Commercial Awareness Discussion Thread

[BiancaM]

I recently read this article on Square and Afterpay. https://www.ft.com/content/a09dd665-1b76-478c-a50d-e40340b29b7b

I just want to clarify if I have understood the terms that have been used as I have not found a good source for what challenger and incumbent banks are. The definitions are used in politics but I don't think that's the definition I'm looking for.

Would incumbent banks mean traditional banks with a client loyalty and challenger banks mean disruptive ones that have arisen from FinTech developments like 'buy now, pay later'?

I'm still quite uninformed with corporate finance matters, thank you!

 

[M&ALawyer]

I recently read this article on Square and Afterpay. https://www.ft.com/content/a09dd665-1b76-478c-a50d-e40340b29b7b

I just want to clarify if I have understood the terms that have been used as I have not found a good source for what challenger and incumbent banks are. The definitions are used in politics but I don't think that's the definition I'm looking for.

Would incumbent banks mean traditional banks with a client loyalty and challenger banks mean disruptive ones that have arisen from FinTech developments like 'buy now, pay later'?

I'm still quite uninformed with corporate finance matters, thank you!

Sounds like you are completely on the right track.

Incumbent banks are as you mention traditional ones which typically have in-store branches and offer a suite of personal/commercial finance services. For example Lloyds, Santander, Barclays.

Challenger banks are those which are new and have developed from FinTech. Usually have less services on offer but greater user accessibility and can offer better savings features/fx rates etc. For example, Monzo, Starling, Revolut.

 

[BiancaM]

Thanks for answering my question!!

I've been doing a Financial Markets course online and came across leveraging. If the target business for a leveraged buyout (LBO) earns a stable net profit annually and the interest rate doesn't change, what are the other risks of borrowing to invest? Would the LBO be a part of the process in an M&A transaction? Also, is it fair to conclude that a business performing an LBO is the equivalent of a prospective homeowner securing a mortgage from the bank?

I'm not sure if this is the right thread to inquire, but is the M&A bootcamp on TCLA suitable for a beginner to take? I have studied Economics during IB but I would like to have a better understanding of business terms whilst I'm applying for VS/TCs. Thank you!

 

[Jaysen]

Thanks for answering my question!!

I've been doing a Financial Markets course online and came across leveraging. If the target business for a leveraged buyout (LBO) earns a stable net profit annually and the interest rate doesn't change, what are the other risks of borrowing to invest? Would the LBO be a part of the process in an M&A transaction? Also, is it fair to conclude that a business performing an LBO is the equivalent of a prospective homeowner securing a mortgage from the bank?

I'm not sure if this is the right thread to inquire, but is the M&A bootcamp on TCLA suitable for a beginner to take? I have studied Economics during IB but I would like to have a better understanding of business terms whilst I'm applying for VS/TCs. Thank you!

Hey Bianca - just to jump in on your second question, the M&A bootcamp is suitable for beginners, but I would highly recommend starting with our Mergers and Acquisitions Case Studies course first. I would say the later is better for a specific grounding in what you need to know about M&A for your interviews .

 

[BiancaM]

Hey Bianca - just to jump in on your second question, the M&A bootcamp is suitable for beginners, but I would highly recommend starting with our Mergers and Acquisitions Case Studies course first. I would say the later is better for a specific grounding in what you need to know about M&A for your interviews .

thank you jaysen!

 

[Ali2020]

In Private Equity International recently, there was a long feature on the potential impact of COVID-19. In summary:

1. The focus on Environment, Social and Governance (ESG) is intensifying
2. PE is gearing up for more disputes
3. Data considerations are key in due diligence and beyond
4. GP-led deals in the secondaries market remain on the agenda

“Huge opportunities exist in the GP-led secondaries space,” says Christopher Sullivan, Partner at Clifford Chance. “We expect to see it become the ‘fourth leg’ of exit track planning sitting alongside sale, IPO and recap.”

For those who aren't sure what the secondaries space is, the private equity secondaries market refers to the buying and selling of a pre-existing investor commitment to a fund. Since there is so much 'dry powder' in the market and not a huge amount of viable investments, this secondaries market is becoming increasingly popular with GPs (Fund Managers).

Hi Daniel,

I have an interview coming up at a PE firm that focuses on secondaries and they mainly target LP fund portfolios and GP-led transactions to capitalise on the secondary market. I was wondering if you could help me understand what GP led transactions and LP fund portfolios are?...(in simple terms, please!)

