• Auditors fantasize about escaping from a boring, repetitive grind and moving into a higher-paying job with more interesting work.
• Aspiring investment bankers think about their Plan B options and wonder if a Big 4 job offer might be a good pathway into IB.
• Corporate finance professionals want to escape their repetitive work and assume that anything related to deals will be an improvement.

• And career changers figure that Big 4 firms might offer easier pathways into higher-paying jobs in finance, consulting, and related fields.

I could go on, but you get the idea.

The point is, everyone debates the merits of these jobs, but there’s still a lot of confusion over what “Transaction Services” means.

We’ll delve into all these points in this article, but let’s start with the basic definition:

The Transaction Services Job Description

Transaction Services Definition: Transaction Services (TS) teams at Big 4 and other accounting firms advise on specific aspects of M&A transactions, such as financial due diligence and the valuation of intangible assets, and they help buyers assess the financial risk of deals; when TS teams advise sellers, they confirm financial results and business trends to potential buyers.

The TS group may also be called “Transaction Advisory Services” (TAS), among other names.

At the large accounting firms, such as the Big 4, Transaction Services is usually split into different sub-groups:

• Valuations and Appraisals
• Financial Due Diligence (FDD)
• Corporate Finance (may be a separate group)
• Integration Services
• “Business Recovery Services” or Restructuring (may be a separate group)

We will focus on groups #1 and #2 (Valuations and Financial Due Diligence) here.

Corporate Finance and Restructuring are quite different and don’t fit the TS definition above, and the Integration Services group is smaller and has less readily available information.

We did publish an interview about Big 4 Restructuring a long time ago, so refer to that for more details.

We’ve been using the name “Big 4 Transaction Services,” but many non-Big 4 firms and business valuation firms offer these services as well; examples include RSM, BDO, Grant Thornton, Moss Adams, and CLA.

The nature of Transaction Services roles differs heavily based on region.

In Europe, for example, TS teams analyze both historical financial information and forecasts.

But in the U.S., TS teams can analyze only past results due to regulatory differences.

As a result, you gain more exposure to actual financial modeling in European TS roles, and the exit opportunities are better.

Big 4 Transaction Services vs. Investment Banking

Professionals in TS groups work on deals differently than investment bankers.

M&A investment bankers execute the entire deal process from start to finish, including finding and contacting potential buyers and sellers, marketing the company, and negotiating the purchase agreement.

By contrast, Big 4 TS teams:

• Work on only one specific part of the deal (e.g., when a potential buyer is conducting due diligence, or when a deal is closing and the buyer needs to integrate the company and re-value the seller’s Balance Sheet).
• Are paid on an hourly basis with fees that are not linked to the deal closing successfully.
• Earn fees per engagement somewhere in the $200K – $800K USD range, which is less than what investment banks earn even on “small deals” (but the collection probability is also much higher).

The exceptions here are the Corporate Finance and Restructuring teams at Big 4 firms, but they’re often considered separate from Transaction Services (see below).

Valuation vs. Financial Due Diligence vs. Integration Services vs. Corporate Finance vs. Restructuring

There are many groups within or around “Transaction Services,” so it’s worth explaining how they differ.

The Valuation, Financial Due Diligence, and Integration Services teams all advise on specific aspects of deals and get paid for specific projects, so they fit the definition above.

The Valuation group, similar to business valuation firms, usually works on tasks like purchase price allocation, re-valuing sellers’ assets and liabilities in M&A deals, Goodwill impairment testing, and the valuation of financial assets.

If you’re in the group, you’ll learn far more about valuation than the average banker, but you won’t get much exposure to entire deal processes or other types of modeling.

The Financial Due Diligence (FDD) group digs into companies’ financial statements to highlight trends and identify “red flags” before buyers complete M&A deals.

For example, they might determine the key revenue drivers over the past few years, figure out the company’s cash conversion cycle, determine whether or not the provided EBITDA figures are accurate, and find the company’s “true debt” levels (including hidden and off-Balance Sheet items).

Quality of Earnings (QoE) reports to assess a company’s recurring earnings and the validity of its accounting policies are also common.

The FDD team typically does this work during the bidding phase of an M&A deal, when potential buyers have access to the seller’s data room.

Finally, the Integration Services team assists with the post-merger integration process when the buyer and seller’s financials, taxes, reporting, and other systems must line up.

