Bulge bracket investment banks were a magnet for talent before Lehman Brothers’ collapse in 2008, but since the financial crisis, they’ve taken both a reputation hit and have been increasingly unstable places to work, with thousands of bankers shown the door over the past five years.
But, for an increasing band of investment bankers, there is life outside of the big players – working for a boutique. True, the enormous investment banks grab the headlines, with deals worth tens of billions. But smaller firms have their benefits too, according to several bankers who have moved from the bulge bracket to the smaller market.
So, how does the work at a smaller firm differ, and what adjustments do you need to make?
Life in the middle market resembles basket ball more than football, moving fluidly from one situation to the next instead of sticking to a fixed position.
Jordan Nelson, a senior associate at Columbia West Capital, who joined five years’ ago from Credit Suisse, said: "At a large firm, you have a role that you stick with day after day, until you're promoted or you move to a new spot, and that's what you do. At a small firm, your day is much more diverse. Everybody does a little bit of everything, even answering the phone."
Entrepreneurs brim with talent at building their business, but they lack familiarity with doing deals. This means that at the $100 million level and below, the bankers are much more a trusted advisor, according to Nelson. "I like that. Your clients really rely on your experience."
The human connections are likely to be closer, too. Nelson reflects, "By the time a deal closes, assuming it all goes well, which it usually does with us, you become good friends. They really like you and you really like them. We spend a lot of time with the clients in educating them about the process."
Chad Gardiner, vice president at Headwaters MB, who joined last year after a decade at banks like Merrill Lynch and Deutsche Bank, explains another rewarding part of this work. Institutional investors complete many transactions in a year, so selling a business is not special. But an entrepreneur or a business-owning family is going through a life-changing liquidity event. He said: "It's the most important event in their financial lives, and maybe even their emotional lives."
A proven background in completing transactions is not as common in the middle market. A lot of bankers at smaller firms didn't come from the large banks. They've done a few acquisitions, or maybe they sold their own business and they figure this gives them mastery of investment banking. Their peerless operational know-how is quite valuable, but it's not the same as investment banking chops.
Therefore, they aren't equipped to handle highly structured transactions, ones with multiple tranches and cutting edge complexities. Nelson said: "We try to bring that to the smaller end of the market."
Meanwhile, Andy Krna, associate with TM Capital Corp, who has a stint in Barclays’ leveraged finance division under his belt, said: "You're less of a commodity to the client than you are at the largest firms."
"At a firm like Merrill Lynch, you're part of small army,” said Gardiner. “A fully staffed team might include an analyst, some associates, a director, and an MD. In the middle market, it's you and a managing director." As a member of leaner team, junior bankers often bear the brunt of the execution work.
One result is that everybody punches above their weight. According to Krna, "Employees are involved in every aspect of a deal. Somebody fairly junior might find themselves on the phone with the CFO, building the model, discussing projection assumption and building the model."
Krna views himself as generalist, one who has lately been focusing on business services deals. Operating in a smaller firm is an effective way for an analyst to get exposure to a wide variety of deals, he says.
At a large firm, compensation is not necessarily tied to the deals you work on, but rather to an assessment of the broader market. At large firms, junior staff pay stays within a narrow band determined by the firm's overall outlook on the business. In the middle market, associates' compensation links much more directly to the fees they gather.
In other words, middle market bankers are entrepreneurs, too, no less than their clients.