Understanding Banking Flashcards
(14 cards)
What do bankers actually do?
Bankers are “agents” that help companies buy and sell other companies, or raise capital.
On the day to day, they create presentations, financial analysis, and marketing
materials such as Executive Summaries.
A client wants to IPO. Explain what I would do
- Meet with the client and gather their financial information, an industry overview, and their customers
- Meet with other bankers and lawyers to file S-1 registration with the SEC
- Go on a “road show” where you present the company to institutional investors until they invest
- Once the capital is raised, the company is traded on an exchange
How much do you know about the lifestyle in this industry? Do you know how
many hours you’re going to work each week?
I am aware that it is an 80-100 hour per week job. I have extensive experience with working late hours throughout my last two years at Notre Dame, balancing two majors and finance presentations for SIBC
Can you tell me about the different product and industry groups at our bank?
This question is generally bank-dependent
Typical Product Groups: M&A, LevFin, Restructuring
Typical Industry Groups: Healthcare, Retail, Industrials, Energy, Natural
Resources, Financial Institutions, Gaming, Real Estate and Technology, Media &
Telecom (TMT)
What’s in a pitch book?
- Bank “credentials” (similar deals they’ve done to “prove” their expertise).
- Summary of a company’s options (“strategic alternatives” in banker-speak).
- Valuation and appropriate financial models (for example, if you’re pitching for
an IPO you might show where the IPO proceeds would go). - Potential acquisition targets (buy-side M&A deal) or potential buyers (sell-side
M&A deal). - Summary and key recommendations.
How do companies select the bankers they work with?
This is usually based on relationships – banks develop relationships with companies
over the years before they need anything, and then when it comes time to do a deal, the
company calls different banks it has spoken with and asks them to “pitch” for the
business. This is called a “bake-off” and the company selects the “winner” afterward.
Walk me through the process of a typical sell-side M&A deal.
- Meet with company, create initial marketing materials like the Executive
Summary and Offering Memorandum (OM), and decide on potential buyers. - Send out Executive Summary to potential buyers to gauge interest.
- Send NDAs (Non-Disclosure Agreements) to interested buyers along with more detailed information like the Offering Memorandum, and respond to any follow- up due diligence requests from the buyers.
- Set a “bid deadline” and solicit buyers’ written Indications of Interest (IOIs).
- Select which buyers advance to the next round.
- Continue responding to information requests and setting up due diligence
meetings between the company and 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 the process of a typical buy-side M&A deal.
- Spend a lot of time upfront doing research on dozens or hundreds of potential
acquisition targets, and go through multiple cycles of selection and filtering with
the company you’re representing. - Narrow down the list based on their feedback and decide which ones to
approach. - Conduct meetings and gauge the receptivity of each potential seller.
- As discussions with the most likely seller become more serious, conduct more in- depth due diligence and figure out your offer price.
- Negotiate the price and key terms of the Purchase Agreement and then announce
the transaction.
Walk me through a debt issuance deal
It’s similar to the IPO process:
- Meet with the client and gather basic financial, industry, and customer
information. - 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. - Create an investor memorandum describing all of this.
- Go out to potential debt investors and win commitments from them to finance the deal.
How are Equity Capital Markets (ECM) and Debt Capital Markets (DCM)
different from M&A or industry groups?
ECM and DCM are both more “markets-based” than M&A. In M&A your job is to
execute sell-side and buy-side transactions, whereas in ECM/DCM most of your tasks
are related to staying on top of the market, following current trends, and making
recommendations to industry and product groups for clients and pitch books.
In ECM/DCM you go more in-depth on certain parts of the deal process, but you don’t
get as broad a view as you might in other groups.
What’s the difference between DCM and Leveraged Finance?
They’re similar but Leveraged Finance is more “modeling-intensive” and does more of
the deal execution with industry and M&A groups on LBOs and debt financings. DCM,
by contrast, is more closely tied to the markets and tracks trends and relevant data.
But there’s always overlap and some banks have just 1 of these groups, some have both,
and some divide it differently altogether.
Explain what a divestiture is.
It’s when a company (public or private) decides to sell off a specific division rather than
sell the entire company. The process is very similar to the sell-side M&A process above,
but it tends to be “messier” because you’re dealing with a part of one company rather
than the whole thing.
Imagine you want to draft a 1-slide company profile for an investor. What would
you put there?
Header: Company Name
Top Left: Business description, headquarters, key executives
Top Right: Metrics and Multiples
Bottom Left: Descriptions of products and services
Bottom Right: Key geographies with a color coded map
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 a high-level, first you’d want to see what their expansion goals are and how they can best achieve them – whether it’s by partnering with another company, expanding with a merger or acquisition, or expanding organically with new products.
