Understanding Banking Questions Flashcards
You’ve never actually worked in finance before. How much do you know about what bankers actually do?
Despite having not working, I’ve done a lot of research and spoken to those I know in the industry.
I understand that bankers offer advisory on transactions and raising capital. They connect together buyers, sellers, and investors for companies.
The everyday work of a banker involves preparing presentations, financial analysis, and production of marketing materials for raising capital.
Let’s say I’m working on an IPO for a client. Can you briefly describe what I would do?
- Meet with client and gather basic information (financials, industry overview, customers)
- Meet with other bankers/lawyers to draft the S-1, which describes/markets the company to investors
- Receive feedback on S-1 from SEC and revise until acceptable
- Go on a road show to present to institutional investors and convince them to invest
- Once capital is raised from investors, the company begins trading on an exchange
How much do you know about the lifestyle in this industry? Do you know how many hours you’ll be working every week?
I’ve done the research and I know it’ll be around 80-100 hours per week. I’ve had previous experiences in which my total commitments amounted to this type of workload on occasion, so I understand the number of hours I’ll be putting in every week.
Can you talk about a time when you had to work long hours and make sacrifices?
Emphasize how you worked long hours and how you did this over many weeks and/or months (talk about school and ABA and how it led to many hours and time sacrifices)
What’s in a pitch book?
- Bank credentials (past deals to prove expertise)
- Summary of company’s options (strategic alternatives)
- Valuation and appropriate financial models (
- Potential acquisitions targets or buyers (n/a for equity/debt deals)
- Summary and key recommendations
How do companies select the bankers they work with?`
Based on relationships established previously
- Banks develop relationships with companies years prior to needing anything; when a company wants to do a deal, it calls different banks and asks them to pitch themselves for the business; winner gets the deal
Walk me a through a typical sell-side M&A deal
- Meet with company, create initial marketing like Executive Summary and Offering Memorandum (OM), and decide on potential buyers
- Send out Executive Summary to potential buyers to gauge interest
- Send NDAs to interested buyers along with OM, and follow up on due diligence requests
- Set a “bid deadline” and solicit written Indications of Interest (IOIs) from buyers
- Select buyers to advance to the next round
- Continue responding to information requests and set up due diligence meetings with potential buyers
- Set another bid deadline and pick the winner
- Negotiate terms of the Purchase Agreement with the winner and announce the deal
Walk me through a typical buy-side M&A deal
- Spend a considerable time researching dozens/hundreds of acquisition targets; go through many selection/filter cycles with the company you represent
- Narrow list and decide who to approach
- Conduct meetings and gauge receptivity of each seller
- As discussions become more serious, conduct more detailed due diligence and figure out offer price
- Negotiate price and key terms of Purchase Agreement; then announce the transaction
Walk me through a debt issuance deal
Similar to the IPO process
- Meet with client and gather financial, industry, and customer information
- Work closely with DCM?Lev Fin to develop a debt financing/LBO model for the company; figure out the leverage, coverage ratios, and covenants that are appropriate
- Create an investor memorandum describing all this
- Go to potential debt investors and win their commitments to finance the deal
How are ECM and DCM different from M&A or industry groups?
ECM and DCM are more markets based than M&A. M&A involves execution of sell/buy-side transactions, while ECM/DCM is concerned with staying on top of the market, following trends, and making recommendations about industry and product groups for clients and pitch books.
ECM/DCM allows you go go more in-depth on certain parts of a deal, but you miss out on a broader view
What is the difference between DCM and Leveraged Finance?
Leveraged Finance is more modeling intensive and does more deal execution with industry and M&A groups on LBOs and debt financings.
DCM is more closely tied to markets and tracks trends and relevant data.
Usually some overlap in their responsibilities.
Explain what a divestiture is
When a company decides to sell off a specific division instead of the whole company.
Similar to sell-side M&A process but tends to be “messier” as it deals with one part of a company
Making a standalone operating model for the division is key, and transaction structure/valuation are more complex then they are for a traditional M&A deal
What would you put on a 1-slide company profile for an investor?
I’d put company name in the header. 1/4th of the slide would be for the business description, headquarters, and key executives. Another 1/4th can have as stock chart as well as ket historical/projected financial metrics/multiples. 1/4th can be descriptions of products and services. Last 1/4th would be key geographies with a color-coded map.
If you’re hired as a financial advisor for a company, what value could you add if they asked about their suggested growth/M&A strategy
First, you want to see what their expansion goals are and how they can best achieve them (partnering, expanding by M&A, or expanding organically with products)
Can provide value by making introductions to M&A targets and partners, and then advising on best negotiation strategy, receptive companies, price expectations, and how to manage the deal process