In contrast to these three groups, the Corporate Finance and Restructuring teams are much closer to investment banking.

The Corporate Finance team at most Big 4 firms is an internal investment bank that executes entire M&A deals from beginning to end.

The experience is more relevant for IB/PE roles, but these CF teams also tend to work on smaller deals than the FDD teams.

If the TS team works on due diligence for $1 billion deals, the CF team might execute deals in the $100 million – $200 million range.

So, the CF team is more like a middle market or boutique investment bank.

The Restructuring team is a cross between Restructuring investment banking and turnaround consulting, so please see those articles for more.

Also, take a look at our past coverage of Big 4 restructuring in the U.S. and Europe.

Recruiting: How to Join a Big 4 Transaction Services Group

Some Transaction Services groups hire candidates directly out of undergraduate or MBA programs, but internal hires from other groups, such as audit, tend to be more common.

On-campus recruiting, when it happens, usually takes place at the top ~10 schools in the country for accounting, which are different from the “target schools” for investment banking.

For example, in the U.S., the list might include universities like Notre Dame, the University of Illinois at Urbana-Champaign, UT Austin, BYU, Michigan (Ann Arbor), and others in that tier.

There is some overlap with the top schools for IB recruiting, but relatively few students from the Ivy League and equivalent schools end up in these roles.

An accounting degree helps, but it’s not necessary if you’ve had enough relevant work experience, and you already have the required Excel, accounting, and analytical skills.

The CA or CPA certifications can help if you’re moving into TS from another full-time job; accountants take these credentials more seriously than bankers (but again, it’s region-dependent).

If you want to move from audit to Transaction Services, hiring usually occurs after tax season each year.

However, you may need to network for around a year to get to know everyone in the TS group and maximize your chances.

So, you might be looking at 2-3 years to move from audit to TS.

If you want to improve your chances, involve yourself in the audits of acquisitive companies or ones with complex issues around revenue recognition, stock-based compensation, or intangible assets.

Transaction Services Interview Questions

If you network your way into the interview process, you can expect a few rounds of interviews with behavioral/fit and technical questions, potentially a case study or Excel test, and then a final-round interview with the Partners.

The interview questions are very similar to investment banking interview questions, but they’ll focus more on accounting and valuation and less on topics like LBO modeling.

For example, expect questions about what the Change in Working Capital means, EBIT vs. EBITDA vs. Net Income, and “accountant only” topics like trial balances and how to walk through events using debits and credits rather than financial statement changes.

The case study or Excel test could involve almost anything, so here are a few examples and practice exercises:

• Excel Database Functions
• Excel Practice Test for Interviews with INDIRECT, MATCH, and SUMIFS
• INDEX/MATCH Tutorial
• 3-Statement Modeling Case Study (30 Minutes)

The Transaction Services “Work Product”

It’s difficult to find real examples of the reports that TS teams write because there’s no disclosure requirement.

I managed to find one short, partially redacted example, which you can access below:

• Taylor Torrington and Associates – Financial Due Diligence Report (PDF)

Just like an investment bank can advise the buyer or the seller in an M&A deal, a TS team can also advise either party.

If the seller hires the TS team, the deliverable is usually a “vendor due diligence” (VDD) report that makes it easier for potential buyers to analyze the seller’s business before placing a bid.

If the buyer hires the TS team, the output is usually a “due diligence report” based on the seller’s data or a review of the seller’s existing VDD report, where one TS team challenges the conclusions and adjustments of another TS team.

Besides the tasks mentioned above – analysis of revenue drivers, normalization of metrics like EBITDA and EPS, Working Capital and cash conversion cycle analysis, and determination of “true debt” levels – a few others include:

• Detailed revenue analysis, broken down by customer, channel, geography, and product.
• Customer contract analysis, including any onerous or hidden terms.
• Trial balance analysis to detect shenanigans in the underlying debits and credits.
• Lease analysis, where the team estimates the ongoing costs and rental increases from existing leases and the ones that need to be renewed.
• Revenue and EBITDA bridges that demonstrate how both metrics have changed based on products, channels, and customers.
• Budgeted vs. actual numbers to judge the accuracy of management’s past forecasts.
• Inventory analysis, including aging, inventory by product, average levels, and provisions.
• Review of financial forecasts (outside the U.S.) to determine whether they’re completely fictional or somewhat believable.

