Valuation: more art than science, more bullshit than art

Tuesday, October 31, 2006

Valuation: more art than science, more bullshit than art

You’re manically tapping away at your keyboard, working on a valuation for Terence Chang, an MD in M&A from the New York office (alarm bells should be ringing when you hear MD, double hard when you hear M&A and off the scale when New York goes on top of that). You’re scared shitless coz everyone says that New York is the shit. They know everything and then some. They are ruthless, and they don’t give a flying fuck about the fact that you’re five hours ahead of them on this side of the pond. To make things worse, the fact that your old man is a Yank doesn’t earn you any brownie points there, unlike your English accent did with Rupert. So all you can do is tap away and give Changie the best fucking valuation he has seen in his life. No pressure!

Rob Tucker, an analyst 3 and well knows superstar of his class walks casually by your desk, stops in front of your screen, takes a quick peek and says:

“Modelling, eh? How’s it going?”

“I’m so stressed” you reply. “I’ve got to do like all the comps, precedent transactions and a full blown DCF analysis for this MD in New York M&A and then he wants me to use the valuation I get to figure out what is the lowest price his private equity client can pay and still get the deal. Shit, I’m fuckin’ stressed. I’m on my second redbull and damn. I can’t talk now. Gotta work man!”

“Chill little dude. When’s your deadline?”

“Like, tomorrow morning New York time! There is no way I can make it if I don’t work straight through the night and into tomorrow morning! Aaaargh!!!”

Rob motions for you to stand up, which you reluctantly but obediently do, and sits on your machine. He asks you to run to Starbucks and get him a black coffee and a packet of cigarettes and call him on his mobile when you’re standing outside the main entrance. Reluctantly, you go to Starbucks.

Having called Rob once in front of the entrance, you see him coming out. You give him the coffee as he motions for you to give his a cigarette. He lights up and begins walking casually. You follow, annoyed at the way this asshole is wasting your precious modelling time and making you buy him coffee and smokes, and then wastes your time while he has his coffee and smokes, when the clock is ticking on Changie’s valuation!

“Chill little dude. You’ll be fine, you’ll see.”

The smoke coming out of the corners of his mouth makes him look like a Chinese dragon as he says.

“We really shouldn’t be smoking this shit. If you knew the kind of crap they stuff into these smokes, you would never smoke again.”

Rob worked on a tobacco deal, and knew all there was to know about tobacco. He also took no shame in demonstrating this knowledge. Come to think of it, he took no shame in anything. You first got to know Rob as you were leaving the office at 3AM one morning, and a voice behind a mountain of smoke hollered.

“We don’t pay interns to sleep. It’s only thee buddy – whatever happened to face time?”

Your fellow intern buddy explained that that was Rob, the analyst he was staffed with, who let him go home early that night and offered to wrap up his share of the work. Wow! “What a nice guy – let me leave at 3!”.

Rob proceeds to give you advice on how to play office politics, with each sentence being interrupted by him saying hi to someone coming out of the building. How many people does this guy know!?!

You are torn between a sad admiration for how plugged in this kid is and the increasingly uncontrollable desire to strangle him for wasting your precious modelling time.

He finally puts out his cigarette and motions for you to follow him up.

Once you guys make it back upstairs, he sits back down on your machine, checks your email, where a you have an email from a dude in leveraged finance. You glance at the email traffic and here’s how it reads:



From: Cartwright, James (FIN)
To: Moncrieff, Michael (IBD)

Terry and Michael,

We've done the best we could at such short notice. I've had three of my guys running around like headless chickens trying to get this done, but the result is still a little rough and readfy. Still, it should be correct give or take US$5m. We think your sponsor should be able to raise US$150m for Bollocks Industries

Hope this is ok.

James


James Cartwright
Managing Director
Leveraged Finance
T: +44 20 7641 2791
F: +44 20 7641 2777


>>From: Moncrieff, Michael (IBD)
>>Sent: 31 October 2006 15:49
>>To: Cartwright, James (FIN)
>>Subject:
>>Jim,
>>
>>Chang here. My analyst needs the debt capacity for Bollocks Industries for a meeting with a >>sponsor ASAP. I'm waiting on you by his machine. I expect a number in 15.
>>
>>Terry Chang


The bastard emailed the co-head of LevFin pretending to be Terry Chang from YOUR MACHINE! Shit! You panic, wanting to beat the crap out of this arrogant shit sitting on your machine, only to realise that he’s just saved you six hours of benchmarking analysis that will anyhow be ripped to shreds in a day’s time. So what if his methods are a little unconventional, right? Shit! He can get you fired! Arrrrrgh! You don’t wanna be the dude that got fired before actually getting hired. As you continue freaking out, Rob looks back at you and calls.

“Your analysis is done little buddy. All you need to do is send this to graphics to make a few nice slides and pack your shit, coz we’re going for a few beers to celebrate.”

You look at Rob in amazement. He has finally gone mad! Pulling a prank on the LevFin co-head is one thing, but you still have midnight oil to burn on the rest of the valuation. As if he just read your thoughts, rob points to the screen and says.

“Don’t worry little buddy. It’s all done, and I’ve even made little comments for you in the spreadsheet, so you can freshen up on how we cheated Changy tomorrow morning. And now, it’s beer time.”

You take a quick look at the magic solution to your all-nighter problems that seems to have materialized on your screen, before you send it to graphics as instructed. Tomorrow morning, you’ll have the slides Changy wants way before he gets up in New York and you will rock.

You pick up your stuff and head to the pub with Rob. You begin to understand why he’s a superstar. Not because he is so much better than anyone else alive. Far from it, it’s just that he’s a tad less stupid than the rest of the crowd, and smart enough to have learnt that in i-banking, form beats substance. Every time.

2 comments:

Anonymous said...

Great post.

Anonymous said...

One of the best ones on the site.