Thanks!!

 

[Daniel Boden]

Hi Daniel,

I have an interview coming up at a PE firm that focuses on secondaries and they mainly target LP fund portfolios and GP-led transactions to capitalise on the secondary market. I was wondering if you could help me understand what GP led transactions and LP fund portfolios are?...(in simple terms, please!)

Thanks!!

So GP-led transactions are fairly standard in PE in that they are simply deals that are led by the investment professionals at the PE firm i.e. the general partners (GPs) who sit on the PE firm's investment committee and decide where they will invest the money they received from their clients or Limited Partners (more on them below).

Re LP fund portfolios, these are the backbone of PE. LPs are limited partners who are the clients of the PE firm who invest the money into the PE fund and are usually companies such as sovereign wealth funds, pensions funds etc. The GPs then pool that money together and invest that money by purchasing various different assets such as established companies with the goal of then improving that company's performance so they can sell it on in usually a timeframe of 5-7 years for a profit. The fund will normally have a specific investment focus such as in a specific industry such as technology, or a sector such as health care or real estate, or even a region such as Africa or Asia.

Hope that makes sense and good luck with your interview!

Edit: @Raam has a great knowledge of all things PE so please feel free to correct me mate or add anything I've missed haha

 

[lawstudent12345]

So GP-led transactions are fairly standard in PE in that they are simply deals that are led by the investment professionals at the PE firm i.e. the general partners (GPs) who sit on the PE firm's investment committee and decide where they will invest the money they received from their clients or Limited Partners (more on them below).

Re LP fund portfolios, these are the backbone of PE. LPs are limited partners who are the clients of the PE firm who invest the money into the PE fund and are usually companies such as sovereign wealth funds, pensions funds etc. The GPs then pool that money together and invest that money by purchasing various different assets such as established companies with the goal of then improving that company's performance so they can sell it on in usually a timeframe of 5-7 years for a profit. The fund will normally have a specific investment focus such as in a specific industry such as technology, or a sector such as health care or real estate, or even a region such as Africa or Asia.

Hope that makes sense and good luck with your interview!

Edit: @Raam has a great knowledge of all things PE so please feel free to correct me mate or add anything I've missed haha

jumping in on this, what does "focusing on secondaries" mean? I've been researching on PE for future apps but am not familiar with this. I thought that the secondary market refers to the market where shares and bonds are sold between investors (without involvement of the companies that issued those securities in the first place) but i don't see where PE comes into this as I thought PE firms tend to buy whole companies, not securities?

 

[Daniel Boden]

jumping in on this, what does "focusing on secondaries" mean? I've been researching on PE for future apps but am not familiar with this. I thought that the secondary market refers to the market where shares and bonds are sold between investors (without involvement of the companies that issued those securities in the first place) but i don't see where PE comes into this as I thought PE firms tend to buy whole companies, not securities?

Yeah the PE secondaries market is completely separate and different. Hopefully, my explanation below clears it up for you:

In Private Equity International recently, there was a long feature on the potential impact of COVID-19. In summary:

1. The focus on Environment, Social and Governance (ESG) is intensifying
2. PE is gearing up for more disputes
3. Data considerations are key in due diligence and beyond
4. GP-led deals in the secondaries market remain on the agenda

“Huge opportunities exist in the GP-led secondaries space,” says Christopher Sullivan, Partner at Clifford Chance. “We expect to see it become the ‘fourth leg’ of exit track planning sitting alongside sale, IPO and recap.”

For those who aren't sure what the secondaries space is, the private equity secondaries market refers to the buying and selling of a pre-existing investor commitment to a fund. Since there is so much 'dry powder' in the market and not a huge amount of viable investments, this secondaries market is becoming increasingly popular with GPs (Fund Managers).

 

[futuretraineesolicitor]

Hello @Daniel Boden hope you are doing well. Could you please answer one question of mine regarding PE since it is your area of expertise. Would it be correct to say that in PE, you purchase companies so there is an element of M&A and if you do an LBO using debt, there is element of finance as well, so PE would give you a taste of corporate+finance?

Thanks.

 

[lawstudent12345]

Yeah the PE secondaries market is completely separate and different. Hopefully, my explanation below clears it up for you:

oops I'm so sorry for not seeing that! That clears it up - thank you so much!

 

[lawstudent12345]

@Daniel Boden sorry to badger again lol, but would the current situation classify as a "seller's market", i.e. lots of PE firms vying for control over the same few target companies?

