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  1. 1. The Anderson School at UCLA Introduction to Investment Banking October 9, 2003 Presentation to:
  2. 2. Table of Contents Agenda <ul><li>Introduction </li></ul><ul><li>Investment Banking Overview </li></ul><ul><li>Role of an Associate </li></ul><ul><li>The Recruiting Process </li></ul><ul><li>Investment Banking Interviews </li></ul><ul><li>Lehman Brothers Overview </li></ul><ul><li>_____________________________________________________________ </li></ul><ul><ul><li>Appendices </li></ul></ul><ul><ul><li>Basic Finance / Valuation Workshop </li></ul></ul>
  3. 3. Introduction
  4. 4. Introduction <ul><li>We are pleased to be here today to speak with you about investment banking, and the steps and considerations involved in landing a job in this industry </li></ul><ul><li>Presenters are members of the Anderson School recruiting team </li></ul><ul><ul><li>Los Angeles </li></ul></ul><ul><ul><li>Monica Randazzo, Associate, Western Region (Anderson Class of 2001) </li></ul></ul><ul><ul><li>Shawna Phelan, Associate, Western Region (Anderson Class of 2002) </li></ul></ul><ul><ul><li>New York </li></ul></ul><ul><ul><li>Colin Cropper, Associate, Global Mergers & Acquisitions (Anderson Class of 2002) </li></ul></ul><ul><ul><li>London </li></ul></ul><ul><ul><li>Jojo Thirasilpa, Associate, Global Leveraged Finance (Anderson Class of 2002) </li></ul></ul><ul><li>Although we work for Lehman Brothers, this presentation is meant to be generally applicable to all investment banking firms </li></ul><ul><li>Please feel free to ask questions throughout the presentation </li></ul>Introduction 1
  5. 5. Investment Banking Overview
  6. 6. Investment Banking Overview Investment Banking Overview Investment Banking Corporate Structure Lehman Brothers Private Equity Investments Private Client Services Investment Banking Fixed Income Equities Industry Groups Sales Product Groups Trading Geographic Groups Research 2
  7. 7. Investment Banking Overview <ul><li>Capital Markets – Sales, Trading & Research (Equity and Fixed Income) </li></ul><ul><ul><li>Distributes new (primary) security issues to institutional investors/clients </li></ul></ul><ul><ul><li>Transacts blocks of previously issued (secondary) securities through private placement or negotiation </li></ul></ul><ul><ul><li>Maintains markets for securities already distributed </li></ul></ul><ul><ul><li>Provides research on securities, companies, industries and economies </li></ul></ul><ul><li>Private Client Services </li></ul><ul><ul><li>Provides investment and financial advisory services </li></ul></ul><ul><ul><li>Focuses on high net worth individuals and mid-sized institutional investors </li></ul></ul><ul><li>Investment Banking </li></ul><ul><ul><li>Provides strategic, financial and valuation advisory services </li></ul></ul><ul><ul><li>Raises capital through the issuance of securities </li></ul></ul><ul><ul><li>Advises companies in merger & acquisition and restructuring transactions </li></ul></ul><ul><ul><li>Offers specialized products and services to meet the needs of corporate and government clients </li></ul></ul>Investment Banking Overview Functional Areas of a Typical Investment Bank 3
  8. 8. Investment Banking Overview <ul><li>Provide strategic, financial and valuation advisory services </li></ul><ul><ul><li>Use industry knowledge, expertise and contacts to advise senior executives and boards of directors </li></ul></ul><ul><ul><li>Identify and assess strategic opportunities </li></ul></ul><ul><ul><li>Interpret market information and enhance shareholder value </li></ul></ul><ul><ul><li>Provide general valuation services (e.g., segment analysis, break-up valuations, fairness opinions) </li></ul></ul><ul><li>Raise capital through the issuance of securities </li></ul><ul><ul><li>Act as intermediary between issuers and investors </li></ul></ul><ul><ul><li>Provide access to equity and fixed income capital (e.g., investment grade, bank, high yield, preferred stock) </li></ul></ul><ul><ul><li>Create specialized securities and derivatives (e.g., convertibles, trust preferred securities, warrants) </li></ul></ul>Investment Banking Overview What is Investment Banking? 4
  9. 9. Investment Banking Overview <ul><li>Advise companies in merger & acquisition and restructuring transactions </li></ul><ul><ul><li>Sell-side assignments (represent client in the sale of its company or some of its assets) </li></ul></ul><ul><ul><li>Buy-side assignments (represent potential acquirers and negotiate transactions) </li></ul></ul><ul><ul><li>Hostile take-over defense/advisory </li></ul></ul><ul><li>Offer specialized products and services that satisfy the needs of corporate and government clients </li></ul><ul><ul><li>Private equity (e.g., Merchant Banking, Real Estate, Venture Capital, other) </li></ul></ul><ul><ul><li>Privatization </li></ul></ul><ul><ul><li>Monetization </li></ul></ul><ul><ul><li>Asset-backed securities </li></ul></ul>Investment Banking Overview What is Investment Banking? 5
