Elizabeth Crain is the Chief Operating Officer and a Founding Partner at Moelis & Company where she leads the Firm’s global strategy, infrastructure, and business management functions. Elizabeth has been in the investment banking and private equity industries for over 25 years as a banker, principal, and operations executive. Moelis is a global independent investment bank that has advised on more than $3.5 trillion on transactions, with deal sizes ranging from $100 million to $160billion. Prior to Moelis & Company, Elizabeth was a Managing Director in the UBS Investment Bank where she was the Manager of the Investment Bank Client Committee and a member of the Investment Bank Board. In addition, she was both the Chief Operating Officer and Chief Administrative Officer of the UBS Investment Banking Department Americas franchise. Before joining UBS, Ms. Crain was in the private equity industry from 1997 to 2001. She began her career in investment banking in 1988 at Merrill Lynch. Elizabeth was named one of the “25 Most Powerful Women in Finance by American Banker magazine in 2011 and 2012. Elizabeth holds a B.S. in Economics from Arizona State University and an M.B.A. from The Wharton School at the University of Pennsylvania. She serves on the Board of Directors of Exscientia Ltd., the Graduate Executive Board of The Wharton School, and the Board of Trustees of The Windward School.
In this episode we cover a lot of ground, we talk about the M&A and Investment Banking industry, the changes it went through in recent years, especially because of covid. We talk about the impact of technology, especially AI, on the business. We get into Corporate Social Responsibility, the increase in recent M&A activities, other industry trends like SPACs and PIPEs and finish with an intro into neurodiversity, career advice, and tips for personal and professional development.
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[00:00:04] ANNOUNCER: Welcome to The Wall Street Lab podcast where we interview top financial professionals and deconstruct their practices to give you an insider look into the world of finance.
[00:00:23] AVH: Hello and welcome to another episode of The Wall Street Lab podcast. Today my guest is Elizabeth Crain, and she is the chief operating officer and a founding partner at Moelis & Company where she leads the firm’s global strategy, infrastructure and business management functions. Elizabeth has been in the investment banking and private equity industries for over 25 years now as a banker, a principal and an operation executive.
Prior to Moelis & Company, she was a managing director in the UBS Investment Bank where she was the manager of the investment bank client committee and the member of the investment bank board. In addition she was both the chief operating officer and the chief administrative officer of the UBS Investment Banking Department America’s franchise. She was also named one of the 25 most powerful women in finance by American Banker Magazine in 2011 and then again in 2012.
Elizabeth holds a bachelor’s degree in economics from Arizona State University and an MBA from the Wharton School at the University of Pennsylvania. And in this episode we talk about M&A in investment banking. We talk about all the current things happening in the industry like the impact of COVID on the M&A in investment banking side. We talk about tech trends, like data science. We talk about corporate social responsibility as it comes to an advisory company like Moelis. We speak about the rising M&A activity lately, and I ask a lot about SPACs and PIPEs. And if you don’t know either what that means, listen to the episode, you will learn a lot. And in the end of course we have our little career development section where Elizabeth gives us some career advice, talks about learning and neurodiversity. So I hope you learned a lot in this episode. I definitely did and I outed myself as an absolute beginner when it comes to M&A in investment banking. So I hope you enjoyed the episode. And now, without further ado, my episode with Elizabeth Crain.
[00:02:42] AVH: Elizabeth, welcome to the show. I’m so glad to have you here.
[00:02:46] EC: Well, thank you for inviting me. I’m very much looking forward to our conversation today.
[00:02:51] AVH: Oh, me too. Me too. I’ve been very excited for a couple of days now leading up to this. And so let’s start. Can you tell our listeners a bit about yourself?
[00:03:02] EC: Sure, absolutely. So, let’s see, originally I’m from Arizona. I spent the first 20 years of my life in Arizona and only after college did I move to New York and immediately started on a career in investment banking. I’ve spent the last 30 plus years in this industry. I’d say probably the first 12 on the transactional side and the last 20 in management roles both at the regional and global level, and about 14 years ago left a major bracket bank to launch Moelis & Company with Ken Moelis and a number of founding partners.
[00:03:38] AVH: You had quite a career before you founded the company. What did you do exactly in your old life?
[00:03:44] EC: So I originally started in banking in that very classic investment banking role. I was an analyst on a corporate finance team working in a major bracket bank. Spent a few years doing that. Went to get my MBA. Returned to the industry and spent about 10 years focused on M&A and corporate finance on the advisory side. And in the late 90s or mid 90s got a call to join a private equity firm and thought that that would be a very interesting path for me. Left banking, went into private equity. Spent about four years in private equity and unfortunately ended up with a fund that was going through its own set of challenges with respect to portfolio company. And from that was recruited back into banking. And it was at that point in time where I really asked myself this sort of fundamental question, did I want to continue on the transactional side as a banker or move to more of the management side and had an opportunity to leverage that experience set from the prior 10 plus years in banking and private equity and applied that to the management side of the business? At the time it was in 2001 at UBS to help to build their America’s platform and investment banking.
