From Big 4 Restructuring to Investment Banking: How to Make the Leap
“Help! I hate my accounting job and want to move into banking, what do I do?”
“What group should I transfer to if I want to get into finance?”
“My Big 4 salary doesn’t give me enough cash for bottles!”
If you’re at a Big 4 firm right now, you’ve had one of the thoughts above before – maybe multiple times.
We covered how to move from accounting to investment banking before, but this time around there’s a different twist – an interview with a reader who moved from a Big 4 restructuring group to investment banking.
Here’s how he made the leap, and how you can do the same:
Background & Culture
Q: Let’s start with your background – how’d you end up at the Big 4 firm, and what did you do before that?
A: Sure. I actually started out as an athlete, and played at the college level for a few years before I got a serious injury that ended my career.
Then, I transferred to a smaller and lesser-known school in the Midwest, and got more interested in finance once I knew that being a professional athlete was no longer an option.
The investment banking industry is smaller in the Midwest, but there are still a few local banks there and they were doing a lot of distressed M&A deals for the auto industry, so I started contacting them and asking about internships each week.
After a ton of networking, one bank finally caved in and decided that they needed an intern – so I joined and got to help out with a few live deals there.
As graduation approached, I continued networking and found a few guys who used to work at a very well-known PE firm.
They had just started a lower middle-market fund just for family/small-business investments, and they needed some analysis done on Project Finance-type investments (power plants and such). I volunteered to do the modeling for that, and they were impressed with my work and turned it into a full-time internship.
Since I had so much experience in restructuring, I went to a restructuring group at a Big 4 firm after my internship at the middle-market PE fund. I stayed there for around a year, and then recently moved to a bulge bracket bank.
Q: That’s a great story – before we jump into it in more detail, I think a lot of readers might wonder what it’s like working at a Big 4 firm in their restructuring group.
We’ve covered the work and culture in IB and PE before, so how would you say the Big 4 firm compared to those?
A: There was definitely a skill set overlap – we did lots of cash flow modeling, presentations to lenders, and distressed M&A deals where we advised the company on selling, restructuring, or bankruptcy options. We also worked with the big auto companies, so you got good exposure to their finance teams.
The financial modeling and deal skills were similar, but there was a big cultural difference because we only worked on 1-2 projects at once and the hours were very, very tame. I only worked on one weekend, and a “late night” was staying to 8 or 9 PM.
Q: Why do you think there’s that cultural difference? Deals are still deals, so I don’t understand how you could “choose” to be less busy if you’re working with Fortune 500 clients all the time.
A: It’s mostly because financial advisory services were a very small part of what the firm did. At an M&A boutique bank, 100% of revenue comes from advisory, but at this Big 4 firm advisory accounted for maybe 2% of revenue.
Their focus was accounting/audit and consulting – they had investment banking and restructuring services, but they were an afterthought next to everything else there.
Q: OK, so it sounds like they consciously chose not to take on as much business as they could have since it wasn’t their core focus.
Obviously you did well moving into banking from restructuring, but what other groups would be good if you wanted to make the Big 4 to IB move?
A: As you’ve mentioned before, Transaction Advisory Services (TAS) can be good since you get exposed to bankers in some scenarios.
But I don’t think it’s necessarily the best group all the time because many TAS groups focus on accounting and due diligence, and you may not get exposed to valuation, financial modeling, or other aspects of the deal. They may also spend a lot of time on tasks that bankers don’t care about, such as making sure that working capital requirements are met when a deal closes.
So I would recommend looking at the internal middle-market banks that all Big 4 firms have – they do mostly sell-side advisory, and while it’s not comparable to the experience you’d get at a real bank, it’s closer than most other groups at the Big 4. Here are links to each firm’s internal bank:
- Deloitte – Corporate Finance
- KPMG – Corporate Finance
- PricewaterhouseCoopers – Corporate Finance & Investment Banking Services
- Ernst & Young – Transactions
And then anything transaction-related – like the restructuring group I was in – could work as well.
Networking & Interviews
Q: Can you talk about the networking you did to get the bulge bracket offer? What was the best source for finding contacts and meeting bankers?
A: Keep in mind that I had been networking all along, ever since I got my original internship via aggressive cold-calling.
So it was just continuing what I had already started – I took the Big 4 offer knowing that I still wanted to move into banking and would have to continue networking.
