Middle Market Investment Banks - In the Middle of Action?
" Facebook buys WhatsApp "
The deal is the toast of the season globally. But do you know who advised Facebook?
The logical answers would be Goldman Sachs, Morgan Stanley, UBS, and DeutscheBank, etc.
Surprisingly, it’s a firm called Allen & Company.
By the way it isn’t a fluke, Allen & Company have also worked on Initial Public offering of Twitter Inc and have advised Time Warner when it was acquired by Comcast.
Another case in point is Lehman Brothers, which till its fall from grace in 2008 was considered the best of bulge bracket. However for much of its history it was a large middle market investment bank.
Also, if we go by a recent survey conducted by CNBC-YPO Chief Executive Network, more clients are increasingly comfortable with smaller names as long as they deliver the maximum value for the money.
What Makes a Middle Market Investment Bank?
In the investment banking world, there are primarily three broad categories - bulge bracket, middle market investment banks, and boutique banks.
The classification at best is considerably fluid, and a lot of banks do not exactly wish themselves to be called middle market investment banks or boutique.
Typically a middle market investment bank displays the following characteristics
The deal size of a mid-market investment bank ranges between USD 50 million and USD 500 million.
Middle-market banks normally have a strong national presence but very little international exposure as against bulge bracket banks that have offices in almost all the main international financial centers.
Middle-market banks offer the full range of services expected of an investment bank namely M&A advisory, fundraising from equity and debt capital markets, Restructuring, and other variations on those.
Some middle-market banks focus on a particular industry; for example, KBW focuses on Financial Institutions (FIG), Cowen is known for healthcare investment banking, and HoulihanLokey has a top Restructuring practice.
The Middle Market Landscape
Broadly the middle market banks can be classified as follows:
1. National full-service middle-market firms
Firms such as Robert.W. Baird, William Blair and Piper Jaffray have historically been broking firms which over time have expanded their services to combining wealth management, private equity and investment banking services thus creating scale to go national.
2. National advisory-only firms
Primarily these are operations of the Big Four accounting firm like PwC, E&Y, KPMG, and Deloitte, which do M&A advisory as part of audit and accounting practice.
3. Single-industry specialists
Some firms like Allen & Company have narrowed their exclusive focus to a single industry. These firms tend to be based out of a single location that is relevant to their industry group.
Top 50 investment banks to work for ( Middle-market investment banks list):
The Working Environment, Salaries, and Bonuses
There isn’t much of a difference as far as working environment is concerned.
Bulge bracket or middle market or boutique, at all places investment banking is the same profession demanding manic zeal and lot of grunt work for getting each deal.
Source: Indeed.com, Salary survey.
While bulge brackets apparently give you a better shot at working on bigger deals, however, it doesn't mean that you would learn more there. In fact, chances are that you learn the most when you’re given the most responsibility and when you’re exposed to more unusual scenarios which are provided by middle market investment banks.
Similarly, the hours are not that much different, and if you pick a smaller bank because you think you’ll work less, you may be surprised.
These are fairly standard across the investment banking world. Base salaries aren't that much different. However, when it comes to bonuses, things change. If you are in a bulge bracket or larger middle market banks, then your bonuses are much better compared to boutique investment banks.
So Is it a Good Thing to Intern in a Middle Market Investment Bank?
Why it is feasible to intern in a mid-market bank. The following pointers could help:
- After the 2008 meltdown, almost all “bulge bracket” banks except Goldman Sachs and Morgan Stanley either collapsed or were bought in by typical banks.
- Additionally, if you look at the developed world, then majority of the deal-making is happening in the middle market i.e. businesses which are typically family run and would rather seek expertise at hand than going thousands of miles away to the global financial centers.
- With a lot of the erstwhile bulge bracket staff either creating their own mid-market banks or joining the existing ones, the level of sophistication in terms of transactions is significantly on the upside.
- The tightening credit market is ensuring that large financing deals are being replaced by smaller financing transactions, thus greatly enhancing the scope of growth of mid-market sales.
- Recent norms introduced by US government are making it complicated for family-run businesses to execute M&A or financing transactions on their own. Thus, the need for investment banking expertise is only going to increase.
- Finally, a lot of the erstwhile investment banks started off as one man show with JP Morgan being a prime example. The former Lehman Brothers started off as a “dry goods store” far removed from investments in any way. Thus, you may never know which of the current middle market banks like Moelis& Co, Allen& Co or Evercore Partners could be the next “bulge bracket” bank.
Now that we have made a strong case for mid-market banks, let us look at some criterion for choosing an internship.
