While some investment banks specialize in certain industry niches, most middle market boutique investment banking firms are industry agnostic. There’s a practical reason for this.

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?

I looked at our database of private equity portfolio company platform acquisitions over the past five years to see which investment banking firms were involved in these transactions. Below are the top 10 investment banks closing Private Equity deals (by number of deals).

Most investment banks work on the sell-side of a client engagement.

Why the Sell-Side?

The largest portion of compensation earned by an investment banker comes from the success fee. Consequently, bankers prefer to work on transactions with a high probability of closing. For reasons discussed below, sell-side engagements have a much higher probability of closing compared to buy-side engagements.

At www.PrivateEquityInfo.com, we track investment banking firms, their preferred sectors and their key executives. We also predominantly serve investment bankers as customers and correspond with them daily. Consequently, we have a good pulse on M&A deal flow and changes in industry dynamics. Over the past eight years or so, we have seen an industry trend reversal. Five to eight years ago, we noticed a general consolidation within investment banking as smaller firms moved under the umbrella of larger firms. However, in the last few years, we are seeing the opposite – the investment banking industry becoming more fragmented as newly-created firms launch and scale with the help of third-party services.

At Private Equity Info, we track the senior level executives at the various investment banks. I thought it might be interesting to look at the number of investment bankers per firm to gauge what an industry-wide “normal” middle market investment banking firm might look like.

States with a lower number of investment bankers per dollar of GDP may prove more lucrative for new firms or satellite offices.

In this study, we look at the quantity of investment bankers by state and compare that to the state population and the state GDP to arrive at the “density” of investment bankers by state.

About Your Firm…

LCC Asia Pacific is an independent investment banking firm operating out of Sydney and Brisbane in Australia. LCC was founded in 2004. The Firm provides both strategic consulting and investment banking services to both public & private corporate clients in the mid- to upper mid-market ($50 million and $1 billion in enterprise value), principally in the following sectors:

• Engineering, Contracting & Complex Services
• Oil Field, Energy & Infrastructure Services
• Renewables, Water, Environmental & Waste Services
• Industrials including Industrial Technology & “Smart Manufacturing”
• Mining & Resources
• ICT & Logistics

Describe the corporate market in Australia and Asia

While the U.S and Europe tend to have a broader number of companies in the mid-market, Australia and Asia markets typically look like an “hour-glass”. A market map would illustrate many smaller companies at the bottom, a number of larger companies at the top and lower concentration in the middle. Mid-market companies in Australia and Asia tend to get acquired when they demonstrate a number of key positive factors – hence the lower number of constituents.

Across Australasia pension funds tend to invest in mid-caps as they become “Stock Index Relevant”. You can then see valuations of many mid-caps become “full” in time from such index related investment inflows, and as a strategy, identifying those that are likely to be on this trajectory and acquiring them before they hit high valuations can be highly effective.

During an M&A transaction, the buyer will often hire a reputable accounting firm to perform a “Quality of Earnings” (QE) analysis. As the name suggests, a QE analysis aims to determine the quality of a target company’s profits (the money the company keeps from sales minus operating cost). Ultimately, the buyer wants to verify that the reported earnings are repeatable – consistently repeatable.

What earnings are repeatable?

Why are some investment bankers more successful at winning new clients? Here’s my take…

The winning formula that determines your success in landing new clients turns out to be a function of: Credentials, Competency and Likability.