It was difficult to find bankers at first because few alumni worked in finance, I didn’t have co-workers I could reliably ask, and headhunters were useless unless you had at least some full-time work experience.
Q: So where did you find bankers if not through the usual sources like your alumni database?
A: A couple ways:
- High School Contacts – Even though my university had few alumni in finance, there were quite a lot from my high school who worked in the industry.
- Random Online Contact – I would just go through LinkedIn and look up bankers in the Midwest and start reaching out them like that.
- Cold-Calling/Emailing – This is how I got my first internship. It’s time-consuming and has a low hit rate, but it does work.
- Upscale Gyms – I joined a few higher-end gyms in my area and ran into a bunch of financiers there. I met a few bankers, people in private wealth management, management and turnaround consultants, and even a PE Partner like that.
All of that helped, but the most helpful thing for me was always asking, “I’m interviewing with this group / interested in this area – do you know anyone else I could speak with?”
I got tons of referrals with that line at the end of each call or meeting. It sounds very simple, but you’d be surprised at how many people are too afraid to make simple requests in a conversation.
Q: I really like the tip about upscale gyms; it reminds me of Gordon Gekko playing racquetball.
So it sounds like your networking was pretty similar to what we’ve covered here before with getting names and contact information, setting up informational interviews, and then following up aggressively.
How did you spin your resume when you were applying, since the Big 4 firm was your only full-time experience?
A: I actually downplayed the Big 4 experience, because I felt my banking internship and my work at the middle-market PE fund were both more relevant. So I focused on those and described my transaction experience using the template you’ve suggested before.
For my Big 4 experience, I focused on the valuation and modeling work and left out anything that was closer to accounting/audit.
Even though I had worked in restructuring there, I was interested in moving to industry or M&A groups in investment banking, so I didn’t want to make myself look too specialized by writing 100% about restructuring or distressed deals.
Q: That makes sense, and it’s great advice for anyone who has worked in a more specialized group and wants to move elsewhere.
What about the interviews themselves? Were they mostly technical or deal experience-focused?
A: They focused a lot on my deal experience – and more my experience at the bank and PE firm rather than in my restructuring group.
There were technical questions, but they were more curious about why certain deals happened, potential complications, and what I thought of the valuation and the process for different companies.
For some of the industry groups, a key question was “Why this industry?” They get a lot of people who don’t know why they want to work with financial institutions or industrial companies or whatever they cover.
Q: We covered a few possible answers to that one before, but what did you say?
A: In my final year of university I had completed a finance course where we valued companies in different industries, so I used that as my “spark” to show them how I got interested at first.
It didn’t work for every industry group, but by using that I could at least talk about my interest in the more common ones, like energy, financial institutions, and industrials.
I also used a few of your industry-specific modeling courses to demonstrate my interest and they were really impressed with that, since hardly anyone else had gone to the effort of completing entire case studies on these companies.
Q: I’m surprised by that one, because we generally tell customers that the industry-specific courses are more helpful once you’re already working – but you found them useful for interviews as well?
And these were lateral interviews at the top bulge bracket banks – even there most other interviewees still hadn’t done as much as preparation as you might expect.
Q: Well, glad to hear the courses were helpful!
It seems like the interview process was straightforward for you, but I’m sure bankers had at least a few “objections” to your background. What were the key issues, and how did you overcome them?
A: Their main concern was that my academic experience looked very spotty.
I had taken a year off after I got my injury back in college, and then had to enroll in another school and ended up missing another semester, so it looked like I had taken forever to graduate and had been to school twice.
Some bankers just focused on that for 100% of the interview – they asked about all my gaps in education and why I had gone to schools they never heard of.
I answered those questions by explaining that for my first 2 years in university, I was practicing constantly, still doing well in school, and working 1-2 part-time jobs at the same time. So I spun a negative into a positive, and pointed out that I was working crazy hours a good portion of the time and could therefore handle the hours of a bulge bracket bank.
And then I also had my previous IB and PE internships, so they weren’t too concerned by the end.
What If? And the Future
Q: Since you had those internships, you had 100% relevant experience when applying to larger banks.
But what advice would you give someone who’s at a Big 4 firm in some other role, like audit? What should they do if they have no transaction experience and want to get into IB?
A: First, get out of audit immediately. Do something – anything – more stimulating.