  10. 10. Investment Banking Overview Investment Banking Overview Issue of Securities Client Investors Sales Force – Equity – Fixed Income Research – Equity – Fixed Income Capital Markets – Equity – Fixed Income Industry Group Investment Bank Investment Banking Capital Markets (Sales, Trades & Research) Investment Advice Chinese Wall Ongoing financing dialogue Specific Execution Advice 6
  11. 11. Investment Banking Overview Investment Banking Overview M&A Transactions Client Potential M&A Partner M&A Group Industry Group Chinese Wall Research – Equity – Fixed Income Feedback on possible market reaction and “story”* ___________________________ * Research involvement requires officially bringing analyst over the wall. Specific Execution Advice Ongoing Strategic Dialogue 7
  12. 12. Investment Banking Overview <ul><li>Develop wide range of skills (finance, strategy, marketing, etc.) </li></ul><ul><ul><li>Team and project management </li></ul></ul><ul><li>Interact with senior management </li></ul><ul><ul><li>Deal directly with CEO/CFO and senior management </li></ul></ul><ul><ul><li>Transactions undertaken are often high profile, company altering events </li></ul></ul><ul><li>Work with highly talented peers </li></ul><ul><ul><li>Learn from those around you </li></ul></ul><ul><li>Able to take on responsibility early </li></ul><ul><ul><li>Steep learning curve </li></ul></ul><ul><li>Industry expertise or breadth of knowledge across industries </li></ul><ul><ul><li>Can specialize in an industry (e.g., Technology, Healthcare, etc.) or a product group (e.g., M&A, High Yield, etc.) that covers many industries </li></ul></ul><ul><li>Wall Street deal flow </li></ul><ul><ul><li>Long-term growth in industry expected to continue </li></ul></ul><ul><ul><li>Breadth of different types of transactions and experiences </li></ul></ul>Investment Banking Overview Reasons to Consider a Career in Investment Banking 8
  13. 13. Investment Banking Overview <ul><li>Investment Banking vs. Sales, Trading & Research </li></ul><ul><ul><li>More team and project-oriented, longer-term assignments </li></ul></ul><ul><ul><li>More strategic rather than market-oriented </li></ul></ul><ul><ul><li>More exposure to valuation, accounting, tax and corporate finance issues </li></ul></ul><ul><ul><li>Skills more transferable outside the industry </li></ul></ul><ul><li>Investment Banking vs. Industry and Management Training Programs </li></ul><ul><ul><li>More training and development along a wide range of general business skills (finance and capital markets; tax, accounting and legal; negotiation; marketing; and how to create transaction opportunities) </li></ul></ul><ul><ul><li>More responsibility at an earlier stage </li></ul></ul><ul><ul><li>Faster career track </li></ul></ul><ul><ul><li>More exposure to senior management and board members </li></ul></ul><ul><ul><li>Greater interaction with leading industry players, better opportunity to develop network </li></ul></ul><ul><ul><li>Greater intensity </li></ul></ul>Investment Banking Overview Career Comparisons 9
  14. 14. Investment Banking Overview <ul><li>Investment Banking vs. Consulting </li></ul><ul><li>Like consultants, investment bankers provide strategic advice to their clients </li></ul><ul><ul><li>For example, investment bankers advise clients on how to survive in a changing industry </li></ul></ul><ul><ul><ul><li>Optimize operating and stock price performance by divesting non-core business units </li></ul></ul></ul><ul><ul><ul><li>Capitalize on synergies or unrecognized value by acquiring other companies or assets </li></ul></ul></ul><ul><li>However, unlike consultants, investment bankers also provide financial advice to their clients </li></ul><ul><ul><li>Investment bankers present their clients with alternatives to reduce the client’s cost of capital or to help the client obtain a stronger balance sheet </li></ul></ul><ul><ul><li>In simple terms, investment bankers efficiently match capital providers with capital users </li></ul></ul><ul><li>While transactions are conceived at a “strategic” level, execution requires detailed analysis and a thorough understanding of the financial, accounting and tax profile of the client </li></ul><ul><li>More immediate, visible results to your advice – transactions executed in shorter time period and the “market” provides an immediate opinion on your advice </li></ul>Investment Banking Overview Career Comparisons 10
