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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The Complete Guide to Cold Calling Your Way Into Investment Banking
And you made a valiant effort, securing 10 interviews with everyone from boutiques to bulge bracket banks – but you didn’t land the offer.
And now you only have a few months before your non-existent summer internship begins.
With recruiting finished, your last, best chance of breaking in is to cold call your way into Wall Street.
But will that even work?
Should you bother going all-out and calling hundreds of firms?
And if you do take the leap, how do you cold call your way in successfully without getting slapped with a restraining order for being too aggressive?
Does Cold Calling Really Work?
This is the most common question about cold calling:
“I’ve tried calling 10 different banks and no one is hiring! I sent my resume to all of them, but I haven’t gotten any responses! What is going on, does cold calling even work? Why are you lying to me?!!!!”
The answer is yes, cold calling does work – but it does not work instantly.
Cold calling and cold emailing work better:
- In developed markets like the US and UK.
- If you’re an undergraduate or recent graduate.
- At tiny boutique banks/PE firms/hedge funds.
It’s questionable in regions like Asia, parts of continental Europe, and Australia – I’ve seen mixed results there, whereas there are dozens of success stories from the US/UK.
That’s because recruiting is more traditional in those places and randomly contacting people is not as accepted socially. So give it a shot, but make sure you pursue other options if you’re in a region where it’s not as effective.
It also won’t work as well if you’re at the MBA level or you have full-time experience because you should be leveraging your network to break in instead.
I’m sure some people have cold called their way into bulge bracket banks and mega-funds, but it’s rare and I don’t recommend spending much time on it – those firms never have trouble finding qualified, bright-eyed, and bushy-tailed interns.
And finally, once again: do not expect instant results.
Cold calling is an extended and ego-bruising process where you’ll get bankers yelling at you, writing nasty emails, and acting like Gordon Gekko when he first met Bud Fox.
And unlike Bud, you can’t use insider information to work your way in.
…But Why I’m Still Not a Fan
So cold calling works – but I am still not a huge fan because:
- It can easily turn into a repetitive grind where you spend hours each day calling random banks.
- Networking is much more effective if you do it via referrals and informational interviews.
- Cold approaches are more effective in-person at events like information sessions where you can get the other person to remember you more easily.
- The odds are stacked against you because you have little to offer to banks as a student.
But, you could easily find yourself cold calling anyway if:
- You go to a non-target school where no banks recruit and you have no connections.
- You’ve exhausted all your connections and still haven’t found an internship.
- You can’t make it to in-person events and you live far away from major financial centers.
And remember: all it takes is one.
What Exactly is a “Cold Call”?
What is a “cold call” and how is it different from other types of networking?
The main difference is that you don’t know the other person – unlike contacting alumni for informational interviews, you are randomly calling them and have no previous interactions or connections with them.
You are also much more direct – rather than chit-chatting about their background and asking about what they do for fun outside of work, you ask about internships and recruiting right away.
And if you don’t get a positive response, you persist until you do, you try again later, or you move on to other banks on your list.
On a standard cold call, you might introduce yourself in 1-2 sentences, ask how you can position yourself for an interview at the firm, and then respond to the other person’s “objections” (we’re not hiring anyone, we don’t have the money, etc.) until you get a real answer.
It’s the difference between dating and randomly hitting on people at a bar in search of a one-night stand.
How to Cold Call Like a Champ
It’s a 5-step process:
- Get a list of banks or bankers in your area with their names and contact information.
- Plan your pitch and figure out what you’re going to tell them.
- Place the call and be prepared to respond to their objections.
- Afterward, follow-up at least once a week until they tell you to stop calling.
- Meanwhile, continue to contact and follow-up with other firms on your list.
Timing is extremely important.
You do not want to start cold calling places when it’s still the middle of recruiting season – you should be using other means like weekend trips, informational interviews, and information sessions to contact bankers.
It may seem counter-intuitive to postpone cold calling until the last-minute, but it makes sense for a number of reasons:
- You can focus on your higher probability options first and only spend time cold calling if nothing else works out.
- If you wait until the last-minute, you can find banks that really need interns.
You don’t have to do this – I’m sure some have succeeded by cold calling during recruiting season, but most successful readers started late in the process.
There are a couple ways to do this; the best method is to get Capital IQ access from someone who has it and search for local boutiques in your area.
