Investment Banking Overview:
An introduction to the industry
Friday, November 3, 2006
Goal of This Presentation
What is an Investment Bank? What are the opportunities? Learning more about the business
What Does an Investment Bank Do?
Raise capital for clients Advise corporations, states, or other entities on capital structure, strategy, business combinations
Create and sell securities to institutional and retail clients
Manage money for institutional and retail clients Trade on a proprietary basis
An Investment Bank’s Objectives
To be the leading investment bank as measured by share of client activity, market rank and profitability Manage a diversified portfolio of business and asset classes, making prudent use of Firm capital
Out-perform through market cycles
Be the most relevant advisor to its target client base
Investment Bank Organization
GLOBAL BANK
Global Securities Research & Economics
Investment Banking and Capital Markets
Global Private Client
Investment Management
Commodities
Global Equity Markets
Global Debt Markets
Global Investment Banking
Global Private Equity
GMI Business Construct
Global Markets Investment Banking
Sales and Trading
Principal Investing
Private Equity
Capital Leveraged Markets & Finance Financing
Strategic Advisory
GMI – Global Markets and Investment Banking
GLOBAL MARKETS
It’s not just sales and trading
Global Markets encompasses sales, trading, structuring and origination activities in a variety of product areas. Global Markets professionals provide institutional clients worldwide with a comprehensive range of end-to-end products, services and solutions.
Global Markets Product Areas
Equity Trading (Cash, Equity-Linked, Equity Financing & Services, and Strategic Risk)
Credit, Real Estate and Structured Products
Rates and Foreign Exchange
Relationship Management Hedge Fund Development & Management
Investor Client (Debt & Equity Sales)
Commodities
Investment Banking
Investment Banking professionals originate and execute transactions
– Client focus – identify and meet client needs – Product focus – opportunistically position expertise with clients Investment Banking draws on the diverse resources of the firm to deliver the best advisory solutions
– Mergers & Acquisitions Advisory
– Restructuring Situations – Equity and Debt Issuance – Financial Sponsors and Leverage Finance – Corporate Finance – Investment Management and Private Client
How Does Investment Banking Fit In?
General Relationship Management: The RM is not only Merrill Lynch's ambassador to the company, but also the company's advocate within Merrill Lynch – Product agnostic Advisory: Investment Banking the primary driver
– Primarily M&A
– Expertise of other groups drawn upon Capital Raising:
– Equity: Heavy involvement from equity capital markets
– Debt: Heavy involvement from debt capital markets
– Lending increasingly important: Some companies favor their lenders when choosing an investment bank Other
– Derivatives becoming increasingly important (opaque pricing) – Private Equity creates opportunities
– Cross selling becoming increasingly important
– Today almost no interaction with research
IBK: A Wide Range of Opportunities
Coverage Groups
Financial Institutions
Product Groups
Financial Sponsors Mergers & Acquisitions Equity Capital Markets
Telecom & Media
Real Estate
Retail
Regional Offices
Corporate Finance
Equity Linked Capital Markets
Healthcare
Consumer
Energy & Power
Leveraged Finance
Debt Capital Markets
Technology
Gaming, Leisure & Transportation
Multi Industries
Private Equity
Investment Banking Organization
Position
Managing Director:
Background
Most senior industry professional with a minimum of 10+ years of investment banking experience
Director:
Intermediate officer position with a minimum of 6-9 years of experience
Vice President:
First officer position in most firms with a minimum of 3-6 years of experience
Associate:
MBAs, first permanent position in investment banking
Analyst:
Undergraduate, two to three year program
What Do Investment Bankers Do?
Origination
Idea Generation Due Diligence
Execution
Documentation
– SEC Merger and Offering Documents
– Strategic Alternatives
– Capital Raising
– Risk Management
Problem Solving Pitch Book Production – Quantitative & Qualitative Analysis Client Contact
– Purchase and Sale Agreements, Other Agreements
Financial Analysis (Valuation, Accounting Impact) Develop Presentation Materials for Board of Directors Meetings – Financial Analysis – Strategic Rationale – Market Receptivity/reaction Prepare Materials for Internal Committees (Merrill Lynch) Identify Potential Investors and Develop Investor Marketing Materials Negotiation/structuring Client Management
What Does an Associate Do?
Financial Analysis:
Financial Forecasts and Projections Valuation Approach, Rationale and Modeling
Capital Structure and Financing Impacts
Merger Consequences Client and Industry Competitive Analyses
Industry Research:
Briefing Materials Idea/Solution Generation
Outline and Organization Drafting and Editing Client “Point Person” for Execution Drafting Documents Due Diligence Marketing Material Preparation
Presentation Preparation:
Transaction Execution:
Client Support:
Acquisition Project Support
Strategic Studies
Special Projects
What Makes a Successful Banker
KEY QUALITIES Quantitative Ability Intellectual Curiosity Communication Skills High Energy Level Research Skills
Entrepreneurial Presentation Skills Long-Term Commitment
What Makes a Successful Banker
Summer Associate – Be a great first year associate First Year Associate – Be a great associate Second Year Associate – Start showing signs of being a great VP Third Year Associate – Be a great VP
ML Focus: Providing Custom Solutions To Clients For Complicated, Business Transforming Transactions
$1.1B full recapitalization of AMERCO/UHaul Refinancing of bankruptcy exit financing
Re-IPO of US Airways post-bankruptcy emergence $332.5mm concurrent add-on and rule 144A senior convertible notes offering Offerings were made as part of a $897mm total equity raise in support of the merger between America West and US Airways Firm-wide effort spanning 21 months advising America West
$875mm Merrill Lynch commitment of capital
Firm-wide effort spanning three years
Variety of structures lending against a variety of assets and cash flow streams
Learning About the Business: Do Your Homework
Read the Wall Street Journal: Business Section (Credit Markets), Economic Commentary, Equity Markets section and Equity Volatility commentary – Need to be current on major events in business world and current market levels
– Other good resources:
• Barron’s • Economist
• Institutional Investor, Investment Dealers’ Digest, Derivatives Week
Know what is going on in the markets (stocks, bonds, Federal Reserve) Learn as much as you can about the business and the different functions
Understand the job: WHY you want to do it, WHAT you want to do
Learning About the Firm
Research each firm you are talking to
– Web site – News stories over the past few months
– Know enough to have a general conversation about the firm
Seek out and talk to former employees or summer associates about their experiences at a firm
Every summer program is different, know the specifics