Professionals in the TS / FDD teams may also interview management about everything above, and they’ll write a detailed report with their findings at the end of the process.

If you’re in the valuation team, your work tasks will be similar to the ones covered in the business valuation firms article, with a focus on numbers rather than written reports.

What Do You Do as an Associate, Manager, Director, and Partner?

The hierarchy in Transaction Services differs a bit from the ones in investment banking and private equity careers, and the general shape looks like this:

• Associate or “Consultant” – The entry-level role, where you do a lot of data and financial analysis (~2 years for a promotion from here).
• Senior Associate or “Senior Consultant” – The next level up; similar work, but you get the more interesting bits (~3 years for a promotion).
• Manager – You lead the Associates and review their work to write the reports (~3 years for a promotion).
• Senior Manager – You lead the Managers, perform reviews, and delegate work to everyone else (~3-6 years for a promotion)
• Director / VP – You do final reviews of the FDD and valuation reports and start managing client relationships (promotion time is highly variable).
• Partner – This one is divided into Junior Partner and Equity Partner roles, and your job at this level is to win new clients and more business from existing clients.

If you perform very well, you might reach the Partner level in 10-15 years.

But don’t be fooled: it’s not necessarily “easier” to reach the top than in investment banking because the turnover is also lower.

In particular, it’s difficult to get promoted beyond the Manager level because few people leave the job at that stage, and you need to start showing evidence of your ability to generate revenue to advance.

Transaction Services Salary, Hours, and Lifestyle

Let’s start with the hours and lifestyle since those are easier to describe: expect to work around 50-60 hours per week.

There are occasional late nights and weekend work, but nothing like the frantic nature of investment banking.

In normal, non-pandemic times, you might also have to travel to client sites occasionally, but far less than the travel schedule required in management consulting.

Before giving the compensation ranges, it’s important to explain the Transaction Services business model.

The fees from TS engagements are lower than audit fees, but the margins on the engagements are higher.

Many deals are staffed with a Partner or Director, a Senior Manager, and 2-3 Managers and Associates.

If an engagement takes a few professionals a month to complete, and it results in $300K in fees, that’s a very healthy profit for the firm.

The budget for each engagement is 100% negotiable with the client, and in some cases, firms end up billing clients less if a deal falls through – because of relationships and the desire to win future work.

These factors explain why total compensation (salary + year-end bonus) is higher than audit compensation but lower than investment banking salaries:

• Associate: $80K – $100K Base + Up to 30% bonus ($100K – $130K total)
• Senior Associate: $115K – $145K Base + Up to 30% bonus ($150K – $190K total)
• Manager: $150K – $190K Base + Up to 30% bonus ($200K – $250K total)
• Senior Manager: $190K – $220K Base + Up to 30% bonus ($250K – $290K total)
• Director / VP: $220K – $300K Base + Up to 30% bonus ($290K – $390K total)
• Partner: $600K – $2 million+ in total compensation (if profits for the Equity Partners that own part of the firm are also counted)

NOTE: Compensation figures as of 2022.

The average total compensation for a Partner is probably just above $1 million, depending on bonus levels and profit share in the year.

There are cost-of-living adjustments, so expect lower compensation if you’re in a cheaper location outside major financial centers.

For all positions except Partner, the base salary comprises the bulk of the total compensation; the year-end bonus might be a max of 30% of your base salary.

Often, the best way to increase your earnings is to switch to a different firm and negotiate for a higher salary and bonus.

Promotion Within Transaction Services Groups

You might now be thinking, “Well, the pay is lower than IB or PE pay, but I can just grind it out until the Partner level and earn a lot!”

Not so fast: 1-2% of new hires might eventually become Junior Partners.

And even fewer will make it to the Equity Partner level, where total compensation moves over $1 million due to ownership in the firm.

To reach those levels, you need to generate millions of dollars in revenue each year.

An average assignment could be worth something in the low-hundreds-of-thousands range, so that requirement translates into 10-20 signed engagements each year.

So, it’s arguably even more difficult than what a Managing Director in investment banking does because an MD can close a large deal or two and earn their pay.

Juggling dozens of clients and potential clients and trying to win assignments from them requires more multi-tasking and constant attention.

