Investment banking and consulting are two sides of the same coin. They both compete for a similar band of elite graduates and both are ushered into large companies at times of broad strategic change.
Less well known is the fact that large management consultancies and investment banks also both offer M&A advice to large companies. There are big differences between the services offered and the scope of the jobs, however.
Jens Kengelbach is global head of mergers and acquisitions at Boston Consulting Group (BCG). He explains what differentiates BCG M&A work from that large investment banks and what they look for in the people they hire.
It’s not well known that BCG works on M&A deals. How does your work compare to that of big investment banks or the Big Four professional services firms?
We’re not in competition with the investment banks – what we offer is a completely different product. There is an overlap with the accounting firms, but it’s relatively small.
Investment banks are typically match-making, finding bidders and sellers, orchestrating the processes, comparing the bids and so forth. We do the commercial and vendor due diligence. We assess whether an acquisition makes sense economically, whether there are pitfalls, whether there is a competitive advantage developing over time and whether there is actually a value add of the acquisition to the acquirer. The Big Four offer rather financial DD and transaction support services.
What we are doing, however, goes far beyond that. There are all sorts of complications related to the assets of the company selling its business. A lot of assets being sold in corporate transactions are typically either in difficult business situations or heavily intertwined and interrelated to the original company. In other cases, it’s about building a compelling business case for why this asset would be attractive to another firm.
Investment banks come to their limits when asked to help companies to build new business plans. That’s rather the core competence of a strategy consultancy like BCG. Our job is being on the ground four to five days a week and helping the asset to assemble that new, defendable business plan in difficult strategic and market environments. Our support is often needed in hard to sell cases.
How does the day-to-day work at BCG differ from an investment bank?
There are two major differences – location and content. Investment banks tend to be based out of major financial centres like London, Frankfurt or New York and travel to the client once or twice a week. BCG is on the ground at the target management or business unit’s location four or five days a week. We have incredibly close cooperation with our clients.
Investment banks often go into a sell-side situation asking ‘what should we write down’? We start with the same question, but our core scope is then to help the management to come up with an answer.
From your perspective, what’s more exciting about working in M&A at BCG, rather than an investment bank?
Our teams get unique exposure to high-level senior executives. They would never have access to this level of seniority in a normal consulting project. M&A is typically a top-of-mind issue for CEOs or CFOs. Our teams sit next to their offices and help them assessing the fundamentals of where their business is bound to go in the next two to five years. Bringing BCG’s global industry expertise and combining it with our transaction know how provides a clear content ‘edge’ that investment banks often don’t have.
Clients tell us that no Big Four accounting firm can bring this deep, project-based industry experience and background that a strategy consultancy can. Accounting firms would also assit in writing business plans, but they do not have the same breadth of experience strategy consultants gain by helping various companies come up with different solutions to different problems. The combination of corporate finance and strategy consultancy is what’s appealing.
How do the career paths compare?
In investment banking you start as an analyst and then move up to associate over the next four years. At BCG you start as an associate, become a consultant later and then move up to project leader – it typically takes four to five years to pass these two ranks.
You can choose between two career tracks. One is the generalist consultant track, within which people can specialize – in Germany and Europe, for example, we have a ‘Corporate Finance Task Force’. On the other hand, if you choose to specialize within the expert track, where you can work exclusively in M&A and corporate finance.
More recently, we’ve started lateral hiring of young corporate finance professionals . At the moment, for example, we’re hiring in German-speaking and Nordic countries and are open for candidates who have a few years investment banking experience under their belt.
What is the perfect profile of a graduate in terms of education and experience?
We’re looking for people with top marks in high school and the top 5-15% from universities. We don’t look for a specific subject, however, so you could become a consultant as a concert pianist. To work in M&A, it does help to have studied corporate finance or have some work experience in that area.
We look for internships at top companies, consultancies and investment banks, ideally related to corporate finance. We also require foreign exposure, either through studies or internships. We also like extra-curricular activities – this makes a candidate more interesting.
Investment banks are struggling to recruit and retain juniors. Is this an issue at BCG?
I would phrase it differently. If we lose people it’s not such a big issue for us, because we are providing a group of highly-educated, very versatile top-performing consultants and if they go to a client or a private equity firm then they might become clients themselves soon.
For us, alumni networks are very important for future business. People appreciate that because they know that if they work for two years for us in corporate finance, they will have increased their market value e.g. for private equity firms tremendously.
If they decide to stay here they have better opportunities and a lower risk than in investment banks too, because we are not a one-product company. In a bank you are fully exposed to the investment banking cycle. When the cycle goes down people are laid off.
If the cycle goes down, we are of course feeling this, too, but our corporate finance team does not only do M&A, but also CFO topics, value creation topics, portfolio work… so they can switch. If everything goes wrong you are still a consultant, so you will collected some industry expertise which enables you to switch over to the industry side of our consulting business. This gives you more job security. In the last 15 years I’ve worked here we have never had a period of layoffs.
Generation Y is actually positive for us: our young colleagues don’t appreciate repetitive work and ‘all-nighters’ . They are keen on getting content exposure and making an impact on the direction of a company. This is what gives you a sense of purpose.
Investment banks make their juniors work long hours. What are you doing to stop all-nighters and working on weekends?
When graduates start at an investment bank, some tell us they need to devote almost their entire private lives. If they join a consulting firm, they work five days a week – sometimes crazy hours – but not all night. I’ve worked for 15 years for BCG and only worked until the following day twice. I’m proud of that.
In my team, people do not work all night because it’s not productive. When it’s really tight, I’ve asked people to stay until 1 or 2am, and come in again early, but this happens seldom.
We understand that in some investment banks juniors are working on multiple transactions simultaneously, since banks have a success fee-based business model. In our case, people are working exclusively on one transaction. Only from a principal level onwards, which is one level below equity partner, you start to have two clients or more. Our work approach is therefore very different from that of an investment bank.
What do you look for when you hire people from investment banks?
First, we don’t have an explicit target: We are very selective because investment banks and strategy consultants have a slightly different approach to recruitment, largely focused on who fits in or not.
So not everyone is the right fit for BCG. If someone has worked for five or six years in an investment bank and says that he has just discovered that they always wanted to become a consultant, I get suspicious.
We are looking for people who have an excellent education from an investment bank, accounting firm or similar institution and an interest in M&A beyond deal-making. Our business is helping clients to succeed and to develop their business long term. It is not a hit and run business – deal done, we are gone. It is similar with the Big Four. We would take excellent people (as they would do as well). Juniors from tier two consulting groups have to bring an extra value proposition in order to be in scope.