  15. 15. Investment Banking Overview <ul><li>Investment Banking vs. Start-ups </li></ul><ul><li>More infrastructure support </li></ul><ul><ul><li>Training and development </li></ul></ul><ul><ul><li>Substantial resources available to get the job done </li></ul></ul><ul><li>More defined career path, although still in an entrepreneurial environment </li></ul><ul><ul><li>Merit-based system </li></ul></ul><ul><ul><li>Team approach </li></ul></ul><ul><li>Less career risk </li></ul><ul><ul><li>As with a start-up, you work plenty of hours, but certainty of reward is much greater </li></ul></ul><ul><li>Many start-ups look to investment banks for direction </li></ul><ul><ul><li>Opportunity to review and evaluate numerous business plans </li></ul></ul>Investment Banking Overview Career Comparisons 11
  16. 16. Role of An Associate
  17. 17. Role of An Associate Role of An Associate The Hierarchy Role Managing Director SVP / Vice President Analyst Years in Industry Associate Client Relationships Strategic Thinking Knowledge of Industry Execution / Expertise Day to Day Execution 10+ 3½ to 10 1 to 3½ 12
  18. 18. Role of An Associate <ul><li>Before Winning the Mandate </li></ul><ul><li>Develop strategic analysis and rationale for acquisition </li></ul><ul><li>Present a thorough analysis of potential acquisition candidates to client </li></ul><ul><li>Formulate financing and capital structure to support the acquisition </li></ul><ul><li>After Winning the Mandate </li></ul><ul><li>Conduct extensive due diligence on target company; consider regulatory issues </li></ul><ul><li>Continue to work with product specialists (e.g., leveraged finance) to refine capital structure issues </li></ul><ul><li>Negotiate transaction terms and documentation </li></ul><ul><li>Prepare fairness opinion, go to committee </li></ul><ul><li>Assist the client in “selling” the transaction to the market </li></ul><ul><li>Finalize the transaction and assist in any pending capital markets financing </li></ul><ul><li>Closing dinner </li></ul>Role of An Associate M&A Transaction 13
  19. 19. Role of An Associate Role of An Associate Lehman Brothers advised Carlyle on the $800 million acquisition of United Components Transaction Overview <ul><li>On April 25, 2003, The Carlyle Group entered into a definitive agreement to acquire the vehicle replacement parts business of UIS, Inc., renamed United Components, Inc. (“UCI”), for an aggregate purchase price of $800 million </li></ul><ul><li>The transaction was financed through: (i) $415 million in Senior Secured Credit Facilities, which included a $65 million revolving credit facility; (ii) $230 million of Senior Subordinated Notes; and (iii) $260 million of cash equity from The Carlyle Group </li></ul><ul><li>Lehman Brothers acted as Financial Advisor to The Carlyle Group and as a Joint Book-Running Manager for UCI’s offering of $230 million of 9 3/8% Senior Subordinated Notes due 2013 and Joint Lead Arranger on UCI’s $415 million Senior Secured Credit Facility </li></ul>Company Overview <ul><li>UCI is uniquely positioned as one of North America’s largest and most diversified companies servicing the vehicle replacement parts market, or the aftermarket </li></ul><ul><li>The Company designs, manufactures, and distributes filtration products, fuel and cooling systems, engine management systems, driveline components, and lighting systems to the automotive, trucking, marine, mining, construction, agricultural and industrial vehicle markets </li></ul><ul><li>UCI’s customer base consists of the largest and fastest growing companies servicing the aftermarket, including Advance Auto Parts, AutoZone, CARQUEST, Mighty, NAPA and Valvoline </li></ul>Superior Execution <ul><li>The $230 million 9 3/8% Senior Notes offering priced at the tight end of price talk and inside pre-roadshow price expectations </li></ul><ul><li>The offering was well oversubscribed and the Notes traded strongly on the break, despite a significant amount of automotive offerings accessing the high yield market at the same time </li></ul><ul><li>Demand for the Senior Credit Facilities exceeded supply by more than two times and resulted in a 50 bps reduction to the LIBOR spread </li></ul>$230,000,000 9 3/8% Senior Subordinated Notes due 2013 This transaction demonstrated Lehman Brothers’ dedication to an important financial sponsor client as well as our ability to successfully execute on a short timetable Closed June 20, 2003 Joint Book-Running Manager $415,000,000 Senior Credit Facilities 14