The criteria can be broadly classified into:
- Location: Yes, location should be a crucial criterion. You must give sufficient weight to the fact that if the internship converts to a full-time offer, then you would have to stay there, network and see opportunities for career growth. Ideally you should try and secure an internship in one of the major financial centers.
- Your co-workers: The chances are that the people from middle market investment banks would be more engaging with you as an intern. It could boil down to pure lack of manpower and also that you would be exposed to much more in terms of the kind of work than you would hope to get in a bulge bracket. Thus, depending on your coworkers you could have a worthwhile internship which would be your biggest help in terms of getting the final offer or you could write something on the lines of “Monkey Business” which deals with the life of an analyst.
- Which industry you would like to specialize in: This should be a heavyweight, if you see yourself as a banker in the Tech space then pack your bags and go to Menlo Park in San Francisco, which is closest to Silicon Valley. If Oil and Gas are your fuel to success, then Houston would be the place to go. Thus which sector you would want to make a career should be a paramount factor.
- Brand Name/Prestige: If all the above are equal then Brand Name/Prestige would be important. You might find it harder to land interviews if you did M&A in a bank that had done only 10 million USD M&A in 10 yrs. Also, recognition is important because most of your clients would not be from the financial services world, but outside of it. So your chances of bagging deals in future does depend on whether the bank is known or not.
Round Is the Shape That the Banker Likes
When we are talking “round” it has more to do with your sphere of activities than your physical shape.
The following strategies could help:
- Mid-market banks operate a very lean staff, thus even if you are a master modeler, that alone may not help you with the internship. However, if you can demonstrate competence in accounting and the legal aspects along with modeling, then you are hitting bull's eye.
- If your resume speaks of your activities in the local community, then you have a better shot at getting the call. After all, the investment banker grows on the basis of his ability to forge relations with the community around him/her.
- Find the right person who is in charge of recruiting. The best option is through the website or via calling. If nothing works, then sending the resume to the CEO isn't a bad thing.
The phone call
- How you answer the first phone call from the bank is also important. Typically the banks want to attach a voice to the resume and hence they would like to interview you over the phone. The following tips could come in handy:
- Be as ardent on those phone calls as you would be if you receive a call from Goldman Sachs.
- Be mature in your tone, after all Investment Banking is a business between mature people. The more you giggle or gush, the less are your chances of getting through.
- Be precise in answering the question. This would convey that you understand the value of time.
- Do try and convince the interviewer that you would be sincere and professional in your activities, even if you are using the internship as a stepping stone to a Bulge Bracket job.
The Face to face interview
If you do get the invitation to come to office, then congratulate yourself but don’t celebrate yet, chances are that you would be going through multiple rounds of interviews, something similar to what Goldman Sachs would have done...
- The interviewers would range from the analyst who would be your mentor, to people all the way up to CEO or MD level.
- Do brush up your concepts, and on the industry knowledge for the group you have been asked to come for the interview.
- Be logical in your approach and you should be able to connect the dots that seem unrelated, for example, recession in India could impact the mobile phone markets as India is one of the largest consumer of foreign-made handsets. Fewer handsets could result in product delays, cuts in R&D expenditure, job losses etc.
- The newspaper is your best friend during these times. It helps you to not only get relevant information, but also provides you with a much more rounded view of the world around you. So make it a part of your day that you would go through The Wall Street Journal, Financial Times, Yahoo Finance, The Deal, etc.
- Read up the regional newspaper and industry publications for the latest happenings in the industry of your choice
- Do carry all your certificates and score sheets in duplicate at least. You never know what documents they may ask from you. It also shows that you are organized and do have it in you to thrive in an unpredictable environment.
- At the interview be prepared for the following in addition to the technical or subject matter questions:
- Questions on GPA and choice of subjects in your score sheet. Be prepared to answer your minor in Chinese politics along with your finance or economics major
- Explaining your choices for extracurricular activities like the clubs you are part of in college
- Gaps in resume, if any
- How do you see yourself growing into your job
- Commitment to the industry vertical you have chosen
- How much do you know about the firm
- Critically evaluate any deal that the firm has done or a recent headline-making deal in the industry group
To sum it all, it would be prudent to say that when seeking a career in a middle market investment bank, be prepared as thoroughly as you would for any top level bank.
A sincere effort during an internship with Robert W Baird or a Lazard could prove much more rewarding than with Goldman Sachs.
Always remember, no “bulge bracket” was born with the “bulge”. They began small and acquired their scale over time, and it is best to hop in early so that you are on top when the next Facebook-Whatsapp deal comes to your alley.