with at the asset management firm was actually different from the original one the recruiter set me up for, so I would reiterate something that you have said before: that you are not necessarily interviewing for the job you think you are!

Q: So you’re planning to move into trading from there?

A: Yes – maybe stay here for a year or two, and then leverage my connections to move into a trading role.

That’s a very indirect path to trading, and it probably wouldn’t work as well for IB/PE – but luckily trading is one field in finance where they do care more about results than pedigree/work history.

Q: Right, well good luck with making the move – and thanks again for taking the time out to chat!

A: No problem – hope you learned a lot.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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by Brian DeChesare Comments (109)

How to Break Into Finance as a Consultant

I’m not gonna lie: I haven’t treated consultants very well before – and even though that infamous Leveraged Sellout video is ancient history by now, it still pops into my head whenever I get questions from consultants.

But despite that, I still do get lots of questions from consultants on how to move into the world of finance, mostly to investment banks and private equity firms.

In some ways, you’re in a better position than engineers, lawyers, or accountants trying to break in – but the bad news is that a lot of bankers don’t like consultants.

So here’s what you do to get around that and break into finance:

What You’re Up Against

Just to recap what you’re up against vs. other professions moving into finance:

  • Engineers: They are great at math, but can they talk to people and work a lot more than they would at Google or Facebook?
  • Lawyers: They can put up with sociopaths and work 100 hours per week, but can they count?
  • Accountants: They know accounting and Excel, but are they hungry enough to work without sleep for days at a time?
  • Liberal Arts Majors: They can communicate, but can they crunch numbers and burn the midnight oil?

As a consultant, here’s your challenge:

“I know you can work with clients and that you understand the business world. But can you build an LBO model? Do you have any discernable skills? And are you prepared to work true banker hours?”

So it’s a combination of what lawyers and accountants face, with some extra prejudice thrown in since many bankers don’t take consultants seriously – especially if you’re an IT or HR consultant rather than a management consultant.

What Will Help You

But you do have a few things working in your favor:

  • You “get it” – you’re not some engineer with no business experience who doesn’t understand how to work with and manage clients.
  • If you’re working at a top firm (MBB), you have a prestigious name that all bankers recognize.
  • Better networking opportunities than an undergraduate – Partners are well-connected, and your clients might be investment banks.

Your Story

Just take the story-telling tutorial and template here and apply it to your own situation.

Here’s a sketch of what you might say:

“I was really interested in business and advising companies on major strategic decisions, so after graduating from [University / Business School Name], I decided to take an offer at [Consulting Firm]. I’ve done well there and have gotten good reviews, but I also realized that what I did as a consultant was rarely implemented by clients.

I had worked on a few M&A and due diligence-related projects, and realized that in [investment banking / private equity] you have much more of an impact on the company you’re working with – and I was more interested in modeling and valuation than in qualitative work.”

That is just a sketch of the basic idea – you would expand on that in interviews.

If you’re moving in from something less business-related – like IT or HR consulting – then you should also include something about wanting to see the trees for the forest and understand the business at a much higher level.

Point to specific clients or cases you worked on and the finance-related analysis you did that made you more interested in finance.

“I worked with a $50B telecom company in its restructuring process and learned about what management considers when it decides to declare bankruptcy rather than restructure its debt – and I got to assist bankers with analyzing the best debt structure going forward” sounds much better than just saying you think financial modeling is cool.

And before you mention it, yes, I know that common stereotype of consultants’ advice not being implemented is not necessarily true.

Plenty of work you do as a banker never sees the light of day, either, and it’s even worse in PE.

But what matters here is perception, not reality – and financiers like to think of themselves as shaping industries and companies and “having a really significant impact” (even if they don’t get home by 7:15).

Networking

So you have your story… now how do you pound the pavement and make sure someone actually hears it?

I’m not going to repeat the dozens of tutorials on networking, informational interviews, weekend trips, cold-calling, and so on because those still apply if you’re a consultant moving into finance.