  20. 20. Role of An Associate Role of An Associate US Search and the First American Screening Technologies Division of First American Financial to Merge and Form First Advantage Corporation Transaction Overview <ul><li>In June 2002, US Search (“Search”) and First American Screening Technologies (“FAST”) began exploring the possibility of combining the two companies </li></ul><ul><li>FAST’s parent company, First American Financial (“FAF”), had been seeking an alternative that would help it realize FAST’s value </li></ul><ul><li>In August 2002, Search and FAF both contacted Lehman Brothers to advise on a potential merger of Search and FAST </li></ul>Company Overview <ul><li>US Search, headquartered in Los Angeles, CA, uses its proprietary Web-based software platform to supply consumer and enterprise clients with services such as individual location, criminal record checks, employment and education verifications, professional reference checks, credit and motor vehicle record checks and drug screening </li></ul><ul><li>FAST, headquartered in St. Petersburg, FL, is a subsidiary of First American Financial and provides information services including pre-employment screening, drug screening, automotive credit reporting, direct-to-consumer credit reporting, and tenant screening </li></ul>Strategic Rationale <ul><li>Creates a leading player in each of the Company’s markets—background screening, drug screening, consumer information, tenant information, motor vehicle records, small and medium enterprise and public information provider </li></ul><ul><li>Creates clear challenger to ChoicePoint for supremacy in background screening </li></ul><ul><li>Significant synergies / cost savings </li></ul><ul><ul><li>Integration onto US Search’s technology platform </li></ul></ul><ul><li>Significant cross-selling potential for both FAST and Search products </li></ul>have merged to form First Advantage Corporation “ Deal creates leading player in background screening and risk management industry” June 2003 Strategic Advisor US Search and First American Screening Technologies division of First American Financial 15
  21. 21. Role of An Associate <ul><li>Assemble marketing materials to win the mandate, perform initial valuation work </li></ul><ul><li>Conduct due diligence through site visits, interviews and extensive industry research </li></ul><ul><li>Draft prospectus with company management, lawyers and accountants </li></ul><ul><li>Prepare documentation for internal commitment committee process </li></ul><ul><li>Produce marketing materials for the company’s management team to present to investors to sell the transaction </li></ul><ul><li>Develop a target of likely investors and coordinate sales effort with capital markets and sales force </li></ul><ul><li>Perform final valuation work, price the offering </li></ul><ul><li>Closing dinner </li></ul>Role of An Associate Initial Public Offering 16
  22. 22. Role of An Associate <ul><li>Valuation analysis </li></ul><ul><ul><li>Comparable company analysis </li></ul></ul><ul><ul><li>Comparable transactions analysis </li></ul></ul><ul><ul><li>Financial modeling / Discounted cash flow </li></ul></ul><ul><li>Assist in preparation of presentations (e.g., new business pitches, board books) </li></ul><ul><ul><li>Important for the firm’s marketing efforts </li></ul></ul><ul><ul><li>Good for learning a product or an industry </li></ul></ul><ul><li>Live deal experience </li></ul><ul><li>Attend Summer Associate events </li></ul><ul><ul><li>Important evaluation factor </li></ul></ul><ul><ul><li>Demonstrates your ability to juggle your schedule and mix with people </li></ul></ul><ul><ul><li>Gives full-time bankers the opportunity to see you outside the office </li></ul></ul><ul><li>Throughout the summer, seek to be an enthusiastic and positive member of the team </li></ul><ul><ul><li>Probably the most important factor in receiving an offer </li></ul></ul>Role of An Associate Typical Role of a Summer Associate 17
  23. 23. Recruiting Process
  24. 24. The Recruiting Process <ul><li>Get to know the investment banks </li></ul><ul><ul><li>Attend company presentations and other events </li></ul></ul><ul><ul><li>Attend IFC events </li></ul></ul><ul><ul><li>Talk to 2nd years that were summer associates and 1st years that are former analysts </li></ul></ul><ul><ul><li>Network with alumni </li></ul></ul><ul><li>Stay knowledgeable about the industry </li></ul><ul><ul><li>Read Wall Street Journal, Financial Times, Economist, etc. </li></ul></ul><ul><ul><li>Keep up with CNBC, CNN, Bloomberg, etc. </li></ul></ul><ul><li>Refine your resume to highlight the appropriate areas </li></ul><ul><ul><li>Leadership </li></ul></ul><ul><ul><li>High academic performance (GPA/GMAT) </li></ul></ul><ul><ul><li>If applicable, relevant work experience </li></ul></ul>Recruiting Process Timeline of Investment Banking Recruiting October to November 18