Oh, and if you do not advance to the Partner level, your exit opportunities are fine, but not spectacular:

Transaction Services Exit Opportunities

The top question here is “Can I get into private equity? I’m dreaming of private equity. Can I break into Blackstone or KKR directly from a Big 4 TS team?”

And the answer is “No, probably not.”

Some people do move from TS into private equity, but this usually happens:

1. Outside the U.S.
2. At smaller/startup funds.
3. If you’ve worked with highly relevant clients, such as PE firms executing deals and bolt-on acquisitions.

The issue with moving directly into private equity is that you don’t gain experience working on entire deals from start to finish in TS.

It makes more sense to use a TS role as a springboard into investment banking or the internal IB team (“Corporate Finance”) at the Big 4 firm, and then move into PE from there.

Other exit opportunities depend on how long you’ve been working in the TS group:

• 1-3 Years: It’s possible to win IB roles, but more so at boutique and middle market firms; FP&A roles in corporate finance, corporate development jobs, and certain consulting roles are also plausible.
• 4-6 Years: You could get into corporate development, but investment banking gets more difficult at this stage because you’ll be over-qualified for Analyst roles. Corporate finance is still an option.
• Past 6 Years: At this stage, you should just stay and make a run for a Partner-level role. If you want to leave, maybe move to a client and perform their valuations and due diligence in-house.

Is a Big 4 Transaction Services Team Right for You?

Overall, Transaction Services jobs are “OK.”

In terms of Plan B options for winning IB/PE roles, my view is that corporate banking and even independent business valuation firms come out ahead.

The main problem is that TS is an indirect/lengthy way to break into the industry because:

• You usually need to join another Big 4 group, such as audit, and work there for a few years…
• …and then move into TS, work there for a few years…
• …and then move into IB.
• And there’s still no guarantee of winning this IB role because it depends on your region, clients, and the hiring market at the time.

Big 4 TS teams make the most sense if:

• You want to stay in the industry and work at a Big 4 firm for the long-term;
• You want to get into corporate development or win a related corporate role without doing IB first; or
• You’re in a region like Europe, where it’s somewhat easier to move into IB/PE due to the skillset differences.

Longer-term, there is also some risk of commoditization and automation because reviewing a company’s historical financial information is not exactly rocket science.

Yes, humans will always need to be involved, but with more advanced technology, lower headcounts could potentially support client engagements.

That said, the Transaction Services group beats audit in terms of pay, work, and exit opportunities.

So, if you’re bored to tears in your audit role and itching to do something different, TS is a good place to start.

—

If you liked this article, you might be interested in reading The Corporate Finance Analyst: Promising Career Path, or “Plan B” if Investment Banking Doesn’t Work Out? or The Full Guide to Lateral Hiring in Investment Banking.

The post Big 4 Transaction Services: Pathway to Private Equity, or Just a Small Improvement Over Audit? appeared first on Mergers & Inquisitions.

Is it good to be stubborn?

In some cases, yes.

But you also have to be realistic, especially when it comes to winning highly competitive jobs.

One of the themes on M&I this year is the need to “go through the side door” to win these roles and beat out students from elite universities.

And one of the best side doors is the Valuation group, especially at non-Big-4 firms (Think: Duff & Phelps, Alvarez & Marsal, Houlihan Lokey, etc.).

These groups offer such nice side doors that you might even turn down a Big 4 full-time offer to work in one – as our reader today did:

Through the Side Door and into a Non-Big-4 Firm

Q: You know how this works. Can you tell us your story?

A: Sure. I went to a non-target state school in the U.S., majored in accounting, and completed a few audit internships, but realized I wanted to do more “value-added work” where I could make a real difference to clients.

I thought about management consulting but didn’t have much luck there, so I pivoted to investment banking instead.

But I got a late start in the process – it was already my junior year, and I had no previous internships – so I also didn’t have much luck there.

So, I changed my strategy and decided to focus on Valuation groups at non-Big-4 firms.

I turned down a full-time return offer from a Big 4 firm’s audit and advisory divisions and accepted a Valuation role at a large, independent valuation firm.

Q: OK. What types of candidates are these non-Big-4 firms seeking? Are there any differences compared with the Big 4?

A: Not really; we want to see academic achievement at a good school, leadership roles on campus, such as starting or running student groups, and an interest in finance and valuation.