[00:04:55] AVH: And then you said yourself, you founded Moelis & Company. What did make you want to fund the company? I mean, you had quite a career at UBS before. You’ve seen a lot of things. Then why did you say, “Okay, let’s start my own company?”
[00:05:11] EC: So at the time I was working with Ken Moelis, who was the global head of investment banking and the president of UBS Investment Bank, and we had, as I mentioned, for the prior sort of six years, really built out the investment banking franchise in particular in the Americas, but we’re asking ourselves the question, “Was there more that we can do?” And at the time, and this was before the credit crisis, and at the time what we were seeing across the bulge bracket was a fairly intense focus on lending and the return on balance sheet. Utilizing balance sheet, return on balance sheet, cross-selling the products across those organizations to a corporate client. And what we felt was missing – And the trend had been in that direction at the major bracket investment banks, and what we felt was really missing was the much more targeted, bespoke strategic advice, M&A advice, capital solutions advice to clients without the cross-selling or potential conflicts of lending to those clients. The street had almost moved away from that peer advisory model and really differentiated advice to a board to a CEO and the management team to undertake a significant transaction. It was really in our opinion getting lost and that there was an opportunity to launch an independent bank that wasn’t conflicted, wasn’t conflicted by other product lines, wasn’t conflicted by balance sheet. To focus purely on a client-centric model and providing advice to that client, and that was the catalyst for at the time me leaving UBS to launch Moelis & Company.
[00:06:46] AVH: And I guess looking at Moelis & Company now, it turned out to be the right bet and it turned out to be pretty right. Can you give us a bit more history on the company? Maybe how you started and where you ended up today?
[00:06:59] EC: Sure. It’s a good question. And we’ve looked back at our original business model which was precisely right and precisely wrong in a way. I think what we thought we would build and how quickly we’d build it. We actually built it much quicker than we’d anticipated. And the reality was I think that the financial crisis came shortly after launching Moelis. And on the surface perhaps it would seem that that would have slowed our growth. Almost the opposite occurred. In fact the opposite did occur. Clients embrace the independent model and the ability to attract bankers to our platform also scaled rapidly. Our competitors, the big banks during the crisis, were in absolute disarray. Taking their eyes off their clients, and I believe taking their eyes off their talent, the talent that was needed to deliver to those clients. So we were in an environment where we had a capital light model where we had capital available to grow and accelerate the growth of our business. In an advisory-based investment bank, you grow your business by recruiting talent. And so we aggressively recruited in the first five years of the formation of this company taking advantage of the crisis, taking advantage of that dislocation on the street and the opportunity to hire senior bankers talent globally and to deliver in a way to clients that we felt that our competitors had lost sight of.
Now, when you look at what’s happened in the last 12 to 14 years, the independent platforms. So the major independent platforms that have emerged have gone through really like ourselves a tremendous growth in their business and we’ve all captured market share from the bulge bracket. In fact, when I think about the independence now, the size of our businesses, our advisory businesses, are on par with the size of these comparable businesses within some of the major bracket banks. And so we are a important competitor and a key player in this industry and that has – We, in addition to Moelis, I’m referring to this group of independents that have really emerged in the last 15 years.
[00:09:02] AVH: Can you describe a bit more what are the kind of advisory service you’re dealing with? What are the kind of transactions you’re doing on a day-to-day basis?
[00:09:10] EC: Sure. It’s really across the board. So our client base are corporations, both private and public. Financial sponsors, private equity funds globally, sovereigns. We provide advice from all aspects of mergers and acquisitions to restructurings, recapitalizations, capital solutions, capital markets including private and some public raises to very bespoke corporate finance solutions for clients across the board and across all industries. So we are industry agnostic if you will. We want expertise globally expertise across industry and being able to bring all of those corporate finance M&A solutions to our client base wherever they reside.
[00:09:58] AVH: You mentioned a bit in passing earlier, and I want to pick up on that tiny point that you did it basically precisely right and precisely wrong. Can you tell us what did you precisely do wrong and maybe add to that how it later made you more effective? Made you better? Helped you? Helped you grow in the long end?
[00:10:20] EC: Right. What I meant by that was when I look at our original business plan, which we’ve kept, and how we forecast the first five years of growth. We underestimated how quickly we would ramp our revenues. We were much more conservative. And I don’t know if that was precisely wrong. It’s that we underestimated the opportunity at hand that those first few months of developing that business plan. And the reality of it is we were able to scale much more rapidly than we’d ever anticipated. So I wouldn’t necessarily say we made mistakes or did something wrong so much as what we thought it would look like. It looked very different, and very different in a positive way.
I also think that there was a period of time where we dabbled or thought about broadening our business model. This was in the early days in those first few years to impossibly include greater activities on the sales and trading side in fixed income and equities. The market sort of solved that for us, because as we all know in the last 20 plus years, those business areas have the economics associated with those business areas have changed dramatically, but the reality of it is the scale that’s required. And had we at any point in time decided to enter into that in a sub-scale way, I suspect it would have distracted us from our core focus on building an advisory business.