People make fun of investment banking for being mindless work, but in my opinion audit is even worse because it’s so mundane.
At least with deals, you witness drama as different buyers and sellers express interest, back out, make different proposals, and negotiate. In audit you’re staring at numbers all day unless you happen to uncover the next Enron.
Most Big 4 firms are fine with internal transfers – it’s often easier than it is at a bank. Sometimes the Partner you’re working for may take it personally, but that depends on your group.
You should reach out to the other group you’re interested in first, contact people there, and make sure they know what you’re interested in doing before you even run the idea by your current boss.
The Big 4 firms all have lots of events and internal mixers where professionals in different areas can meet each other, so it’s easier to get to know other groups than it would be in IB – most people don’t work more than 50-60 hours per week, so they have the time to help you.
You really have no excuse not to move to a group that’s more closely related to banking – I would recommend restructuring, valuation, internal M&A, and TAS as your best options.
Q: It’s interesting to hear that the internal transfer may be easier at Big 4 firms, but I guess the culture is just more relaxed across the board.
So now that you’ve won this bulge bracket offer, what’s next for you? Will you stay at your new bank for some time, or are you thinking about moving to the buy-side?
A: Unlike most other bankers, I’m actually interested in staying in IB for the long-term.
Back when I was interviewing for this role, a number of distressed investment funds also approached me, but I wasn’t interested in PE back then and I’m not interested now, either.
My key issue is that you must put your own money to work to progress in PE.
It’s not just Partners investing the fund’s capital – they also put in their own funds, so a poor investment could wipe out a good chunk of your personal savings.
Yes, the pay ceiling is higher and you could make mind-boggling money – but let’s be honest, at the MD/Partner-level, the average is about the same in both industries. The outliers in PE make far more, but for me the risk isn’t worth it.
The other issue is that private equity is much less of a team environment than banking, and coming from an athletic background I enjoy working in teams more than the solo work that you see in PE.
Q: That makes a lot of sense, and that point you raised about putting your own money to work is a great one that often goes overlooked. Thanks again for taking the time out to chat, I learned a lot!
A: You’re welcome, it was my pleasure.
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Bottles and Bottles? How You Really Win Clients and Land Mega-Deals as an Investment Banker
Why does the mainstream media hate Wall Street so much?
You can think of dozens of reasons, but one of the biggest is that they don’t understand what bankers really do to earn their fees.
They see news of million-dollar bonuses and assume that financiers earn those bonuses by sitting around and playing Monopoly.
But you don’t earn massive fees by playing board games all day – it’s a process that takes years, which is one reason why bankers make the money they do.
And the infamous “pitch” has very little to do with it.
It’s All About the Pitch, Right?
The most common, wrong suggestion I’ve seen before is that “Bankers win clients by pitching them.”
But that’s like saying that you got into Harvard or Oxford by submitting a really good application – technically true, but not the full story.
Yes, the application is critical and if your essays suck, you’re screwed – but you got into a top school because you spent years developing the skills and experiences to do so, and you then presented them in the best possible light.
It’s the same with winning clients as a banker: your pitch needs to be on-point for you to win the deal, but the process of putting yourself in the position to pitch for the deal starts long before that.
What Really Happens
As you move up from Associate to VP and beyond, gradually you’re tasked with more and more sourcing work: finding potential clients, getting to know them, and then pitching for a deal when the time is right.
Managing Directors spend almost no time on deal execution – unless it’s a massive transaction that requires their involvement – and instead spend most of their time on finding new clients and serving existing ones.
If you already work with a company on all their M&A deals and your bank has been advising them for the past 20 years, you’ll probably continue to do so in the future.
Like legacy admissions in university or Roger Sterling and Lucky Strike, it’s a good bet that you’ll receive the benefit of all that history unless you make a colossal screw-up.
So it’s more interesting to look at how you find new clients – companies your bank has never worked with before.
This entire process is more applicable to smaller firms than to bulge bracket banks, because there the “legacy” factor is high and you mostly work with huge companies that everyone already knows about.
But even at huge firms, you still need to find new clients because existing companies get acquired, merge, and go out of business all the time.
In sales, a “lead” is just a potential customer – someone who might sign up for the products or services you’re offering.
It’s the same idea in banking, but since your leads are fewer in number and are worth much more, some strategies don’t work so well.