  25. 25. The Recruiting Process <ul><li>Organize informational interviews </li></ul><ul><ul><li>Be professional and well prepared before contacting people </li></ul></ul><ul><ul><li>Be proactive </li></ul></ul><ul><li>Refine your story and practice mock interviews </li></ul><ul><ul><li>Practice with a group </li></ul></ul><ul><ul><li>Know the three central questions (Why investment banking? Why this firm? Why you?) </li></ul></ul><ul><li>Send cover letters and resumes </li></ul>Recruiting Process Timeline of Investment Banking Recruiting November to January <ul><li>On-campus interviews </li></ul>January to February 19
  26. 26. The Recruiting Process <ul><li>Demonstrated excellence (in multiple dimensions) </li></ul><ul><ul><li>High academic performance (GPA/GMAT) </li></ul></ul><ul><ul><li>Leadership/self motivator </li></ul></ul><ul><ul><li>Communication skills </li></ul></ul><ul><ul><li>Team skills </li></ul></ul><ul><li>Positive attitude/Basis for action </li></ul><ul><li>Presence and professionalism </li></ul><ul><li>Commitment to learning </li></ul><ul><li>In general, firms are looking for people who have done their homework </li></ul><ul><ul><li>Those who understand the industry and can differentiate among the firms </li></ul></ul>Recruiting Process What Investment Banks are Looking For 20
  27. 27. The Recruiting Process <ul><li>Do you have the characteristics to make a good investment banker? Be prepared to relate anecdotes that illustrate these qualities: </li></ul>Recruiting Process Personal Fit <ul><li>Does your personality fit well with the bank’s culture? </li></ul><ul><ul><li>Team oriented culture vs. one that favors individual achievers </li></ul></ul><ul><ul><li>Meeting and talking to people at the various banks will give you a good idea </li></ul></ul><ul><ul><li>Remember, you will be spending a lot of time with these people so it’s best to find an environment in which you are comfortable </li></ul></ul><ul><ul><li>Hardworking </li></ul></ul><ul><ul><li>Motivated </li></ul></ul><ul><ul><li>Willing to take initiative </li></ul></ul><ul><ul><li>Detail oriented </li></ul></ul><ul><ul><li>Team player </li></ul></ul><ul><ul><li>Aggressive </li></ul></ul><ul><ul><li>Handle stress well / thick skinned </li></ul></ul><ul><ul><li>Quantitative </li></ul></ul><ul><ul><li>Personable </li></ul></ul><ul><ul><li>Flexible </li></ul></ul><ul><ul><li>Sound judgment </li></ul></ul><ul><ul><li>Articulate </li></ul></ul>21
  28. 28. The Recruiting Process <ul><li>In addition to obvious geographic and market position characteristics, firms have other differing qualities </li></ul><ul><li>Know how the firms are internally structured </li></ul><ul><ul><li>All have some type of industry and product groups </li></ul></ul><ul><ul><li>Every firm has a different approach to group placement </li></ul></ul><ul><li>Know how the firms perceive themselves </li></ul><ul><ul><li>What are their strengths, what are recent significant transactions? </li></ul></ul><ul><ul><li>How do they view their own culture? </li></ul></ul><ul><ul><li>What are employee demographics? </li></ul></ul><ul><li>Try to come to some conclusion regarding firm culture and personal fit </li></ul><ul><ul><li>Meet as many people as you can </li></ul></ul>Recruiting Process Know How to Differentiate Among the Firms, Both for Interviewing and for Your Own Firm Selection Process 22
  29. 29. Investment Banking Interviews
  30. 30. Investment Banking Interviews <ul><li>On campus – usually 30 to 45 minute interview, likely to be with school alumni </li></ul>Investment Banking Interviews Summer Associate Interview Process and Format Round 1 Round 2 <ul><li>Usually within a few days, back-to-back interviews with senior bankers </li></ul><ul><li>Short case studies may be presented – focused on both technical skills and management/leadership skills </li></ul><ul><li>The Interview Format </li></ul><ul><li>Introductory remarks and get to know you (resume review) </li></ul><ul><li>Why are you here? Why did you choose this school? </li></ul><ul><li>Why Investment Banking? Why this firm? </li></ul><ul><li>What is the role of an associate? </li></ul><ul><li>Technical questions </li></ul><ul><li>Wrap-up and Q&A </li></ul>23
