Private Equity Relationships with Select Investment Banks
Private equity firms try to develop and maintain good business relationships with the various investment banks because the I-banks drive potential deal flow to the PE firms. It’s a symbiotic relationship.
When private equity firms exit their portfolio companies, some act as their own M&A advisor (private equity executives often have prior investment banking experience), but many PE firms hire investment bankers to represent them in the sale of their portfolio companies.
Which Investment Banks Do They Engage?
The traditional view is that private equity firms have well-established, preferred relationships with select investment banks to represent them. Most bankers will tell you that private equity mandates are difficult to land because of these pre-existing relationships with other banks. Intuitively, this makes sense, because M&A is still fundamentally a relationship-driven business. However, our data at Private Equity Info does not seem to support this view as an industry-wide theme.
I looked at our database of private equity portfolio company transactions to see if there are any obvious and consistent affinity relationships between PE firms and I-banks. I would appear not. The data seems to suggest that the selection of an investment bank varies from deal-to-deal. In other words, as an M&A industry-wide comment, the PE / I-Bank relationship is not locked in. Although it’s just speculation, PE firms may select investment banks for certain industry expertise, on a deal-by-deal basis.