[00:11:47] AVH: You said that you scaled up revenue much faster than anticipated. How did you manage to get your first clients? I mean, you had a standing from UBS, but you were still as a company the new kids on the block. I remember Steven Schwarzman’s book when like he was a big name in the industry and then he started his own fun and everybody would shut the door in front of him. How did you manage to get a foot in the door?
[00:12:11] EC: I think at the end of the day, I mean, what’s really critical is it’s a relationship-based business. Boards and CEOs and CFOs want advice from an individual that they trust. Wanted advice where there’s an existing relationship. It is very hard to walk in the door and win a significant M&A assignment if you don’t have a pre-existing relationship with that company. It can be the most important transaction they undertake.
And so those first few months and those first few years, our clients essentially followed our bankers because of that trusting relationship, because of our ability to deliver to them, to deliver those ideas and to deliver a holistic and meaningful solution to them. That came hand in hand with the relationships. But also I do go back to the environment that we’re in and the credit crisis and our larger peers taking their eyes off of clients. I think that was real. There were stories where the clients would say the coverage teams, the relationship, bankers at some of the other firms were distracted, were not focused on them. That was an avenue for us to walk in the door and to develop that relationship and accelerate that relationship to the point of advising clients on an actual transaction. So I think that came into play.
I also believe that our independent model, the separation from balance sheet and lending and that independence it provided really resonated with our clients and it resonated in those early days. Companies saw the value in that, saw the de-linking with the capital provider and felt that that was very important.
[00:13:50] AVH: Can you define a bit deeper what kind of advice are you giving to companies? Just like what is the typical transaction you would advise on – How does it look like more plastically?
[00:14:02] EC: So let me pick an M&A sell side assignment where we could be advising a corporate client on the domestic surface subsidiary, or we could be advising a private equity firm on the sale of a portfolio company. So we will work with that client to assess their business to discuss how we’ll position the market. How we’ll position it with potential buyers whether those buyers are strategics or financial sponsors. We will discuss valuations with them. We will then work with them to develop the plan to approach potential buyers, whether it is a bespoke and highly targeted group of buyers, or whether it is a broader auction of an asset, and manage that discussion with those buyers. So the first step could be initial letters of intent that leads to a short list of potential acquirers that make it to the next round and conducting a process to maximize value for our client to consummate that transaction.
There could be in that process, depending on the client, there may be bespoke certain types of unique analyses that we can bring to complement the valuation. One of the things that we’ve done, areas, important expansion for us in the last couple of years, was a very targeted and small data analytics and data science team. And so what we do with that team is we will bring them into a sell side mandate and working with the client and working with client data, perhaps developed, enhanced analyses that will, complement what’s in the data room complement the analysis a buyer might look to as they’re thinking about valuation and ultimately use something like that to complement our traditional M&A valuation or more traditional M&A assignment to try and enhance the value that we achieve for a client. A success in a sell side mandate is to maximize the value of the sale of that asset to our client that’s hired us.
[00:16:06] AVH: I find it really interesting that you said you have a small team of data scientists, right? Typically, from an outsider’s perspective, as I see M&A, it’s just very long hours, very late nights and a lot of PowerPoint and Excel. And as you said, it’s a lot of relationshiping, right? And it’s the bankers preparing pictures all night long. And then how does data science come into play with this and why did you pick this up? Because I imagine it’s not a typical field for data science.
[00:16:39] EC: I think that’s a very fair comment that it’s not, and your assessment of sort of what an M&A a deal looks like in the role of bankers and the hours is correct and that hasn’t changed. But when you look at – When I think about what is happening in financial services, the impact that data analytics, data analytics and machine learning is having obviously is evident in many areas of financial services from the payment side, to consumer banking, to wealth management. Where you haven’t quite seen it is on the much more bespoke advisory side.
And when we looked at this, and we looked at it, is there a way we can enhance the advice we’re bringing to our clients? Is there a way we can, as a firm, understand maybe on a more predictive basis opportunities both to show to our clients or to think about for our own business? We thought that by bringing on board a very targeted team to work hand-in-hand with our bankers, to do more customized differentiated analysis, to work hand-in-hand at times with clients and their own unstructured or structured data to help them make critical business decisions around, say, an M&A transaction and also to work with us in certain areas of our business to understand where opportunity might reside. To understand, perhaps utilize it for certain aspects of – I’m not going to say predicting sort of the next M&A assignment. That’s not what we’re looking to do, but to understand trends that could help us be a step ahead of opportunities.
So it’s by no means displacing our business. To us it is additive and it’s important that those type of capabilities over time become more and more embedded in our firm and in our business. I think with lots of other industries what you’re going to see is a little bit more of a hybrid bank background in bakers that over time there will be intersection of finance of data science and perhaps engineering in select roles in banking so you can enhance the work that you’re doing for your clients. But at the core what we believe is most important is that relationship, but bringing bespoke analyses and bespoke ideas can differentiate us from our peers when we’re talking to a client.