  31. 31. Investment Banking Interviews <ul><li>Be able to provide a succinct answer as to why you want to be an investment banker </li></ul><ul><ul><li>Will be different for each person </li></ul></ul><ul><ul><li>Your resume should tell much of the story </li></ul></ul><ul><li>Be familiar with the firm’s history and some of its recent transactions </li></ul><ul><ul><li>Demonstrate a broader understanding of the industry </li></ul></ul><ul><li>Be prepared to answer questions such as </li></ul><ul><ul><li>Who else are you talking to? (be specific) </li></ul></ul><ul><ul><li>How would you compare firm A with firm B? </li></ul></ul><ul><ul><ul><li>Strength of businesses </li></ul></ul></ul><ul><ul><ul><li>Culture </li></ul></ul></ul><ul><ul><li>Are you interviewing outside of investment banking? Why? </li></ul></ul><ul><li>Most importantly, show that you have done your homework </li></ul>Investment Banking Interviews Commitment to the Industry and the Firm 24
  32. 32. Investment Banking Interviews <ul><li>Before the interview, you should be familiar and comfortable with the following concepts: </li></ul>Finance Accounting <ul><li>Discounted Cash Flow Analysis </li></ul><ul><ul><li>Free cash flow </li></ul></ul><ul><ul><li>Terminal value </li></ul></ul><ul><ul><li>WACC </li></ul></ul><ul><li>Comparable Company Analysis </li></ul><ul><ul><li>Enterprise vs. equity value multiples </li></ul></ul><ul><li>Comparable Transaction Analysis </li></ul><ul><ul><li>Enterprise vs. equity value multiples, premium analysis </li></ul></ul><ul><li>CAPM </li></ul><ul><li>Basic </li></ul><ul><ul><li>Income Statement </li></ul></ul><ul><ul><li>Balance Sheet </li></ul></ul><ul><ul><li>Cash Flow Statement </li></ul></ul><ul><li>Intermediate </li></ul><ul><ul><li>Purchase accounting </li></ul></ul><ul><ul><li>Cash EPS </li></ul></ul><ul><ul><li>Deferred taxes </li></ul></ul><ul><li>Advanced </li></ul><ul><ul><li>Pension accounting </li></ul></ul><ul><ul><li>Recap accounting </li></ul></ul><ul><ul><li>LBO accounting </li></ul></ul>Technical Questions Investment Banking Interviews 25
  33. 33. Investment Banking Interviews <ul><li>Resume </li></ul><ul><ul><li>Ensure resume highlights key competencies required by investment banks </li></ul></ul><ul><ul><li>Include only what you are comfortable talking about and know it by heart </li></ul></ul><ul><ul><li>Be able to expand upon each bullet point </li></ul></ul><ul><ul><li>Be able to clearly explain why you made certain choices (e.g., business school, college, first job) </li></ul></ul><ul><ul><li>Don’t overlook the additional information section – it can provide good insight into who you are </li></ul></ul><ul><li>Answering tough or unexpected questions </li></ul><ul><ul><li>Take a moment to think about your answer – a well thought out answer is better than a fast answer </li></ul></ul><ul><ul><li>Be direct in your answer and stand by your reasoning </li></ul></ul><ul><ul><li>Remain composed and balanced </li></ul></ul><ul><li>Personal impact is important </li></ul><ul><ul><li>Body language, composure, volume </li></ul></ul><ul><ul><li>Always look the interviewer(s) in the eye and use their name(s) </li></ul></ul><ul><ul><li>When you are in a two-on-one interview, make sure you address your answers to both interviewers </li></ul></ul><ul><ul><li>Relax and try to learn from the interview </li></ul></ul>Investment Banking Interviews Interviewing Tips 26
  34. 34. Investment Banking Interviews <ul><li>In conclusion, relax, be calm and confident </li></ul><ul><ul><li>You attend a great school </li></ul></ul><ul><ul><li>You have many resources available to assist you </li></ul></ul><ul><ul><li>Many others have succeeded before you </li></ul></ul><ul><li>So get organized and create a game plan </li></ul><ul><li>Good luck! </li></ul>Investment Banking Interviews Interviewing Tips 27
  35. 35. Lehman Brothers Overview
  36. 36. Lehman Brothers Overview Strategy Future Culture People Franchise Who We Are Lehman Brothers Overview Lehman Brothers and The Anderson School have remarkably compatible cultures, and the Firm has enjoyed a tremendous recruiting relationship with Anderson over many years 28 <ul><li>Our people are our greatest asset. Lehman Brothers’ professionals are driven to challenge themselves and take an active role in shaping their careers. They are deeply committed to our business philosophy and motivated to contribute to the Firm’s clients early in their careers </li></ul><ul><li>We operate on a “One Firm” philosophy that emphasizes integration and teamwork across all businesses worldwide. Working together as “One Firm” enables us to deliver a full range of products and services to our clients in a seamless manner </li></ul><ul><li>Lehman Brothers’ rich history and tradition provide a strong foundation as we continue to expand our franchise with a focus on high-margin business areas (e.g., M&A, equities, leveraged finance and private equity investing) </li></ul><ul><li>Our strategy is client-driven. Providing the highest level of service to our clients is the core of our business strategy </li></ul><ul><li>Founded in 1850, Lehman Brothers is one of Wall Street’s premier investment banking firms. Our market leadership and global presence provide us with access to the most significant issuers and investors around the globe </li></ul>