For lawyers would this mean that: (a) PE firms try to minimise their spending on legal fees until they are confirmed as the exclusive bidder, since in a seller's market the likelihood of a bid from a PE firm actually realising into an acquisition is much lower? (b) As a result, PE lawyers get the bulk of the work only when the deal is closing and are even more time-pressured during those periods?

once again sorry for spamming but thank you so much!

 

[Daniel Boden]

oops I'm so sorry for not seeing that! That clears it up - thank you so much!

Haha it was from a while ago don’t worry - glad it makes sense

 

[Daniel Boden]

Hello @Daniel Boden hope you are doing well. Could you please answer one question of mine regarding PE since it is your area of expertise. Would it be correct to say that in PE, you purchase companies so there is an element of M&A and if you do an LBO using debt, there is element of finance as well, so PE would give you a taste of corporate+finance?

Thanks.

Yes exactly and so lawyers who are specialists in transactions and in debt finance are both required in this area

 

[Daniel Boden]

@Daniel Boden sorry to badger again lol, but would the current situation classify as a "seller's market", i.e. lots of PE firms vying for control over the same few target companies?

For lawyers would this mean that: (a) PE firms try to minimise their spending on legal fees until they are confirmed as the exclusive bidder, since in a seller's market the likelihood of a bid from a PE firm actually realising into an acquisition is much lower? (b) As a result, PE lawyers get the bulk of the work only when the deal is closing and are even more time-pressured during those periods?

once again sorry for spamming but thank you so much!

In answer to your first question, yes very much so as the massively increased demand and limited supply of target companies has inflated said companies dramatically!

Re your other 2 questions, that’s hard to say tbh but there are often auctions for companies in PE so lawyers are needed at that stage and have to move very quickly to ensure their client’s bid gets accepted and the transaction completed so yes this is incredibly time pressured and PE lawyers have been incredibly in demand in the last year. This is shown by the incredible financial performances of PE-focused firms and US firms like Kirkland, Latham & Watkins, Skadden, Gibson Dunn etc.

Hope that’s helpful!

@Raam and @Jaysen may also have some thoughts on this they may want to add?

 

[lawstudent12345]

In answer to your first question, yes very much so as the massively increased demand and limited supply of target companies has inflated said companies dramatically!

Re your other 2 questions, that’s hard to say tbh but there are often auctions for companies in PE so lawyers are needed at that stage and have to move very quickly to ensure their client’s bid gets accepted and the transaction completed so yes this is incredibly time pressured and PE lawyers have been incredibly in demand in the last year. This is shown by the incredible financial performances of PE-focused firms and US firms like Kirkland, Latham & Watkins, Skadden, Gibson Dunn etc.

Hope that’s helpful!

@Raam and @Jaysen may also have some thoughts on this they may want to add?

That's really helpful, thank you!

 

[Deleted member 2707]

I’d stress it’s unusual for there to be one question that would cover commercial awareness.

I would probably try to find something more specific within climate change. Climate change is a big topic on its own - there will be lots of different stories within it, so try to focus on one of those specific stories, especially if it is more aligned to the firm’s work.

Hi Jessica! I'm currently preparing for my AC and stumbled on this comment. Wouldn't it be common for interviewers to ask questions such as "Tell me about a commercial story that interests you" etc that does cover commercial awareness?

 

[Jessica Booker]

Hi Jessica! I'm currently preparing for my AC and stumbled on this comment. Wouldn't it be common for interviewers to ask questions such as "Tell me about a commercial story that interests you" etc that does cover commercial awareness?

Yes, that is a common question asked

 

[futuretraineesolicitor]

Yes, that is a common question asked

Hi, Jessica. Hope you are doing well. I was going through all the interview questions that I could find on TCLA that are asked during the Links AC and this question wasn't there even for a single candidate. However, could you please tell me if we should still prepare for some of these basic questions regardless of whether they have been asked earlier or not?

Thanks.

 

[Jaysen]

Hi, Jessica. Hope you are doing well. I was going through all the interview questions that I could find on TCLA that are asked during the Links AC and this question wasn't there even for a single candidate. However, could you please tell me if we should still prepare for some of these basic questions regardless of whether they have been asked earlier or not?

Thanks.

Absolutely. The questions we list are just an example of some of the questions candidates have remembered. Every interviewer will likely ask different questions and change their approach depending on the candidate.