What Doesn’t Work
Strategies like online marketing (paying for ads on websites, Google, Facebook, etc.), TV/radio/direct mail advertising, and posting flyers would never work.
It may sound silly to even point this out, but I’ve actually seen some banks use Google AdWords to market themselves to clients and I have no idea why they bother.
All these methods are too impersonal – it’s like walking into Armani and having a robot display a list of recommended clothes for you rather than having a real live person greet you, chat for a while, find out what you’re looking for, and then suggest something good.
When the number of clients is low and the per-client value is high, you need to get very personal to make deals happen.
PE / VC / HF Referrals
One way to do this is to go through your friends on the buy-side, see what portfolio companies they have, what sectors they’re interested in, and who else they’ve been speaking with lately.
Let’s say you’re an MD who has worked with a private equity firm for 10+ years. At your next catch-up meeting with them, you might casually ask how their portfolio companies are doing (translation: are any of these companies ready to sell, refinance debt, or go public?).
If the PE Partner likes you and wants to give you business, he might refer you to the CEO or CFO and say, “Hey portfolio company, this banker’s good – you should get to know him.”
Or if a deal is imminent, he might tell you directly: “They’re going public next year, and the pitch is coming up next month – we’ll be sure to include you.”
In tech and healthcare groups, venture capitalists are arguably more important and bankers get referrals to startups via VCs.
Just like with your own networking efforts, cold-calling is less effective than meeting in-person first or getting referrals – but sometimes it works.
You’re far more likely to see cold-calling at smaller banks where you have to fight for every deal – and if you’re a summer analyst there you might get tasked with poring through lists of companies and finding contact information.
Cold-calling is also more common at small and middle-market private equity firms, some of which are notorious for making their newly hired associates cold-call companies all day long.
Bankers also spend a lot of time on the conference circuit, meeting with executives at events (CES, Davos, etc.).
These are like information sessions: if you can stand out from everyone else and then follow-up appropriately, your chances of success go way up.
The real action at conferences happens offstage, so bankers skip keynotes and panels and schedule as many 1-on-1 meetings as possible during the day.
Wouldn’t it be nice if banks just called you when they wanted to hire someone?
When companies want to sell or raise capital, they sometimes contact banks directly – this scenario is much more likely when a lesser-known company wants to work with a bulge bracket bank and has no other way to get on their radar.
Sometimes investors also contact bankers directly and provide the introduction, especially if they’re pressuring the company to sell so they can realize their returns.
Wining & Dining: Building the Relationship
Once you’ve contacted or been contacted by the executives at this potential client, you need to build the relationship.
If it’s an inbound contact and they urgently need to sell or raise capital, you won’t do this and you may be asked to pitch for the business right away.
But if the deal is further off in the future, you need to take time to build trust and convince the CEO that you’re not just another Gordon Gekko or Patrick Bateman character waiting in the shadows to decapitate him and steal all his money.
You do that by:
- Coming up with acquisition ideas and meeting with the executives to discuss what areas they might want to expand into.
- Giving market updates to the executives and telling them what’s going on in the M&A or capital markets.
- Meeting casually for lunch or dinner to catch up on what the company has been doing and their future plans.
- Being “on call” to answer whatever questions they have, whenever they have them.
The tricky part is that you don’t get paid for any of this – and the entire process could take years before you see any revenue.
Sure, making $10 million on a single deal sounds great – but if it takes 10 years of relationship building to get there, the NPV is much lower than $10 million.
This is the slowest and most extended part of the “client-winning” process, and if you’re not interested in relationships, this is where you’ll fail.
But if you like meeting and greeting and can’t stand Excel, then you might make a great MD – even if you’re a lousy analyst.
How does a company decide when it should sell, buy another company, go public, or raise capital?
Sometimes it’s forced to sell by investors who want to realize their returns (Amazon / Zappos) – going back to our theme of NPV, the longer an investment stays unrealized, the harder it is to get solid returns.
Other times the executives reach the decision themselves – the CFO looks at their cash flow projections and realizes their burn rate is too high, so they decide to raise debt or equity.
And still other times, bankers “plant” the idea in the CEO’s mind.
While you don’t have to plant this idea in a dream within a dream within a dream within a dream, you do have to be subtle about it – going out and blatantly pitching an LBO won’t work even if you really want a PE firm to buy the company you’re speaking with.