[00:18:58] AVH: Yeah, I guess there are certain aspects of finance that are easier to automate with machine learning and data science just because there’s more data points. I imagine in M&A, there’s very few data points that you can actually use. I mean, you probably can’t see. Is there – I don’t know. I’m just like making this completely up as I go, but if you see a lot more tweets about the pharma industry and like about this and this and like here’s a ratio negative. So you might be like, “Okay. Maybe this business is kind of on a bad path. This business is on a good path. Maybe there’s a transaction there somewhere in it, because there’s like typical data sources that you can mine where actually like, “Okay. We have 100 M&A transactions a year. That’s nothing for data science. We can’t build an algorithm on that.”
[00:19:45] EC: I completely agree with that, and we’re not looking to do that. We’re looking for very bespoke, client-targeted analytics.
[00:19:53] AVH: It’s super interesting. I want to talk about some other current trends. So we’ve covered the big trend technology. And when I was looking at your website, I came across a curious thing, and that’s corporate social responsibility. And as you know we’ve had a lot of ESG and investing. On the investing side we had a couple of episodes and we had this, and this came up in a lot of podcasts or interviews I did so far. But how does a CSR policy work in an M&A transaction business, right? Does it change how you interact with your clients? Does it change how you interact with your own people or how does that work together?
[00:20:35] EC: I think of it as both. So when I think about our commitment to corporate social responsibility, first I think about it with respect to our employees. And we’re a professional services organization at the end of the day. Our assets are our employees. And are we creating an environment that is fostering diversity, inclusion and equality across our organization? That’s paramount. It is recruiting individuals, developing, retaining our talent is core to the success of this firm long term. And we have to create an environment where we are sharing a value system if you will, core values with each of our employees.
At the same time we want to be active members of our community. The way we’ve chosen to do that is through employee-led engagement at the community level. We don’t have a corporate. This is what Moelis & Company is going to adopt as its CSR initiatives. We really look to our regions and our offices to drive that level of employee engagement. And the reason is, again, I think it ties back to we all want to work in organizations where we share some type of core value, and that translates down even to the local level.
I live in New York City, and what I’d like to see us do at the local level in New York could be very different from what our team in London wants to do. And that’s important to our role in our communities as a company, but also to engaging our employees both in the firm and with our communities. Now if I shift to clients, what’s very interesting is the broad ESG considerations that corporate clients are evaluating play out in the context of M&A shareholder advice. And our role as an advisor is to be a conduit for our clients in a way. We are a conduit for the corporation and the capital markets, the corporation, the shareholders, the client and an acquirer and providing – Being that conduit and helping to provide or guide a client on their ESG journey is part of what we do with our client base. We are certainly seeing that ESG considerations are factoring in more and more to M&A transactions. Companies are asking whether an acquisition will be ESG accretive. That is coming into the dialogue we’re having. We certainly see it from a shareholder advisory standpoint.
And what’s interesting is I think ESG isn’t necessarily an experience of the c-suite, right? And that’s not a criticism. But when you think about executive teams and you think about their skill sets, they could be from within the industry, they could bring some type of technical expertise and apply it from a different industry to that industry. But this journey that every company is on in terms of its own corporate social responsibility and the standards it wants to adopt and deploy with respect to its role in its communities, with respect to the environment, with respect to governance, every company is on that journey and the experience set within the c-suite may vary. And they’re all looking for advice. So we bring that. And often we’re bringing in the context, again, of an M&A assignment or shareholder advice. How much shareholders react to decisions that are being made?
What I think is also interesting is you’re seeing I think the S and the G part of that are perhaps further developed or standards are further along. And we’re seeing that in terms of board diversity and standards that are being set. We’re certainly seeing that with corporate responsibility and companies adopting initiatives. And the pace of what I think of as those S and G standards is just continuing to develop and accelerate.
I think we obviously also talk to clients when it comes to sort of environmental considerations that very much differs by industry. And I’d say I think the standards, if you will, are a little less developed as companies try and navigate what does that mean with respect to their specific industry, and it obviously will differ by industry. But that is from a client standpoint we’re trying to be that conduit and bring that advice to our clients in the context of the assignments we work with them on. But it is on the top of every client’s mind.
[00:24:57] AVH: While talking about the things that are evolving, that are changing, I want to circle back into shortly after you’ve been founded. You said basically you ran into the credit crisis, but that just made your business pick up that much more. And I thought that trading finance basically came to a standstill. And I only know it from here say more or less, but just last year we had a huge crisis where it seemed like the whole world came to a standstill. And I know I’m bringing this up and basically every episode how COVID affected whatever we’re just talking about, but it’s just so interesting, because last episode was of Chris Younger who said he sees this disparity. Some industries completely went to a halt. There’s nothing going on there. Other industries just boomed in M&A transactions, right? How was it from your standpoint the last year, and maybe if you could put this into perspective from the last crisis you have seen, were there any similarities? Were there differences?
[00:26:07] EC: When I think about this crisis, and let me take a step back, I think there are cycles. There are cycles in the business. And so there are M&A cycles. There are restructuring cycles. So it’s hard to talk about sort of what’s happened this last year and then compare it to prior crisis, the last major crisis being the credit crisis. We’ve been in an M&A cycle, in a long extended M&A cycle probably since 2011, 2012, and that cycle has been driven by technology disruption, differences in business models. Sort of winning and losing business models and how companies react and availability of capital. And that has created this very long cycle that really came out of the credit crisis and has been driving M&A activity more or less for the last eight plus years.