We do have “target schools” – mostly the top state schools, a few private business schools, and a few Ivy League universities – but the list is broader than it is for IB.

We also hire from many Master’s in Finance programs at top schools.

Almost every recent grad at my firm completed a Finance major as well.

Q: Yeah, I could see how that type of firm might care more about your ability to do the job than how much “interesting” experience you’ve had.

How does the recruiting process work?

A: In my office, we receive 300+ resumes from multiple target schools for only a few Analyst spots.

Getting through this resume screen is the hardest part of the process, and you have to network to do it.

I contacted one Analyst for an informational interview before I applied, which made a big difference. All candidates in investment banking are networking all the time, but it’s not as common here, so it can help you stand out more.

My first round was a phone interview with an MD in charge of recruiting for the office; he asked a mix of “fit” and technical questions (on DCFs and valuation), and the interview was more of a “check the box to make sure you know your stuff” round.

If you pass that, you get invited to the Superday and go through 4+ interviews with MDs as well as a case study.

The case study might be a scenario where you have to value a company and recommend its best option (e.g., raising equity, debt, or acquiring another company).

Similar to the case studies at assessment centers in EMEA, the most important point is your ability to work in a team.

I was, by far, the least technically sound person there, but I led the team by framing the problem upfront, asking for peoples’ opinions, and managing our time and process.

I didn’t make a single calculation the entire time, but I was the one who got the offer.

Q: All of that sounds pretty standard. Were there any challenges or unusual questions?

A: They repeatedly asked me why I turned down a Big 4 advisory offer and why I wanted to move to a smaller firm to do valuation.

I answered that by explaining that the “advisory” role was mostly accounting-related, and I wanted to gain financial modeling experience and exposure to Fortune 500 clients.

Some interviewers also asked why I didn’t do management consulting, and I “lied truthfully” by saying that I won interviews at consulting firms, but I felt my background in accounting and audit would be more helpful in valuation.

(In reality, I would have taken a consulting offer over valuation since I was set on consulting at a big firm.)

On the Job at the Non-Big 4

Q: OK, great. I think readers are familiar with the work at Big 4 TS and TAS groups, but what’s it like at independent valuation firms?

A: My client base is a 40 / 60 split between public and private companies, and they range from $200 billion+ market cap companies to small businesses with $1 million in revenue; most generate revenue between $100 and $500 million.

The most common assignments are:

• Purchase Price Allocation – After an M&A deal closes (or sometimes pre-deal), we value the company’s assets and determine how much of the purchase price gets allocated to Other Intangibles, Goodwill, and other items.
• Goodwill Impairment – We value a company’s reporting units and determine if acquired companies need to be written down.
• Valuations – We almost always complete DCF, comparable public companies, and precedent transactions analyses for clients that hire us. These analyses help us to value equity, a stake in the company, or the entire company.

There are relatively few “advisory” projects where we work directly on buy-side or sell-side M&A deals since we have an IB arm that executes them.

But sometimes MDs ask us to think about potential targets if they have special relationships with client companies.

Q: Thanks for the run-down. What about the hours and how you spend your time?

A: On average, I work about 12 hours per weekday and two weekends per month for 2-5 hours each, so the average is 60-70 hours per week.

I have not yet pulled an all-nighter, though I came close a few times (this should only happen if you’re on a really high-profile client with unrealistic expectations).

My time split looks like this:

• Excel / Analysis / Valuation: 55%
• Report Writing: 15%
• Email / Client Calls: 20%
• Miscellaneous (Talking with someone, reading the news, industry reports, etc.): 10%

Q: How difficult is it to advance?

A: Our firm is pretty top-heavy, but once you reach the VP level, which happens ~5 years into the job, advancement becomes very subjective.

For example, we have a young MD who crushed it with client assignments and now ranks higher than a Director who’s been here for 15+ years.

There’s a set advancement path up through the mid-levels, but past that, as in IB, it comes down to your ability to generate deal flow.

And I hate to use this cliché, but “Work hard, play hard” is the best way to describe the overall culture.

Q: What about the compensation?

A: Non-Big-4 firms pay less for entry-level positions than Big 4 firms, but that difference diminishes as you advance.

Total compensation for Analysts ranges between $60K and $80K USD, depending on the city, individual performance, and firm performance.