Instead, bankers are more likely to make casual references to private equity firms and leveraged buyouts elsewhere in the market when they meet with the company to discuss other topics.
Over time, if the CEO and Board buy into the idea or show interest, the bankers keep selling them on it and gradually start to reveal more and more information.
The best bankers – the true rain-makers – are the ones who are best at “selling” the company on a transaction, even if the management team had no interest initially.
Regardless of whether the idea was planted or original, once the company decides it’s ready to sell or raise capital, it then pits bankers against each other in a bake-off.
Sometimes if a company has a special relationship with just 1 banker and has never spoken to others, it will skip the pitch and give the business to that banker.
But that’s more common at private and smaller companies where there’s not as much oversight from the Board of Directors – at anything bigger the Board usually requires the management team to solicit competitive offers.
At this point they would contact all the bankers they’ve gotten to know over the years and tell them what they’re planning, send over relevant financial information, and invite them to pitch for the deal.
The number of banks invited depends on the deal type – IPOs have many banks, whereas in M&A deals there’s just 1 or 2 advising the buyer and seller – and whether or not the company wants to stick with the bankers it knows best or go for a broader set.
Who Wins the Deal?
This must come down to whether or not you’ve dotted all the i’s and crossed all the t’s in your pitch book, right? And whether or not you remembered to change the font size on every single page, right?
Nope – most of the time the pitch book itself is irrelevant to winning the deal, even if you pulled 4 all-nighters to create it.
What matters is how much the company likes the senior bankers, what the senior bankers say, and how they say it – and what they say compared to the other bankers pitching for the deal.
Let’s say you go in and claim that the company is worth $500 million and that you can complete the sale process in 6 months. Then another banker goes in and says the company is worth $400 million and that the sale process will take 12 months.
You might assume that you’ll win since your claims are more aggressive and will result in a better price for investors – and sometimes that’s true.
But the CEO and other Board members/executives could also look at your pitch and think that your numbers are unrealistic and that you’re not being honest – especially if everyone else there is predicting lower valuations.
So you need to use a careful blend of salesmanship and pragmatism to win deals.
After the Pitch
There may be a clear “winner,” but more often than not, the company will follow up with multiple banks to see what the fee structures are like and what their recommendations are in more detail.
For smaller companies and deals, the fees make a bigger difference and sometimes a bank will win the deal by promising lower fees or a structure that rewards them for better results (e.g. 0.75% under $500 million and 1.5% for the amount above $500 million).
Most of the time, though, it comes down to all of the above factors and the company considers everything when making a decision.
This is not a rational or logical process – just like selecting which applicants will receive interviews, it’s random and fraught with emotion.
If you think executives are rational just because hundreds of millions or billions of dollars are involved, nothing could be further from the truth – sometimes the more money that’s involved, the less rational the deal (AOL / Time Warner).
Putting everything together, here’s an example of how you, after you become a Managing Director, might meet a CEO, develop the relationship, and then pitch for the deal:
5 years ago you were having a catch-up meeting with a local VC and he mentioned that a tech startup in their portfolio was hot and would change the world of online media.
He gave you an introduction, so you met with the CEO, learned about his vision for the business, and got an idea of the company’s financial performance.
A year later, you caught up with the CEO once again and gave him an update on the capital markets and what IPOs were pricing at. The company was not yet cash flow-positive, but they had killer revenue growth.
The next year (3 years ago), the IPO markets were closed but the CEO wanted to use his stock to acquire smaller competitors – so you ran a buy-side M&A process for him over the course of 6 months. It never went anywhere since they couldn’t find anything good and got distracted by other issues.
Then, 2 years ago, the company finally turned cash flow-positive and started thinking about an IPO, which they told you about during your quarterly meeting with them.
You made your analyst monkey stay awake for 60 hours straight to prepare a 200-page pitch book laying out all the nuances, but then the CEO decided to hold off until the market got better.
Finally, a few weeks ago the CEO contacted you again just before another meeting and said that they are now serious about selling and want to hear your thoughts – so he invited you in to pitch for the deal.
Not only did this process take 5 years, but there’s no guarantee that this planned sell-side M&A deal will even happen – or that the mandate will go to your bank.
Maybe no one will be interested; maybe the CEO will change his mind yet again; or maybe investors will pressure them to go public instead.