  37. 37. Lehman Brothers’ Client Focused Strategy <ul><li>U.S. Investment Grade Corporate Bond House </li></ul><ul><li>U.S. Leveraged Loan House </li></ul><ul><li>Financial Bond House (Subordinated Debt) </li></ul><ul><li>Financing Package of the Year: Qwest Dex </li></ul><ul><li>U.S. Leveraged Loan: Qwest Dex </li></ul><ul><li>European Leveraged Loan: Legrand </li></ul><ul><li>U.S. Dollar Bond: CFC (National Rural Utilities Cooperative Finance Corp.) </li></ul><ul><li>Borrower of the Year: GECC </li></ul>Leading Global Banking Franchise “ Bank of the Year 2002” The Firm also received the following awards for 2002, which reinforce the depth and strength of our global capabilities: Broad Recognition <ul><li>“ Bank of the Year 2002” </li></ul><ul><li>“ Bank of the Year” </li></ul><ul><li>“ The Best-Managed Investment Bank on Wall Street” </li></ul><ul><li>#1 ranked investment bank (#11 overall) on the list of 50 Best Performers among S&P 500 companies </li></ul><ul><li>#4 ranked research franchise </li></ul><ul><li>#1 ranked research franchise for increase in ranked research analysis since 1999 </li></ul><ul><li>“ U.S. Investment-Grade Corporate Bond House of the Year” </li></ul><ul><li>“ Bond House of the Year” </li></ul><ul><li>“ Best Lead Manager of Subordinated Debt” </li></ul><ul><li>“ M&A Deal of the Year – Chevron’s $42 billion acquisition of Texaco” </li></ul><ul><li>“ Deal of the Year: Technology” – Seagate’s $20.0 billion sale to Veritas and Silver Lake Partners </li></ul><ul><li>“ Deal of the Year: M&A” – Olivetti's $34.8 billion acquisition of Telecom Italia </li></ul><ul><li>“ Deal of the Year: M&A” – MediaOne’s $51.9 billion sale to AT&T </li></ul><ul><li>“ #1 in Derivatives Strategy” </li></ul>Lehman Brothers Overview 29
  38. 38. Lehman Brothers Overview <ul><li>Interview Process </li></ul><ul><ul><li>First round interviews at the Anderson School will be held on Monday, February 2, 2004 </li></ul></ul><ul><ul><li>Second round interviews will be held shortly thereafter at the Firm’s offices in Westwood </li></ul></ul><ul><li>Duration </li></ul><ul><ul><li>10-week program beginning on two different start dates </li></ul></ul><ul><li>Group Placement </li></ul><ul><ul><li>Driven by Summer Associate preference and group requirements </li></ul></ul><ul><li>Training </li></ul><ul><ul><li>Training for the summer is one week and includes an accounting and finance overview, comparable company and transaction analysis, financial modeling and use of various software programs </li></ul></ul><ul><ul><li>Helps you get to know the firm and review basic tasks you will be asked to perform over the summer </li></ul></ul><ul><ul><li>Presentations by the industry and product groups to raise your interest and awareness about what they do </li></ul></ul>Lehman Brothers Overview 2003 Investment Banking Summer Associate Program 30
  39. 39. Appendices: Basic Finance / Valuation Workshop
  40. 40. Valuation – Introduction <ul><li>The purpose of this workshop is to provide you with Investment Banking finance and valuation basics </li></ul><ul><ul><li>Methodologies </li></ul></ul><ul><ul><li>Contexts for valuation work </li></ul></ul><ul><ul><li>Comparable Company Analysis </li></ul></ul><ul><ul><li>Comparable Transaction Analysis </li></ul></ul><ul><ul><li>Discounted Cash Flow </li></ul></ul><ul><ul><li>Leveraged Buyout Analysis </li></ul></ul>Basic Finance / Valuation Workshop 31
  41. 41. Valuation – Methodologies Estimated Range of Value for Target A public market valuation assigned on the basis of certain key ratios, or “market trading multiples” of Net Income, EBIT, EBITDA or Sales for comparable public companies Comparable Company Analysis (“Comps”) Basic Finance / Valuation Workshop A control transaction valuation assigned on the basis of multiples of Net Income, EBIT, EBITDA or Sales for comparable companies which have recently been acquired. If the target is public, the premium paid is also relevant Comparable Transaction Analysis (“Deals”) Value that a financial buyer would pay based upon the maximum amount of debt appropriate for the target company and the required return on private equity funds Leveraged Buyout Analysis (“LBO”) The value of future free cash flows discounted to the present at an appropriate discount rate or the weighted average cost of capital Discounted Cash Flow Analysis (“DCF”) 32