And in any given point in time, it may fluctuate a little bit, but there’s been this steady volume and growing volume of activity. That was the case as we came into 2020. And then in March of 2020 everything completely shut down across every business, every industry. Every transaction we were working on came to a complete standstill but we have a restructuring and recapitalization business. So we quickly pivoted our organization to advising clients especially clients that were immediately impacted by COVID that had to shut down where the state home economy was not serving them, where they were actually harmed and rapidly harmed, where they went from fully active business operations and revenues to nothing and advising them on liquidity needs. Advising them at a time where they were navigating something that they had never experienced before. We saw that rapidly increase at the time M&A came to a standstill. The opportunity to advise clients from a restructuring recapitalization solve their liquidity needs, look into the capital markets to provide sort of COVID-related pipe financing to public companies. That all began to come together in the spring.
What we then saw in the summer was as it became clear that there were companies who were COVID-resilient or benefiting from the stay-at-home economy. Those were the first parts of the economy that we began to see resume M&A activity. And as we came into the fall, and now going into 2021, the volume of M&A activity is significant across the board. It’s across every industry. We’re seeing it particularly in what I’ll call that power middle. Companies with the market cap from half a billion, to two to three, to four billion. But what’s driving that, it’s consistent with this theme of the last eight years in M&A, this disruption and acceleration need to change. But in some respects we absolutely believe what COVID has done is it has actually accelerated change. Whether the change was underway or whether the change was contemplated. Companies have been asking themselves the question. In this environment, every single company has had to react quickly, has had to look at its business model, has had to think about where strategic growth might come from. Maybe had to reposition itself, and they’re looking to M&A to help accelerate and drive that strategic change faster. So that really is very much part of the environment right now, but I think it’s a continuation of the theme in this cycle that we’ve seen for the last eight years. We don’t see that slowing down in the near term. We see that momentum continuing well into 2021.
I think that this COVID crisis, this pandemic, it wasn’t a financial crisis. The credit crisis was a financial crisis. This was a crisis that resulted from some uncontrollable external shocks to every single organization and company and individuals and how each of us managed through that and is continuing to manage through that vary. So to me it’s very hard to compare the two. They’re completely different.
[00:30:18] AVH: Okay. So they were also kind of different from an investment banking standpoint, from like how transactions were made. I wanted to ask. You said, basically, the world shut down. You immediately switch from transactions to restructuring. You gave advice there. But it was a kind of an unparalleled event. How did you try to give advice to your clients? Like what kind of advice could you give? Did you draw from experience in just purely restructuring related issues or did you – I don’t know. From the financial crisis, the credit crisis, 9/11, like from any other crisis before kind of seeing what might help? Or was just basically just trying to see what makes sense in this very moment?
I mean, everybody was in the same boat. It was like a first time for everybody. How did you try to help your clients then?
[00:31:13] EC: I think at the end of the day the experience set that our senior bankers have, whether they are a banker who covers the travel and leisure space to a restructuring, technical restructuring banker to somebody focused on purely M&A execution. At the end of the day it’s that wealth of experience across transactions and building upon that foundation through a course of a career that allows you to bring your best ideas to a client. And so last March when the world really shut and rapidly shut. As an organization, when I talk about pivot, one of the things we did was we pivoted within the firm and all of our resources to identify and focus on clients that were most immediately impacted by the shutdown of the economy. Whether that was in hospitality, travel, leisure, transportation , you name it, and bring capital solutions advice, bring advice around helping them analyze their liquidity requirements and liquidity needs and that business resilience and access external capital to support those needs during a time of crisis.
That comes from relationships that we have and experience that we have over decades, worth decades of assignments, but we’re bringing it to any given client in the moment to meet their needs and through relationships that we have in the capital markets and with capital providers being able to bring those capital providers to meet the needs of our clients at that point in time.
[00:32:44] AVH: Yeah, I guess it just makes sense. If you have experience in something similar, history doesn’t repeat itself, but it rhymes, right? So you might haven’t seen the exact same thing, but at one point just maybe in this particular industry there was like a shutdown and people didn’t do anything anymore. And this brings me to a question that I had, because I saw – And you listed a lot of different spaces that you do. And what is one part of your business that gets very little attention but is in the public press, even in the financial community, but it’s actually very much important?
[00:33:22] EC: So I think every aspect of our firm is important, and I don’t think I would highlight whether it’s a region or a sector. I do think an area that’s very important and is emerging is what I will refer to kind of that’s really related to the private equity community, and is this GP-led direct transactions. And what I mean by that is you’ve seen in private equity over the last number of years just tremendous amounts of capital flowing in to funds tremendous amount of capital deployed. And at the same time is you have private equity firms looking for solutions and ideas with respect to their portfolio companies. And at the same time you have capital that’s available and available to be deployed in a much more bespoke way than ever before. It’s unique providers of capital coming together to provide alternative avenues for a private equity firm. And instead of just IPO-ing a portfolio company or instead of selling it through a traditional sales side process to a strategic or another private equity, what we’re seeing is are more forms of capital that can be utilized by GPs to recapitalize portfolio company, to put a portfolio company into a continuation vehicle, to continue to essentially own a portion all or a portion of that asset while monetizing a part of it and while maintaining frankly AUM. And I think it is an area of opportunity that is going to grow significantly in the coming years. And how we bring – It’s very important to our private equity or financial sponsor relationships to bring those GP solutions to the table in every conversation and to think about more avenues for our private equity clients to monetize assets within their various portfolios.