Base salaries are $15-20K lower than what IB Analysts earn, and bonuses are between 0% and 25% of base salaries.

Bonuses are based on “utilization”: The number and size of the projects you worked on directly impact your bonus.

That is also true in IB, to some extent, but it’s a much more direct and transparent link here.

I was thrown into one of the biggest projects in my office when I first started, so I jumped in and contributed as much as I could, even though I knew little at the time.

The team then trusted me from that point onward and started staffing me more and more, so my utilization has been quite high.

(NOTE: Compensation figures as of 2017.)

Q: OK, thanks for sharing that.

You had mentioned in the beginning that Valuation is a good “side door” into investment banking.

How has that worked out so far?

A: Of the people who left my group within 2-4 years of starting, most went into:

• Corporate development.
• Venture capital.
• Small private equity firms, pension funds, or endowments.
• Boutique investment banks.

The senior professionals have been here for a long time, and they rarely leave voluntarily.

The ones that have left have moved into corporate development at large/public companies.

As far as my recruiting efforts, I’m still aiming to transition into banking or consulting.

I’ve interviewed at elite boutiques, middle-market banks, regional boutiques, corporate development groups, and in the valuation groups of a few upper-middle-market and mega-fund PE firms, but have not yet landed an offer for which I’ve been happy enough to leave my current firm.

My biggest takeaway so far is that you cannot be picky regarding location, industry, or firm size; lateral recruiting is very random, and if you get an offer, you’ll have to decide quickly.

I’m most interested in middle-market PE roles because I want the critical thinking and operational exposure without the long hours and grunt work at much bigger funds.

Q: Great. So, bottom line: Who should join a Valuation group at a non-Big-4 firm?

A: Valuation is a great place to start if you can’t get into IB right out of school but you want to work in finance and eventually move over.

I’ve also learned a lot and have been exposed to interesting work, more so than in many IB roles, and it has been fairly easy to spin my experience into sounding relevant for other jobs.

But you need to be self-motivated because you’ll have to learn about transaction analysis and M&A/LBO modeling on your own; you don’t get exposure to those here.

Also, you have to be OK with keeping your options open and accepting an opportunity in corporate development, a pension fund, or something else less “prestigious”; it’s not like everyone here gets into banking.

Q: That’s a great summary. Thanks for your time!

A: My pleasure.

The post How to Break into Valuation at a NON-Big-4 Accounting Firm appeared first on Mergers & Inquisitions.

Do emerging markets ever change?

The answer seems to be “yes” – after all, how can a country stay in “emerging” mode indefinitely?

It turns into a developed market with an advanced economy (Japan), or it slides back into third-world status due to economic and political failures (Argentina).

But one potential exception to that rule is India, where the finance industry, at least, hasn’t changed much since we first started covering it.

Back in 2009, for example, there were 2,000 – 3,000 front-office IB jobs in the entire country, a lot of people were “tricked” into working for KPOs rather than real banks, and most firms recruited students from the top IITs and IIMs…

…and six or seven years later, most of that is still happening.

Since the market hasn’t changed much, I figured it would be more useful to cover a different industry instead – we’ve featured investment banking (twice) and private equity, so this time around it’s Big 4 Transaction Services (TS) in India.

And our industry expert is a reader who currently works at one of the Big 4 firms in India, advising on transactions there:

Industry Overview and How India is Different from the U.S. and U.K.

Q: So, what can you tell us about Big 4 TS in India?

How big is it, how many people work at the different firms, and what types of deals do you advise on?

A: It’s relatively small – and given the size of the economy here, it is a “niche practice.”

Altogether, the Big 4 firms here employ around 400 professionals in the Transaction Advisory/Services space (as of the end of 2015 / early 2016).

Ernst & Young is the biggest of the Big 4 firms, but the others are expanding rapidly.

Deal activity has been on the upswing in India due to the amount of capital flowing into startups, private equity funds, and other investment firms; most of our work relates to advising private equity funds on minority stake deals.

(For more about this topic, please see our tutorial on the equity method of accounting.)

Strategic mergers also take place, but they’re less frequent than financial-sponsor-related deals.

We get a lot of repeat business because deals take substantial time to close, and sometimes the PE firm wants us to follow up and do another round of due diligence if a significant amount of time has passed between the first round of DD and the planned close date.