The main differences lie on the sourcing side – where you find names in the first place:

  1. You have access to an additional “alumni” network – from your consulting firm. Leverage it and contact everyone who now works in finance.
  2. Partners at consulting firms are very well-connected and will know bankers. Don’t be shy about asking, especially since you’re expected to move elsewhere after working in (management) consulting.
  3. You could move to a finance-related group at your firm, or go to a banking or PE group that has overlap with your background (e.g. if you consulted with energy companies, you could target oil & gas groups).

Those 3 represent a big advantage over anyone else who’s moving into finance.

You could still cold call rather than using the strategies above, but don’t start there unless you are targeting boutiques and have absolutely no connections (unlikely).

Should you focus on boutiques rather than bulge brackets?

That may improve your odds, but it may not be necessary depending on how well-connected your firm is: if you can contact bulge bracket bankers, at least give that a shot.

Finance-Specific Consulting Firms?

Similar to industry-focused investment banks, there are also industry-focused consulting firms.

So it must help to go to a place like Oliver Wyman that is well-known for financial services consulting rather than a firm that does everything, right?

If you have the choice between 2 smaller or 2 specialized firms, yes, go for one that has the financial focus.

But don’t pick a finance-specific firm over McKinsey (or Bain, or BCG) just because you get to work with more finance companies – brand name makes far more of a difference if you’re breaking into banking or PE.

Resume/CV Spinning

You have it easier with your resume/CV than an engineer because at least you’ve worked with clients before and can point to specific projects and “deals.”

Click here to download the “Experienced” resume template and view the tutorial, and then make the 3-4 most relevant clients you’ve worked with into separate “Project” entries.

Your main challenge will be spinning what you did into sounding relevant to finance:

  • If you worked on anything related to due diligence, M&A, or capital markets, obviously list that and hype it up.
  • If you don’t have anything directly related, take what you have and highlight the quantitative work you did rather than the qualitative side. Numbers and dollar/Euro/other currency figures are good.
  • Even if you have not worked with financial statements, you can highlight market-sizing analysis, cost analysis, or anything that involves numbers.

And remember the golden rules of spinning: re-adjust the focus, magnify small details, and omit facts that do not make you look good.

If you write something like this:

  • “Worked with Fortune 500 Company to analyze hiring and retention strategy for sales force and make recommendations that improved retention by 50% by better aligning incentives, target customers, and sales rep performance.”

That might be a good bullet for consulting jobs – you have a specific number and your recommendations were even implemented by the company.

But for finance you should write the following instead:

  • “Worked with Fortune 500 Company to boost revenue and profitability by improving sales rep productivity and revenue per sales rep and by reducing G&A costs associated with sales force hiring; led to estimated [$xx] increase in revenue and [$xx] increase in pre-tax profit.”

You’re still writing about the same client engagement, but you’re framing it differently and focusing on finance rather than operations.

You probably won’t have exact numbers in this situation, so estimate and make it clear that it’s just an approximation.

Interview Domination

Interview questions will focus on the key “objections” that bankers have to consultants:

So you need to address both of those and presenting solid “mini-stories” that prove your points.

For #1, talk about how busy you were due to the infamous consulting travel combined with client demands and how you had to pull banker hours for an extended period.

Even if you work less than bankers on average, just point to a particularly busy period and use that, and then turn around and use the same story for the other standard fit questions as well.

To prove you know something about finance, either talk about finance-related projects and analysis at work, or how learned on your own from classes, training programs, and self-study.

While I’m not a fan of the CFA, it would make sense to bring it up here if you’ve somehow had the time to complete it.

Other than that, all the standard fit and technical questions covered in the superday interview guide and the investment banking interview guide still apply here.

Technical Questions

As a consultant, you may receive more technical questions than others because bankers will be skeptical of your financial know-how.

While the CFA is overkill and isn’t realistic given how much you work and travel, a crash-course on the technical side is not a bad idea.

You already know about the financial modeling training programs offered through this site, and I’m too lazy to insert a sales pitch here but you can read all about them on your own and decide what’s right for you.

You could also look at the books recommended on IBankingFAQ for a solid grounding in accounting, valuation, and finance.

