Big 4 Transaction Services in India: The Best Pathway to Investment Banking and Private Equity?

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 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.