[00:35:16] AVH: Is this – And I hope I don’t sound dumb here by asking this, is this in the area of specs? Is this one of those avenues or did I just completely get it wrong?
[00:35:26] EC: No. SPECs are another alternative, right? And maybe we can come to specs. I do think SPECs are another avenue for a company. I’m really referring to you can have a private equity company that has a relatively young investment, if you will, in terms of the tenure of an investment in its particular portfolio, but perhaps it has seen – Really realize some interesting growth and accretion in that investment and wants to hold it for an extended period of time, but there are certainly technology now where they can potentially monetize some of the carry and continue to hold that asset. You could see, for example, in a private equity fund, they could be at the later stage of a fund and have an asset, a particular portfolio company, or maybe it’s a portfolio of assets that they want to continue to hold but the fund is coming to an end.
So essentially recapitalizing, pulling those out into a new vehicle. There’s many more alternatives now for doing that and it’s really along the spectrum of, in some respects, along the spectrum of an M&A dialogue with that private equity company. Are they reacquiring it? Reacquiring a new vehicle? Reacquiring it with other financial partners? There’s a spectrum of approaches that can come to the table with private equity, which we think is very exciting.
[00:36:37] AVH: Could you explain maybe one of those? Just pick one approach and explain it more. I haven’t done an M&A or investment banking interview, and I guess I’m embarrassing myself a bit, but I’m happy to do that so none of our listeners have to ask this question. So I do.
[00:36:50] EC: Sure. Sure. One example, you’re a private equity fund. You are private equity GP. You’re at the later stages of a fund. You have a number of assets that are in that fund. One of which you want to continue to hold. You like the characteristics, the cash flow characteristics, the potential value appreciation in the future and yet it’s within a fund that is coming to an end. So what do you do with that? Can you pull it out of that funk? Can you raise a continuation fund or a vehicle that acquires that asset essentially from your fund through this additional vehicle that you have capital in and others may come into? You continue to own it. You can continue to control it but you’re essentially taking it out of a fund that may be coming to an end. And it’s a way to continue to own something that is attractive.
[00:37:41] AVH: Okay. Got it. That makes sense. I love it already. I’m learning a lot here. Now can you talk about how that differentiates itself or how that relates to SPECs and what SPECs are? Because I’m reading a lot of them, but honestly I just admit here that I’m not anywhere near an expert in it and I would love to learn a bit more because I feel like everybody’s talking about it and I kind of don’t want to miss that bandwagon.
[00:38:05] EC: Sure we think of it as a special purpose IPO corporation. Not necessarily a special purpose acquisition company. It is a group of individuals. They come together. They raise money that goes into a trust, and that SPEC has two years. So they’re raising money in the public markets. The public shareholders are essentially investing into a vehicle where they will have the ability to approve the ultimate transaction, but the capital that’s raised in that IPO is put into a trust and the team looks for an acquisition candidate. But for the company, which is I think really very interesting. So for the company that is looking to partner with us back to go public, they’re really looking at this as an alternative to a traditional IPO. And why might a company choose to go public through a SPEC versus a traditional IPO. I think that what is very interesting about a SPAC is, one, it allows the company to negotiate their valuation. So they’re negotiating with the actual valuation. There’s certainty around that valuation that you don’t have an IPO until you price. So you’re negotiating pushing that valuation. You are able to share forecasts. There is a level of diligence and communication with the SPAC, with the pipe investors, and ultimately through the process of de-SPACing with the investment community in terms of your business model and sort of the investment thesis if you will.
And there’s a robustness to that that you don’t I think necessarily see in a traditional IPO process. That’s not to say that the traditional IPO process doesn’t make sense. It can make a lot of sense especially for companies that are what I think of is more easier to value or where the market and the valuation metrics are much more embedded in the investor and research analyst community. I think what’s very interesting for a SPAC is a company that may be in a disruptive business that’s undergoing a lot of transformational growth and you’re able to, through the process with the SPAC sponsor and the pipe investors, tell that story in a very fulsome way and you see a reflection of that in the valuation that you’re able to achieve and the certainty of that valuation. At the end of the day you’re both public through either route.
[00:40:23] AVH: Can you define what a PIP is?
[00:40:25] EC: A private investment in a public company.
[00:40:27] AVH: Oh! Okay. Okay. That’s super interesting. And I feel like this is coming more and more. I’m reading more and more of those topics. Do you see this trend continuing in the near future or in the medium future? Or do you think like we are already at a high-level currently?
[00:40:44] EC: I think that SPACs are a durable and lasting alternative to going public. So I don’t think it’s a trend that will go away. And I think companies will have the option if they want to go public to assess both alternatives, and that can only be good for a company to have multiple alternatives in terms of that path to being public.