And you ran a failed buy-side M&A process for them a few years ago.
This is why investment banking is such a tough business: you could do everything right for 5 years and still lose the deal because your fees are 0.1% too expensive, or because the CEO gets emotional and happens to like an unknown banker more.
Wait, This Sounds Boring!
One time I was explaining this process to a friend who was still in university and he said, “Wow that sounds boring – I’d rather do modeling and analytical work.”
If your IQ is higher than your EQ, it may not sound too appealing to develop relationships like this and constantly pitch for new business.
But as Jonathan Knee points out in The Accidental Investment Banker (highly recommended), all deals start to look the same after a while.
You learn a lot at first and valuing and modeling companies seems exciting when you’re new, but they become routine and boring once you’ve done them 500 times.
We’re more interested in stories and inter-personal drama than we are in staring at Excel all day – so even if the process above doesn’t sound interesting right now, you may change your mind in a few years.
You might assume that you should move to the buy-side if you’re not interested in any of this, but that’s only partially true – in PE and VC you still do a lot of relationship-building, meeting with new companies, and so on.
So if it’s really not your cup of tea, think about hedge funds or trading – where you can make bank without talking to people or leaving your 8 computer screens.
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Investment Banking: Pakistan Edition
But this is such a good interview and has such specific information that I wanted to publish it anyway.
Plus, the interviewee has been a long-time reader of M&I and captured the personality of the site very well. So let’s get started and learn all about banking, PE, recruiting, and the lifestyle in an emerging market that might be completely off your radar.
Q: Can you tell us about your background?
A: I play the drums. I love buffalo wings with sour cream and ginger ale. I love stargazing. I’m a huge Tolkien fan. I find jazz very relaxing. I just discovered a hidden passion for photography and hopefully I’ll be traveling to Iceland in a few months after I buy a Canon DSLR.
I was born in Abu Dhabi and raised in Dubai. My father retired from his marketing job and we moved to Islamabad (Pakistan’s capital), where I completed high school and undergrad. I was a very distracted student during my O/A Levels because I really didn’t know why I was studying and what I wanted to do, so I definitely lacked direction for a time.
But during the first year of my undergraduate, I got really interested in corporate finance and M&A – so I actually performed decently and did much better than in high school.
After graduating, I networked my way into an investment banking analyst position at a bulge bracket bank in Karachi (Pakistan’s finance capital), and then I moved into private equity in the same city.
Q: Most Westerners know very little about Pakistan aside from what’s reported (accurately or inaccurately) in the news. What is the country really like, and how is the finance industry there different? Are the rumors of economic collapse / bankruptcy true?
A: A recent Newsweek cover described Pakistan as “The World’s Bravest Nation” – after describing it 3 years earlier as “The World’s Most Dangerous Nation.” I know the general perception is that it’s a country filled with corruption, religious fundamentalism, and no roads or women.
There is an element of truth to those claims, but for the most part we’re just regular people and most of what you read about in the news corresponds to a very small part of the country.
So don’t believe everything you read about the claims above (especially the part on roads and women) or the frequent accusations of terrorism – there are isolated extremists here but they are not representative of Pakistan at large.
Economically, we were always an underdeveloped country due to corruption from previous governments – but during Musharraf’s 10-year rule we were elevated to “developing country”status. Since that time the rulers have been questionable, so the progress has been disappointing since then.
The rumors of economic collapse are untrue. We’re not in the best shape right now, but we’re far from bankruptcy – the US and its allies also have too much of a stake in the country to let a bankruptcy happen. And we’re part of an IMF program that has pledged billions to us over the next 3-4 years.
Overall finance is still very much in a growth phase here, and private equity is at a nascent stage; Islamic finance is developing rapidly and corporate finance is also thriving. Hedge funds don’t exist yet, but many banks do have investment banking divisions and a handful of research and brokerage houses here offer investment banking and related services.
Q: What’s different about recruiting there? Do they prefer certain backgrounds or certifications?
A: The recruiting process for both IB and PE is highly unstructured.
Unlike the US or Europe where certain “paths” are preferred, here you can transition from almost any finance-related field into IB or PE.
I know people who have gotten into investment banking from industry, management consulting, and research, and people who have gotten into PE from Transaction Advisory Services, research, middle office trading support roles, and corporate banking.