Q: OK, so you’re saying that most of your engagements are buy-side advisory and due diligence assignments for financial sponsors acquiring minority stakes in companies.

A: Yes, but that’s not everything we do.

For example, some companies that are looking to sell a stake or raise funding will hire us to complete vendor due diligence (VDD).

In these assignments, we have much better access to data and the management team, since the goal is to give a “stamp of approval” to the company and say that everything is in order.

Sometimes we also get hired to point out red flags in VDDs that have already been carried out because each investor focuses on different criteria, and existing VDDs don’t necessarily have everything they’re looking for.

Each fund here has its preferred adviser and tends to work with that person exclusively; each Partner at my firm is connected to at least one fund and serves as the “relationship manager” for it.

Q: So what are the other differences between Big 4 TS in India and similar groups/firms in Western countries like the U.S. and U.K.?

A: Besides the heavy focus on buy-side assignments from financial sponsors here, another difference is that firms in the U.S. tend to have dedicated industry teams for pharmaceuticals, technology, manufacturing, etc.

But here, we work across industries at the junior levels and specialize in a vertical only after advancing to the managerial level.

However, this might be changing because several of the Big 4 firms here are moving toward a more industry-specific model.

The work itself is very similar throughout the world because you always use the same types of analysis to determine what’s driving a company’s revenue and expenses, what a company’s cash conversion cycle is, and so on.

One difference is that companies here report results using different accounting systems: some use Indian GAAP, some use U.S. GAAP, and some use IFRS, and so you have to know the key differences.

Finally, Transaction Advisory teams here are so small that many people don’t even know we exist, whereas these groups receive much wider recognition in other countries.

Breaking into Big 4 Transaction Services

Q: And how do most people get into Big 4 firms there?

Do these companies recruit only at the top universities and business schools, or are they seeking mostly experienced candidates for TS roles?

A: The recruitment process varies a bit based on the applicant’s level, but most of the people working in TS in India are Chartered Accountants (CAs), similar CPAs in the U.S.

We mostly recruit Associates who have completed the CA, and we greatly prefer those who have finished their “articleship” (the 3-year internship period for becoming a CA) in audit.

So if you want to work in Transaction Services here, I strongly recommend following that path.

The interview process usually goes like this:

1. 1. Resume Screen – The HR person will review your resume and ask you generic questions like “Why TS?” and “Why us and not another Big 4 Firm?”
   2. Technical Round with MD or Director – They’ll ask about your work experience and will throw in questions about valuation, revenue/expense modeling, accounting principles, etc.
   3. Technical Case Study – They’ll give you an Offering Memorandum (AKA Confidential Information Memorandum or CIM), and ask you to read it and recommend for or against acquiring a stake in the company.

You’ve already covered how to read and interpret CIMs, so I won’t repeat everything here; one additional point is that you should beware of regulatory problems in a market like India.

Sometimes they also turn this exercise into a stress test, where they give you the memo and then take it away and ask you rapid-fire questions about the company – so be prepared!

1. 1. Excel and PowerPoint Test – You must have a high proficiency level with both programs to work in TS. If you still use the mouse in Excel, you won’t make it past these tests.

You should have a solid understanding of pivot tables, lookup functions, INDEX/MATCH, and formatting without using the mouse.

1. Partner Round – They ask you fit-based questions that you must nail. They will still ask you to walk through your resume/CV, and they may still ask technical questions, but at this stage it’s mostly “the airport test” – no one wants to work long hours next to boring or un-fun people.

As I said, the process differs a bit depending on your level. For example, we sometimes do hire very junior staff just out of university who aren’t yet CAs, but it’s random and not at all a structured process.

Also, if you recruit at the Manager level or above, the process is different, and they don’t care as much about technical questions or the Excel and PowerPoint tests since your responsibilities change at that level.

Since it’s such a small industry with so few qualified professionals, poaching of staff members is quite common here. People frequently jump around and join other Big 4 firms, which means going through the whole process all over again.

From the Big 4 into Investment Banking: Mission Impossible?

Q: Many readers join Big 4 firms because they see it as a stepping stone into investment banking or private equity.

We’ll get to those transitions in a bit, but one big problem in India is determining whether or not you’ll even be doing “real” front-office investment banking.