[00:41:08] AVH: That’s more diversity. And I guess that brings us to the topic I want to spend the last bit of time on, because especially in the beginning you talked a lot about how important it was for your company to grow because you hired great employees. You talked in the topic about corporate social responsibilities. The first thing that you said were your employees. So can you tell us what is so important about having good people and how do you hire? How do you make sure you hire the right people?
[00:41:41] EC: I think at the core, hiring the right people, and this applies to any industry, to any business and certainly to ours, is there is absolutely a technical foundation that everybody has to have, but that’s easy. We can through our interview process and identifying candidates. Vet the technical skills that they may have coming out of college. This is to me about identifying individuals that demonstrate critical thinking and are inquisitive and are flexible and nimble in terms of how they think about the work that they’re doing every day and how they bring that to the table, whether it’s to a client, to a transaction, in any situation. We utilize our recruiting process to identify that talent and to create a group of incoming, whether they’re from undergraduate or MBA programs, at sort of the more junior or entry level, or whether it’s lateral recruiting. Are they individuals that have, I would say, growth mindset? That embrace challenge, embrace change, embrace opportunity, are nimble and at the core collaborate and want to work in a collaborative environment to create opportunities.
[00:42:53] AVH: How would a process like this look like? What are you looking for an employee? Do you ask certain questions? Do you make them a case study? Is it like some group sessions? Or how do you try to tease that out?
[00:43:06] EC: Well, it differs by level. And I’ll be honest, I haven’t recruited junior bankers in a long time, but we do actually do use a case study aspect to our recruiting process. I can speak much more to senior recruiting, senior bankers. And to me that really ties to sort of strategic decisions we’re making. When we look at a business opportunity, let’s say it’s a sector where we have capabilities, for example, in a sector that is a global sector but our capabilities are really distinctly in the U.S. and there’s a meaningful cross-border opportunity in that sector. Identifying individual, senior individuals that really own client relationships. The reality of it is you do your diligence and you can identify who the top six bankers in a given sector are in a region or globally. That’s the first step. The second step is engaging with them in a way where they begin to see a path towards making a step of leaving their existing firm. Moving to a new firm and the client relationships that are embedded in that dynamic and having the confidence that those will come with them.
So we are doing our diligence on an individual senior banker at the same time they’re doing their diligence both on us and as well as their own business model and can that be transported if you will. And we’re looking for situations where individuals where they’re not just bringing their business, but that it is accretive to what we already have. So that additional senior banker not just completes, because it may never be complete, but comes together with an existing team to really accelerate client opportunities. So often I almost think of it as almost a courting process actually as opposed to an interview process with a senior banker because we have to ultimately be aligned in terms of business model, in terms of how we approach our business, a very collaborative team-oriented approach. And do they want to be a part of that? Will they fit with that and what can they do on this platform that is different from the firm where they may currently be employed?
[00:45:11] AVH: You actually took one of the questions that I had. Is it mostly that you’re recruiting single individuals or teams as such? Because we often hear – I don’t know how it is in investment banking, but in startup, in tech, you often try to recruit teams because you know those people work really well together. I think there’s been an investment management especially. There’re been a lot of studies that actually if somebody hires just the senior portfolio manager, without the team, performance actually gets worse at the new company. Versus when you hire the entire team, the business often comes with it.
[00:45:49] EC: It really depends on the situation. Again, we may have an existing critical mass and an important missing component. And so that important piece, that senior hire comes in to an existing critical mess and what they’re able to do together is truly transformational. So in that scenario we may not be looking for a broader team of senior bankers. We may need that individual to bring capabilities beneath them. But we have in the history of this firm hired teams. We entered the restructuring business back in 2008 by hiring in mass a team of restructuring bankers at every level, from the most senior heads of the business all the way through to the analysts. At that point in time they came in mass. It accelerated, rapidly accelerated our presence in that business, the development of that business on our platform. And what’s been exciting to see now 12 years into this is the entire team has grown and the talent that was once an analyst or an associate are now managing directors of this firm. Sperm so at the same time, because they’ve worked together and grown their business, they’re really the market leader globally in that area.
[00:47:02] AVH: I want to dive deeper into this. They are growing, right? Because I know you’re a big, say, fan or expert in neurodiversity. So that’s different approaches on how people learn. Can you talk about the subject of employee growth and how you approach that topic?
[00:47:19] EC: Well, I’d say I appreciate. I’m not necessarily an expert in neurodiversity. It is a passion for me personally and I think it’s an area that companies aren’t quite thinking about how employees, what really – All of our brains work differently. And how do we maximize our potential as individuals, as employees, and recognize those differences, the differences in learning styles, those differences in work styles? I think you’re going to see more and more companies focus on that and focus on supporting how their employees perform. Supporting how their employees work to achieve their full potential.