My VP (from the US) would always tell this analyst at my bank that the CFA was completely useless in banking, but in Pakistan people have been conditioned into believing that a CFA + an accounting degree is the key to achieving unprecedented glory.
Wheeling & Dealing
Q: You were at a bulge bracket bank there – do the other global bulge bracket banks have presences in Pakistan, or are local firms more common?
A: It’s a mix of both. JP Morgan has been here since the early 90’s, Citi even earlier than that, and Credit Suisse has been here since 2008. UBS and BoAML operate through local affiliates, but aren’t officially here.
Even though they’re bulge bracket banks, they usually work on deals worth around $100 million USD – sizable for here but small by US standards.
M&I Note: Middle market banks in the US would do deals of this size; most bulge brackets focus on $500M+ or $1B+ deals, though they do occasionally go lower depending on the market.
Since that’s “the bar” for bulge bracket banks, smaller, local firms – called “investment houses” – advise on deals worth less than $100 million USD.
They offer everything from research to mutual funds to M&A advisory and capital raising. Two of the largest investment houses also have consumer and corporate banking divisions that they use for syndications.
Pure-play boutique investment banks are still very rare here – off the top of my head I know of just one firm that offers only M&A advisory and restructuring services to clients.
Q: What types of deals and companies are most common in Pakistan?
A: The breakout for deal types is something like this:
- Debt Financing: 70%
- IPOs: 15%
- M&A: 10%
- Restructuring: 5%
M&A is most common in the banking and telecom sectors. Here’s a table of M&A activity from 2002 – 2010 that I’ve been updating from time to time:
M&A in Pakistan rarely takes place to create value – this consolidation in the banking sector is driven by regulatory requirements (specifically higher capital adequacy requirements).
The actual rationale for M&A activity would be more interesting to look at – in my opinion it’s something like the following:
- Regulatory: 65%
- Gain Market Share: 20%
- Divesting Operations or Exiting from Pakistan: 10%
- Private Equity Investment: 5%
- Value Creation: 0%
The government also has a massive privatization program in place (the numbers above exclude this, by the way) and so all the bulge brackets submit RFPs (Requests for Proposals) to the Privatization Commission for each deal.
Even some banks like Goldman Sachs, Morgan Stanley, and UBS that don’t have a direct presence in Pakistan will fly in, submit their RFPs, pitch, and fly out – they’re known as “parachute bankers.”
Some local firms also work on these privatization transactions, while the bulge bracket banks focus more on attracting institutional investors via road shows or finding international buyers for assets that the government is divesting.
Here are lists of completed and upcoming privatization transactions in Pakistan:
Q: You mentioned how you networked into investment banking and then into private equity – how is it different in Pakistan? Do informational interviews and cold calls still work?
A: Right, so just to give you a brief overview first of how I networked my way in:
I went to a non-target school, but I did have 5 internships and decent extracurricular activities, as well as the resume template on your site. And I knew a lot about investment banking and private equity and kept up with global M&A deals and private equity activity via the NY Times Dealbook site.
A year before my graduation, I cold-called the bulge bracket bank I worked at – they’re known for only hiring summer interns from top US and UK schools, so it was a bold move.
A man picked up and I asked to speak to someone regarding summer internship opportunities in investment banking – the guy replied with, “I’m the guy” and he turned out to be my future VP.
I asked about the recruiting process for summer internships and he said they had already gotten started with interviews – but to email my resume anyway so he could send it to the team.
I did that, and about an hour later he replied and said, “When will you be able to join us for an internship?”
Q: Wait a minute, so you actually got an internship just by cold-calling a bulge bracket and asking for one?
A: Far from it, though that’s what I actually thought at the time – I didn’t even get an interview. I think he was just asking that to see when I would be free for an internship rather than actually giving me one on the spot.
He said they really liked my resume but were looking for a winter intern, which didn’t work for me timing-wise due to classes.
Over the next 5-6 months, I stayed in touch, emailed him on his birthday a la Bud Fox, added him on LinkedIn, and even sent the occasional random link.
Q: So you actually pinged him consistently – that’s interesting because I usually tell readers NOT to worry about constantly staying in touch and to focus more on making a good first impression and then asking for what they want when the time comes.
A: Right – you do have to be subtle if you want to take this approach. I didn’t want to give the impression that I was stalking him or wanted to be his best friend.
