Understanding Banking Flashcards
You’ve never worked in finance before. How much do you know about what bankers actually do?
- done a lot of research
- BC
- spoke with alumni, relatives, etc.
Let’s say I’m working on an IPO for a client. Can you describe briefly what I would do?
- meet with client and gather basic information, such as their financial details, industry overview and who their customers are
- you meet with other bankers and lawyers to draft the prospectus, receive comments from FCA and keep revising document until acceptable
- then you spend a few weeks presenting the company to institutional investors on a roadshow, determine the price
- then company begins to trade on an exchange once you’ve raised the capital from investors
How much do you know about the lifestyle in this industry? Do you know how many hours you’re going to work each week?
Done my homework, understand the 80-100 hour wells and intense workload.
- refer to times where you’ve experienced this.
What’s in a pitch book?
- Bank credentials - similar deals they’ve done to prove expertise
- Summary of a company’s options/ strategic alternatives
- Valuation and appropriate financial models
- Potential acquisition targets, or potential buyers
- Summary and key recommendations
How do companies select the bankers they work with?
Based on relationships, bank develop relations with companies over the years before they need anything.
- when time comes to do a deal, company calls different banks it has spoken with and asks them to ‘pitch’ for the business
- this is called a ‘bake-off’ and company selects winder after
Walk me through the process of a typical sell-side M&A deal.
- Meet with company, create initial marketing materials like executive summary and OM, decide on potential buyers.
- Send out ES to potential buyers to gauge interest
- Send NDAs to interested buyers along with more detailed info like OM and respond to any follow up requests from buyers
- Set a bid deadline, and solicit written IOIs from buyers
- Select which buyers advance to next round
- Continue responding to information requests and setting up due diligence meetings between company and potential buyers
- Set another bid deadline and pick winner
- Negotiate terms of purchase agreement and announce deal
Walk me through the process of a typical buy side M&A deal
- Research on dozens or 100s of potential acquisition targets, go through multiple cycles of seclusion and filtering with company you are representing
- Narrow down the list based on their feedback and decide which to approach
- Conduct meetings and gauge the receptivity of each potential seller
- As discussions with most likely seller become more serious, do more in-depth due diligence and figure out offer price.
- Negotiate price and key terms of the pA and announce transaction
Walk me through a debt issuance deal
Similar to the IPO process:
1. Meet with the client and gather basic financial, industry and customer information
2. Work closely with DCM/ Leveraged Finance to develop a debt financing or LBO model for the company and figure out what kind of leverage, coverage ratios and covenants might be appropriate
3. Create an investor memorandum describing all this
4. Go out to potential debt investors and win commitments from them to finance the deal
Main difference between debt issuance deal and IPO
- fewer banks involved
- no need for FCA approval in general as debt is not sold to general public, but instead to institutional investors and funds
How are ECM and DCM different from M&A or industry groups?
ECM and DCM are both more markets-based than M&A.
- in M&A, job is to execute sell and buy side transactions, whereas here most tasks are related to staying on top of markets, following current trends and making recommendations to industry and product groups for clients and pitch books.
- in CM you go more in depth on certain parts of the deal process, but dont get as broad a view as you might in other groups
What’s the difference between DCM and LF
Similar, but LF is more modelling intensive, does more deal execution with industry and M&A groups on LBOs and debt financings
- DCM is more closely tied to the markets and tracks trends and relevant data
Explain what a divestiture is
When a company decides to sell of a specific division rather than whole company.
- process is very similar to the sell-side M&A process above, but tends to be messier as you deal with a party of one company rather than whole things
- creating a standalone operating model for the particular division they’re selling is extremely important and the transaction structure/ valuation are more complex than they would be for a normal deal
Imagine you want to draft a 1-slide company profile for an investor. What would you put there?
- company name in the header, then divide slide into 4 equal parts
- top left is for business description, HQ and key executives
- put a stock chart and key historical and projected financial metrics and multiples on top right
- bottom left can have descriptions of products and services
- bottom right should have key geographies with a colour coded map to look good.
Let’s say you’re hired as the financial advisor for a company. What value could you add for them if they ask you about their suggested growth / M&A strategy?
At high level:
- see what expansion goals are and how best to achieve them: partnering with another company, expanding with M&A or expanding organically
As IB:
- make introductions to potential M&A targets and patterns, then advise on best negotiation strategy
- what companies would be most receptive, price to expect, how to manage entire process.
