Lifting the lid on the big 4 corporate finance teams – financial modelling

Navigating the various teams under the “Corporate Finance” (AKA Deals, Deals Advisory or Transaction Advisory) umbrella within Big 4 Chartered Accounting firms can be challenging.

Knowing what each of these teams can and can’t offer you in terms of your future Corporate Finance career and professional skills development might be the difference between securing your dream job or being overlooked time and time again.

In the fifth of a series of articles focusing on the various “Corporate Finance” teams within a Chartered Accounting firm, Numbers Executive endeavours to explain the pros and cons of working in the “Financial Modelling” line of service (AKA Deals Modelling or Business Modelling”).

Our insights are based entirely on Numbers Executive’s precedent experiences and we caveat that our views represent common outcomes we have seen. As with everything, there can be outliers..

The Elevator Pitch:

Financial Modelling teams generally provide two core offerings, being the provision of:

1. Financial Model Build (AKA Development) Services, which involves the development of bespoke, robust and flexible excel-based financial models, that are provided to clients to use and make informed decisions from with regard to (inter alia) :

• M&A activity (e.g. Acquire / Divest / Merge / Raise Debt or Equity)
• Organic Investment Decisions (e.g. Lease or Buy / Options Analysis / CAPEX investment)
• Operational analysis (e.g. pricing, product costing etc)
• Enterprise-level analysis via the creation management tools such as a Corporate Financial Model that is often dynamically linked to a source financial system / general-ledger, builds-up short and long-range financial statement that seamlessly update and are build from the ground-up (i.e. a collation of business units), providing management with a snapshot of metrics regarding value, capital structure, business performance etc.

Whilst other corporate finance teams develop financial models to support a broader process (such as building a valuation model to support a valuation within an Information Memorandum within an M&A team), specialist financial modelling teams develop models AS THE SERVICE (i.e. The financial model is the product, not any broader advice).

2. Financial Model Audit (AKA Review) Services, which involves a highly detailed, highly technical cell-by-cell review of an external party’s excel-based financial model in order to provide assurance that calculations are accurate, model-logic is sound and that it can be relied upon as a basis to make significant investment decisions.

What’s great about it:

Model Build :

• Exposure to a variety of clients and types of analysis across different sectors
• Developing financial models requires an intimate understanding of a client’s business operations, hence it is a platform to develop a strong operational understanding of a multitude of business types, sectors etc.
• Many financial models will include analysis with respect to Valuation, Debt, Equity, Financial Statements (Accounting), Tax (treatment & structures) etc. which requires the model developer to have an understanding of these concepts and consider how they translate that logic into a financial model
• Good levels of exposure to management teams via scoping sessions and ongoing discussion with respect to key model outputs
• Often highly variable work – whilst the concepts can be similar no two clients, businesses or organisations are the same

Model Audit

• Assists you to understand what constitutes a “best practice” financial model
• Exposure to a variety of sectors
• Exposure to Advisors and Investment Banks – a key client of model audit teams

What’s to be conscious of:

• The mix of model review vs model build work can vary significantly between teams – depending somewhat on the relationships, motivations and experience at Partner level (Model build is generally highly prized work amongst the team).
• The mix of deal-driven model build vs operational model build work can vary – being on long-term secondment to a business unit within a large corporate, evaluating large operational data sets or performing data reconciliations is not an uncommon occurrence. Whilst there is something to learn from this work, models that support investment, capital raising and deals (analysis below EBIT) are more highly sought after and can exponentially improve your corporate finance knowledge and career prospects
• In theory, modelling teams develop or review a model and move on to the next assignment (although some may purport to offer advice). A key desire/reason for team members to move-on is that they want to own the numbers long-term and contribute to the ongoing interpretation and presentation of the analysis.
• A common criticism from employers regarding professionals coming from financial modelling teams is that they are too engrossed in whether a Balance Sheet balances to within 5 decimal places, opposed to being able to answer commercial questions such as whether the underlying business represents a viable investment etc.

Most common future employment outcomes (with only this skillset):

• Other internal or external corporate finance, M&A teams
• Corporate Development roles where management of a Group Corporate Model is required
• Decision support or investment evaluation roles (Corporate)
• Positions within low-margin, capital-intensive businesses such as infrastructure, renewables, real estate, oil & gas, energy generation or transmission highly detailed, long-range analysis is required

Our advice to Financial Modelling professionals wanting to move into Investment Banking, Corporate Development or Private Equity

Financial Modelling teams offer professionals the opportunity to cover a lot of ground over all sectors, business types and for a variety of financial outcomes. The mandates you undertake will often shape your future employability, hence it’s important to focus on your long term career goals and do your best to be involved in the mandates you think will support these (and keep you interested).

Furthermore, Stay Curious and continue to think about the commercial aspects of the underlying asset you’re building a model for (or reviewing). Is this a good investment? Why is it being structured like this from a tax perspective? Is the discount rate applied correct? Are the forecasts realistic? How is the sector performing as a whole?

As with all teams, further studies such as the CFA designation, a Master of Applied Finance or Diploma of Chartered Accounting will demonstrate your technical capability.

About the author

Nicolas is a Co-Founder and Director of Numbers Executive Recruitment. He has ~20 years of experience spanning Accounting, Corporate Finance and Executive Search & Recruitment.