Remember that you are competing with ex-bankers, undergraduate finance majors, and others who know the technical side very well – you don’t want to give banks a good reason not to hire you.

And For Private Equity…

I’ve been lumping banking and PE together, but there are a few differences if you’re focused on the consulting –> PE transition.

First, it’s very difficult because private equity firms recruit almost exclusively from the investment banking analyst pool.

So it might actually be easier to get into banking first and then make the move to PE.

If you don’t want to do that, you need to target firms that have a tradition of hiring consultants – the classic one is Golden Gate Capital, which was founded by Bain consultants and still hires mostly Bain consultants.

Focus on firms that emphasize operational improvement and turnaround strategies over financial engineering (actually easier to do in a recession or quasi-recession).

Your chances of getting into KKR, Blackstone, TPG, and so on, are slim because they only make a few hires each year and only hire those few from the top banks – the vast majority of bankers at Goldman Sachs, Morgan Stanley, and JP Morgan don’t even have a good chance of working at those places.

So target operationally-focused firms or anything with a complementary industry focus – if you worked with entertainment companies, maybe you can join Bono at Elevation Partners.

Venture capital is also a possibility – they care far less about financial knowledge than PE firms, and if you’ve worked with tech or biotech companies you can easily spin yourself into a “strong cultural fit.”

Hedge funds are more of a longshot because so many are about hardcore finance and don’t care about operations or strategy – if you want to go there, you’ll have to find one that is more strategy/operations/long-term investing-focused and less about short-term trading.

Plan B Options

So what if you’ve done everything above but still can’t break into finance?

1. Move to a Bigger Consulting Firm

Specifically, M/B/B – see Kevin’s thoughts below for more on this one, but generally the brand name makes far more of a difference than your actual industry focus as a consultant.

Plus, Partners at the top firms are more likely to know bankers and financiers than the ones at smaller firms.

2. Go to Business School

If you go this route, you’ll have a much better chance at post-MBA investment banking positions than PE ones: as interviewees on this site and I have mentioned before, your chances of getting into private equity without having been an IB analyst are slim.

And you should still do a pre-MBA internship that brings you closer to finance or you may not be able to re-brand yourself as easily as you expected.

3. Go to Something Other Than IB/PE/HF

There are plenty of other, less competitive finance industries out there (and yes, before you mention it, they also pay less).

So you could network your way into an asset management or commercial banking role, then get to know people in the investment banking division and move in like that.

This one is a better idea if you have no connections and have no other way in – otherwise you are better off staying a consultant rather than moving to a more finance-related but less “prestigious” role.

More Thoughts from Kevin

To get another perspective, I asked Kevin from Management Consulted for his thoughts on this topic and used some of what he mentioned above – here’s what he said in more detail:

  • It’s all about brand name – get into the best consulting firm possible. While Oliver Wyman is marginally better than, let’s say, Kurt Salmon (boutique retail), M/B/B is far better than any of the rest in helping you get there.
  • Most consulting firms have internal finance groups/sectors – get as many cases under your belt in these groups as possible.
  • Most partners in those practices have serious connections – leverage those connections by over-delivering with your cases and networking heavily with partners.
  • Ask for intros to the banks you’re targeting – they might be your clients and you can build relationships first that way.
  • Go to NYC. Just like entrepreneurs move to Silicon Valley, you must be in NYC to have access and credibility. In Europe, go to London. In Asia, go to HK.
  • It’s all about your network and less about financial knowledge, at least in terms of getting interviews in the first place – organize internal networking events in the finance practice to meet even more people.
  • A lot of consulting firms have externships and special programs to give you corporate exposure outside of strategy consulting. Leverage those as much as possible.

So there you have it – thoughts from someone who knows consulting inside and out.

Still Can’t Buy Bottles with Starwood Points?

So if you’re tired of flying up to Saskatchewan every week to tell a company what it already knows, follow everything above.

And you just might be able to get rid of those Starwood points and buy a few bottles with your banker friends.

Series: Career Transitions

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

Break Into Investment Banking

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

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