So as an organization we’re very much focused on the training and development of all of our employees. If they’re coming in at the entry level, there is a very robust training program when they start. It is multiple weeks. Over the course of the first sort of six weeks that they’re with the firm, all the technical aspects, just refining, developing and working with them to sort of understand our approach to the various analyses. And then as they develop and begin to get more and more experienced, there’s a natural education and development process that happens working on transactions. The reality of banking is I think of it almost as an apprenticeship. The more you do, the more you learn and the more experience you’re able to bring to that next client situation. We strive to complement that by having ongoing training, ongoing, whether it is new concepts on the legal side with respect to M&A. Whether it is new approaches to a particular type of analyses, that ongoing almost skill development. And then there’s an aspect in terms of just presence with clients, navigating difficult situations, negotiations, ongoing training in very bespoke topics. We have a very exciting partnership with the Wharton School where every year our portion of our employees that are promoted to various new levels attend a three-day very targeted executive MBA program.
So at every step of development we are looking at talent education programs to bring to our employee base and we’re also looking at doing it on a one-on-one basis. We periodically use coaches for very targeted development areas depending on an employee that may be needing guidance to navigate some particular type of situation. At the end of the day it’s important to us to invest in every single individual in this organization to achieve their full potential.
[00:49:51] AVH: You mentioned yourself. You got an MBA and you went back to work. Now you send a lot of your people to executive MBAs. How important is having an MBA in the investment banking business or like a university education in that sense?
[00:50:06] EC: So I’ll start by saying I don’t think it’s that important. But the executive MBA program we do is a very bespoke three-day program. It’s not a 18-month executive MBA program. It is a targeted for newly promotes. It is bringing them all together globally for three days of very intense case studies, negotiation skills, frankly self-assessment in terms of what are they like as a communicator, communication styles. How that may or may not be effective with others? So that really is a custom training program that we’ve developed for our employees. I got my MBA a long time ago and it was a point in time where you couldn’t even be in this industry unless you had an MBA. So I entered out of undergraduate. I was an analyst for two years. At that point in time on Wall Street you had to leave. They did not promote from within. That’s changed.
So I went to get my MBA. And I’ll be honest, I frankly wanted to get my MBA at that point in late 80s as a woman in this industry. I had a credential from an undergraduate school that wasn’t as – In hindsight it was probably my own insecurity about my undergraduate school, but it was not a school that typically fed individuals into Wall Street. And so I looked at the environment that I was in at the point in time and I felt strongly that I needed to get an MBA for my own development, my own credentializing as a woman in this industry in the late 80s. That is no longer the case.
[00:51:38] AVH: You mentioned a very sensitive, but I feel important topic because some of our listeners reached out to us to have exactly those kind of questions, right? Now you said a woman in the industry, right? How is it today and what kind of advice would you give to young women looking to get into the industry?
[00:51:55] EC: Well, first of all, I think this industry has changed dramatically. I entered at a time where there were not a lot of women. My experience is that this industry has embraced everyone that comes into this industry. And as a woman in this industry actually, I’ll be honest, I never thought about it. I never thought about my gender and what that may or may not have meant, but that also might be a product of my generation as well.
I think when I look at banking today, I think it is an incredible training ground. The skillset development, the exposure, transactional exposure, client exposure, industry exposure I think is unmatched and I think it’s a foundation from which to build a career whether it’s in banking or broadly in financial services or ultimately leaving this industry, which we hope doesn’t happen. But I think it is a really extraordinary experience for any individual. And it is my advice – I think you asked me what’s my advice to women. My advice actually to everyone is there going to be transition points in a career. There are going to be decision points, but I think what I’ve observed over the last 30 years is people want to underestimate their institutional goodwill and the experience set and the value that they are bringing to an organization and often may not see that, may not appreciate that institutional goodwill. And so they may seek to find it elsewhere. And sort of this grass is always greener and it took me a long time to realize the grass is never greener. The grass is green right where I make it green. But it took me a while to realize that.
And I think people seek at times change and offers away and should really know that they can have direct conversations with their employers wherever they work to try and facilitate that change in the organizations where they are. I think people really underestimate that goodwill and the desire for companies to retain and develop from within and want to have those conversations. My advice would be to put it on the table and see how company responds.
[00:54:07] AVH: I think that’s some great and uplifting advice. And I would end it on that note. Or if you have any last piece of advice, anything you want to get across.
[00:54:16] EC: It’s been a pleasure to meet you and to join you today. My advice especially coming out in this environment that we’re living in that everybody has faced sort of a personal crisis is – And I don’t think it’s any different for any of us. It’s stay true to yourself, and wherever you work, whatever your career is, it has to be true to you as an individual or you’re going to be miserable and you won’t be successful. And this environment that we’ve lived in all of us for this last year, it’s really bringing that to the forefront in a way that I think is really valuable for everyone to be asking those questions and to be consciously making the decisions as to how we want to live and work.
[00:54:55] AVH: Yeah. I think I can definitely second that. Watch out for your mental health, your physical health, your health, your friends, your family, and I think that’s a great note. And I enjoyed this interview so much. Thank you. Even though I had to out myself as unknowledgeable about M&A in investment banking I think I grew mentally in the past hour. So thank you very much for making me a smarter person, and I hope it helps somebody else too.
[00:55:22] EC: Very much appreciate joining you today. Thank you.
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