Failing that, there are over 13,000 firms in the Investment Banking Networking Toolkit and other sources online with names and contact information for firms.
You could also try random Google searches, LinkedIn and even using tools like Google Maps to get names – it really depends on how much time you have left and what your deadline for finding an internship is.
If you live in the middle of nowhere and there are no firms in your area, get your butt out of your chair and hit the road.
Contact firms at the financial center closest to you and make it clear that you’re willing to move there right away.
Refining Your List
One other quick note: no matter how good your source is, do not just blindly call numbers.
Always search online first to verify that the place still exists, that’s it what your list says it is, and spend a few minutes learning something about what they do, recent deals, and so on.
No matter how comprehensive the data, things change every day and unless you’re willing to pay tens of thousands of dollars, it’s impossible to get everything updated in real-time.
Planning Your Pitch
This is the easiest part of the entire process. The main mistakes to avoid:
- Giving your life story rather than a 1-2 sentence introduction.
- Not getting to the point and chit-chatting too much.
So don’t do either of those.
Instead, plan a 1-2 sentence introduction where you say something like, “I know you’re busy so I won’t take too much of your time – I’m a [Major] student at [University Name] and I’ve worked at [Company Names] before. I wanted to see how I could best position myself for an internship at your firm.”
That’s it – this is not rocket science.
Placing the Calls
You do not want to fumble around and say “um” or “ah” too much on the actual calls. You will get better with practice, so I recommend “warming up” with places you don’t care about as much.
Say the same thing to everyone to minimize screw-ups.
Ideally, you will call the bankers directly (higher level is better if you can find them – MDs have more power than VPs, VPs have more power than Associates/Analysts) and speak with someone who has a say in the hiring process.
But more often than not, you will only have their main number – you can still recite the same script, but you need to be prepared for the gatekeeper to respond with their objections and keep you locked out.
Calling vs. Emailing – Cold Emails For the Win?
Right about now, you might be thinking:
“If it’s so hard to successfully get through when cold calling, why not use email instead? Does cold emailing work and is it more effective than cold calling?”
Personally, I am biased against email – but that might just be because I get hundreds of emails each day and can’t even respond personally to 90% of them.
Emails are easy for bankers to ignore or delete, whereas phone calls are harder to dodge. And catching them in-person, of course, is even harder for them to avoid.
But you may still have better luck with cold emailing, especially if you’re not good on the phone.
I’ve seen it go both ways, so you have to experiment and see what works for you. If you do cold email bankers, attach your resume/CV and ask directly in the email how to position yourself for an internship there.
What to Expect on the Calls
Ok, back to calling now – what should you expect when you call and pitch the banker or the gatekeeper?
95% of the time you will get variants of the following response:
“We’re not hiring.” / “We don’t recruit interns.” / “We don’t offer internships.”
Do not give up when they say this or you will never succeed.
Respond by saying, “So you’re in charge of all recruiting for the firm?” or something to that effect – if it’s a gatekeeper they will say no, at which point you then ask to be put in touch with the person who is.
Other strategies for getting past this initial rejection:
- Ask for a banker by name and fib a little by saying you were scheduled to call him/her and ask how you could be put through to talk to him/her (and if you get voicemail, hang up, call back, say you were disconnected, and ask for the number).
- Avoid closed-ended questions (“Do you have any internships?” / “Do you recruit interns?”) with a few exceptions (such as the one about the person being in-charge of all hiring).
Closed-ended questions lead to quick rejections because the person will always respond with “No”; “how” questions are better because you assume that they already offer internships and it’s just a matter of how you will get what they’re offering.
Even when you make it through and speak with a real banker, you’ll run into other objections:
- “We already have someone for the summer.”
- “What value could you add to our firm?”
- “We can’t afford summer interns.”
So you need to be prepared with a response for each of these:
- “Really? So when your deal flow picks up and your hiring needs change for the summer, how could I position myself for an interview so I could help you out?”
- “There are plenty of tasks that you need help with and your time is best spent winning clients – let me handle everything else.”
- “I understand that money can be an issue, so I’m willing to work at below-market rates – and you get a great deal anyway since this is only a trial and I’ll save you more money than I’ll cost you.”
You don’t want to offer up too much at first (e.g. immediately offer to work for free) as that makes you seem desperate; reserve that for when they continue to object.