I did this more because I had an uphill battle given my school and background, and because there just aren’t as many banks in Pakistan – so it’s not like the US where you could easily go through hundreds or thousands of contacts to find the most helpful bankers.
Q: So what was the final outcome here?
A: In May I called him again, sent him my updated resume and “reiterated my interest” for an investment banking analyst position.
Despite being up against 100+ candidates from target schools, I was interviewed and offered the position.
What worked in my favor?
- I was myself and had the ability to laugh at myself – I didn’t act like some super-genius with perfect grades who claimed to know everything about finance.
- I had a burning desire to get into investment banking – I read everything and anything related to banking that I could find and this came across with how much I knew about the industry vs. the other candidates.
Q: What about your move into private equity? Did you go through a headhunter there or was that also networking?
A: Networking, once again. I cold-called my current PE firm’s Dubai office and spoke to a Partner there – we chatted about how Dubai has changed over the years and about the Middle East PE market in general.
I sent my resume, he forwarded it to the Partner in Karachi, and I interviewed a couple times and was offered the position.
M&I Note: This may seem ridiculous, but keep in mind that in certain parts of the world they are looking for very specific people and recruiting is less structured. It would be tough to pull off the scenario above in the US, but the same is not true in emerging markets.
Q: So it sounds like overall, the standard networking strategies still work and may even work better since recruiting is so unstructured in Pakistan.
You mentioned before how knowing so much about investment banking gave you a big advantage – but doesn’t everyone coming out of target schools there know the industry quite well?
A: No! A lot of students from top schools have absolutely no idea what investment banking or private equity are.
I’ve interviewed candidates from top schools here and this is how interviews often go:
- Me: What do you think investment bankers do?
- Interviewee: They make investments so that you get higher returns.
- Me: Higher returns… um, ok, and why do you want to get into investment banking?
- Interviewee: I’ve heard really good things about investment banking and [Interviewee inserts objective from his/her resume and “pitches” it] and how much I can learn there and bring my skills to the organization.
- Me: Right, we’ll let you know.
One time I had a PE candidate try to convince me that he was a “private equity investor” because he invested in the stock market.
I’ve come across only one candidate who made a convincing argument for why he/she should work in investment banking or private equity. And I’ve met hardly anyone else who has networked his/her way into IB or PE here like I did.
But as you can see from my story, it’s definitely possible – if you’re hungry and motivated, you can do pretty much anything.
Private Iniquity, Pay, and Exit Opps
Q: Not to sound like those annoying kids in Harold & Kumar, but what’s it like working for a PE firm there? What types of companies do you invest in, and is your job more about sourcing or execution?
A: Work is very unpredictable, which makes the hours unpredictable as well. I’ve pulled all-nighters, and I’ve found that there is a massive cultural difference / work ethic difference between local firms and international firms.
PE firms here do not focus on specific sectors – they’ll invest in anything from green/brownfield projects to mature companies and even distressed assets.
LBOs are highly uncommon here and so most of these investments are minority stake acquisitions instead.
Work is a function of sourcing and execution – I’d say I spend 20% of my time on sourcing (looking for new investments) and 80% on execution (doing due diligence, modeling for investments, and coordinating our team).
Q: As with other emerging markets, I’m assuming that salaries and bonuses are lower on an absolute scale but higher on a relative basis if you take into account the cost of living – is that accurate?
A: Yes, definitely true. In a good year, an analyst at a local firm can make 10 to 15 times his monthly pay with his bonus (around 80% to 125% of his annual pay).
In average years an analyst’s bonus might be around 50% of his annual pay – which is quite a lot of money in Pakistan.
Q: And are your co-workers all from Pakistan or are you starting to see immigrants there as well?
A: Right now there are hardly any immigrants – it’s 99.9% Pakistani co-workers.
Q: What are your future plans?
A: I’m planning to attend business school in 2 years, ideally at Wharton. I do want to stay in PE, and post-MBA I’d want to go to a larger firm in the US and work there for a few years before returning to the Middle East or Pakistan. If all goes well, I might start my own buyout fund here one day.
I also want to take up stellar and extragalactic astronomy – it has always fascinated me. And if I have enough capital, I want to start a theme-based restaurant at some point.
Or I could just take the CFA…
Q: Please, don’t.
A: Yeah, I think my own restaurant would be more fun anyway.