It seems like there are a lot of “knowledge process outsourcing” (KPO) firms that “trick” students into joining.

What can you say about this issue?

A: Yeah, it’s always tempting because many of these “operations”/ KPO roles pay more than real front-office IB ones do, at least at first.

For example, you might earn 50-100% of your base salary as a bonus at these firms, so it seems like real investment banking at first.

One friend took a bulge-bracket operations role because it paid more than a real front-office DCM position at a domestic investment bank; he regrets that decision now.

There are front-office positions in India, but team sizes are small and the entire industry, including boutiques, is 2,500 people at most.

Q: So how can you tell whether you’ll be doing KPO work or joining a real bank?

A: There are a few things you can check:

• Look at the job description and position name. If it is not something like Analyst, IBD or Associate, IBD, you should avoid it.

• Look up your colleagues’ profiles on LinkedIn – do they mention the deals they’ve worked on? Do these deals include real, well-known companies or are they tiny, obscure firms in other countries?

• Do you have a stellar academic record, and have you networked extensively? If not, you’re probably not applying to a real IBD role.

• What’s the nature of the work? Do they mention only “valuations” and “pitch books,” or can they point to closed deals that they have advised on from beginning to end?

Q: Thanks for those tips. So do you think Big 4 TS is a good stepping stone into investment banking in India?

A: Yes and no. “Yes” in that it is possible to move from TS into IBD, but “no” in that it’s not the easiest thing in the world, and it’s better to go into investment banking directly if you can do so.

Most of the recruitment for investment banking in India happens at the IIMs (Indian Institutes of Management) and IITs (Indian Institutes of Technology), which are the Indian equivalent of the Ivy League schools.

However, just like recruitment at Ivy League schools is uneven (e.g., Brown is sometimes not even viewed as a “target school”), it’s also uneven at the IITs and IIMs here.

Each of the top 3 IIMs graduates ~400 students per year, so there are at least 1,200 students that may want to get into investment banking each year against a total industry size of 2,500 at all levels.

And that doesn’t even count students from schools outside the top 3 and professionals in other industries who also want to move in.

So banks can afford to be picky, and your chances are not good unless you’re at one of the top 3 schools.

Sometimes banks do hire CAs with work experience, and sometimes they hire TS employees as well.

But to make the transition, you’ll need to network extensively, hone your financial modeling skills (you don’t spend much time on IB-style modeling in TS), and also make time to develop hobbies so you’re more “interesting.”

Transaction Services in India: To Stay, or To Go?

Q: So considering everything we discussed, do you think professionals interested in investment banking and deal advisory should stay in TS in India for the long term?

Or should they move to a major financial center in a developed market instead?

A: It depends on your chances of moving up the ladder.

If you think you have a reasonable chance of making Partner here, you should stay – there are so few qualified people, and the industry is growing so quickly that you can do very, very well if you make it to that level.

My Partner, for example, is always traveling to remote/exotic locations and staying at 5-star hotels since he has done so well.

You need to take an honest look at yourself and assess your “business development” skills and how good you might be at client relationship management.

If you don’t think you’re the best person in these areas, you’re better off moving elsewhere.

I frequently work longer hours than my colleagues in the corporate finance team here; we’re often short-staffed because we don’t like to make unnecessary hires, and the pay is weak for the amount you work.

So unless you’re reasonably confident that you’ll make Partner, you’d likely be better off moving to the UAE (investment banking in Dubai or Abu Dhabi) and earning 3x what we do for the same type of work and reduced hours.

Q: And what if you decide to leave Transaction Services altogether? What are the exit opportunities?

A: People frequently leave for IB, PE, internal M&A / corporate development, or even management consulting at the Big 4 firms.

Those are all doable, but you should aim to stay for 1-2 years at the most and then leave because you’ll get pigeonholed into Big 4 TS work if you stay beyond that.

TS is also great for business school applications.

If you get to the managerial level here, your most likely exit will be an FP&A role at a major corporation.

Q: Great. And what are your plans?

A: I’m planning to stay here for a year and then move to corporate strategy or management consulting.

Call me crazy, but I like some of the more qualitative work you do in those fields.

Q: Well, on a positive note, you won’t be drilling for gold in Saskatchewan if you stay in India or move to the UAE…

Thanks for your time!

A: My pleasure.

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