Persistence vs. Stalking
I’ve gotten a lot of questions on “how far is too far?” and the difference between being persistent vs. turning into a stalker.
You should feel uncomfortable cold calling if you’re doing it correctly.
Unless you have a lot of experience in sales or randomly approaching people, this entire process will be new and uncomfortable to you.
If you think you’re going “too far,” you’re probably not – the only tactics I would consider too extreme are:
- Showing up at the bank’s offices in-person and demanding to be let in (even if you’re not carrying an AK-47 this will result in bad things happening to you).
- Finding out where the bankers live, camping out in their bushes, and then jumping out to pitch them when they arrive at home.
- Calling every day even after they tell you “No” explicitly and warn you to stop calling them.
You know it’s time to move on when they say “No” without even giving a specific reason why – that means they are really not interested and probably can’t be persuaded otherwise.
The first lesson in sales is that an objection is the first sign of a prospect’s interest, and it’s the same idea here: no specific objections, no interest.
I’m sure someone will now leave a comment saying that my advice is crazy and will get you in trouble or result in you getting “blacklisted” (even though nothing like that even exists).
But you are not doing anything unethical as long as you stick to simple calls and emails, so it’s not as if you’re lying about your offer status and forging documents to win interviews/offers.
Expect that some bankers will not like your tactics and will be extremely nasty to you.
On the other hand, some bankers will admire you for having the guts to cold call them and hustle your way into Wall Street.
Even though I satirize bankers here with the “Stuff Investment Bankers Like” series, they do not, in fact, all have the same personality and so their responses will vary.
If you get a negative or sarcastic response, do not take it personally – the banker might just be having a bad day or might be a tool to begin with.
You need a thick skin or you’ll never make it in the cold calling game.
So you’ve cold called several places and gotten lukewarm responses – they already have people for the summer, they don’t have formal internships, or they can’t afford interns.
Rather than giving up, follow-up at least once per week until they tell you, “No” definitively and tell you to stop calling. Many readers have been successful with extremely aggressive follow-up.
You can also email to follow-up and mix up your approach a bit, but I still prefer calls since they’re harder to dodge.
Your follow-up should not be much different – use the same script and just say you’re following up to reiterate your interest and see what has changed since the last time you spoke.
How Long Before You Succeed?
I can’t give you a definitive answer because it’s random – some readers have succeeded in only a few weeks, whereas it has taken others months of networking to land offers.
But you should not expect solid results until you’ve called upwards of 100 firms and followed up with all of them.
That is a lot of cold calling, so you should still pursue “Plan B” options for the summer such as internships at normal companies, private wealth management, and so on.
It took Sylvester Stallone 1500 rejections to star in the first Rocky movie – so please do not complain until you’ve reached at least that number.
This Sounds Really Hard!
At first it is and you will be very intimidated when you cold call MDs at banks. But it gets easier with time and practice, and after a while you barely have to think about it – sort of like interviews and walking through your resume.
I’ve lived in dozens of cities and have “started over” with 0 friends and 0 connections multiple times, so I’m more aggressive than most when it comes to meeting people and showing up uninvited at events – and randomly approaching people is still hard for me.
I still fail and get “rejected” a lot, plenty of what I do leads to failure, and I’d say that less than 10% of my attempts actually result in good stories / good friends afterward.
But it does get easier and less scary with practice – and the good news for you is that the phone tends to be less intimidating than approaching random people in-person.
Next Steps & Further Reading
So, what now?
Get started making your list and placing those calls.
Do not succumb to analysis paralysis and make a flow chart showing every possible response in your planned conversation and what you’ll say next – get a handle on the basics but don’t obsess.
If you want further preparation, check out these case studies, podcasts and other resources:
- How to Break in as an Engineer with No Finance Background – Cold called 120 banks
- From Non-Target and Unpaid Wealth Management Internship to Bulge Bracket Bank – Email better than calling?
- How to Break Into Private Equity Straight Out of Undergraduate – Cold called 50 equity research analysts
- How to Get Into Investment Banking from an Unknown State School – Kept calling, calling, and calling until he got in
- How to Break Into Investment Banking If You Have a 3.0 GPA, Went to an Unknown School, and Only Recently Learned English
- How to Turn Cold Calls Warm – Podcast
And now get to work pounding the pavement until you break in.
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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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