PRIVATE EQUITY TRAINING
SIMILARITIES BETWEEN INVESTMENT BANKERS PRIVATE EQUITY INVESTORS
Where investment bankers do research and pitch potential mergers and acquisitions to external clients, private equity funds do the same kind of financial research in order to decide whether they want to purchase a company for or sell a company that is controlled through their own private equity fund. Hence, the kind of work done in a career in investment banking and in private equity is, essentially, the same.
INVESTMENT BANKING TRAINING IS PRIVATE EQUITY TRAINING
It follows that preparing for a position in an investment bank is private equity job training. The preparation required for both finance careers is primarily an education in financial analysis and business valuation. In order to succeed in private equity or investment banking, one must know how to assess the viability of a business model, to evaluate management effectiveness, and, above all else, to construct a financial model adequate to assess current value and predict future value for the business.
Financial modeling is at the center of both the private equity career and the investment banking job. The difficulty of valuation for the private equity analyst is, to a great extent, something she and the investment banker alone share. For example, both private equity firms and investment banks become involved in the valuation of businesses that are motivated to undermine the valuation; the hostile takeover is the classic example of such a situation. In such cases, the private equity firm must create a very sophisticated financial model; one that not only accommodates for potential defensive actions by the company prior to the potential takeover, but also a model that reflects scenarios in which the company is then acquired and others that may enable the private equity firm to persuade the target company to accept their terms for acquisition.
In sum, the financial analyst working for a private equity fund must have ample quantitative and accounting skills. Furthermore, the analyst must be able to apply these skills directly to the construction of relevant financial models, such as the leveraged buy out model (LBO model). Training to be an investment banker is ideal for this purpose. Investment banking training is provided to a varying extend by MBA programs and the in-house training programs at investment banks, some of which also have their own private equity funds. Furthermore, experience working in private equity, or a closely related Wall Street profession, can provide an opportunity to master financial modeling methods, an opportunity that cannot be found in formal education or the brief training programs offered by investment banks and private equity firms. The Investment Banking Institute offers a valuable alternate opportunity for private equity training, one that combines formal teaching with intense practice in the methods used in a private equity career. Indeed, the Investment Banking Institute’s Investment Banking Bootcamp could alternatively be named the Private Equity Bootcamp of the Private Equity Institute.
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