  42. 42. Contexts for Valuation Work Sell-Side M&A Fairness Opinion Restructuring Add-on Financing Buy-Side M&A Initial Public Offering Basic Finance / Valuation Workshop Share Repurchase 33 <ul><li>Deciding whether a company is undervalued and should repurchase shares </li></ul><ul><li>Positioning and timing the sale of client securities to maximize proceeds </li></ul><ul><li>Determining the potential public market value of a private company </li></ul><ul><li>Advising a client on how to best and most fairly reallocate the value of the company to creditors and shareholders </li></ul><ul><li>Advising the shareholders as to the fairness, from a financial point of view, of a price to be paid or received </li></ul><ul><li>Advising a client on how much should be received as consideration for the sale of stock or assets </li></ul><ul><li>Advising a client on what price to pay </li></ul>
  43. 43. Comparable Company Analysis <ul><li>The Comparable Company Analysis is one of several techniques used to determine a range of values for a specific company, the “target” company </li></ul><ul><li>The equity of fundamentally similar, or “comparable” companies tends to be valued on a relatively consistent basis by the public markets </li></ul><ul><ul><li>Broadly speaking, if Widget Company A competes in the same industry as Widget Company B, using a similar business model, the equity markets are likely to value the two businesses in a relatively consistent manner </li></ul></ul><ul><li>By analyzing certain key ratios and operating data for each of the companies in the comparable universe, it is possible to estimate how the public equity markets would value the target. Typical benchmarks include multiples of net income and book value (equity value multiples) and multiples of Sales, EBITDA and EBIT (enterprise value multiples). </li></ul><ul><li>The Comparable Company Analysis is, by its nature, based on an analysis of currently public companies. Accordingly, the valuations received by the comparable universe do not typically reflect: </li></ul><ul><ul><li>The premium a buyer must pay for control of a company in an M&A transaction; or </li></ul></ul><ul><ul><li>The discount the market may place on shares which are newly introduced in an initial public offering or the discount that is appropriate for a private company </li></ul></ul>Comparable Company Analysis Basic Finance / Valuation Workshop 34
  44. 44. Comparable Company Analysis <ul><li>A comparable peer group should possess the same fundamental business and financial attributes such that their public trading values represent a meaningful proxy from which to determine a value range for the target. Relevant attributes include: </li></ul><ul><ul><li>Macroeconomic issues </li></ul></ul><ul><ul><li>Industry group </li></ul></ul><ul><ul><li>Business model </li></ul></ul><ul><ul><li>Geographic location </li></ul></ul><ul><ul><li>Business mix (products, markets, distribution channels) </li></ul></ul><ul><li>In some cases it will be necessary to limit the universe to a smaller, more focused group of comparables. Factors to consider include: </li></ul><ul><ul><li>Size (sales, value) </li></ul></ul><ul><ul><li>Operating history/philosophy </li></ul></ul><ul><li>As a practical matter, in many cases a broad universe of directly comparable companies will not exist. In these situations the parameters of comparability will be widened to assemble a group of companies with sufficiently similar, albeit not ideal, characteristics </li></ul>Identifying Your Comparable Company Universe Basic Finance / Valuation Workshop <ul><ul><li>Customers </li></ul></ul><ul><ul><li>Operations (production, processes, critical inputs/components) </li></ul></ul><ul><ul><li>Financial characteristics (leverage, historical and future growth, margins) </li></ul></ul><ul><ul><li>Growth (organic vs. acquisitions) </li></ul></ul><ul><ul><li>Profitability </li></ul></ul><ul><ul><li>Ownership structure </li></ul></ul>Refining Your Comparable Company Universe Expanding the View of Comparability 35
  45. 45. Comparable Transaction Analysis <ul><li>The “Comparable Transaction Analysis” is based on the premise that the value of a company or an asset can be estimated by analyzing the prices paid by purchasers of ownership interests in reported comparable transactions </li></ul><ul><li>The analysis provides a history of selected transactions in one particular industry where acquired companies have relatively similar characteristics in terms of economic drivers such as business mix, size, customer base, distribution channels, industry dynamics, etc. </li></ul><ul><li>The purpose of the comparable transaction analysis is to derive pricing benchmarks based on the selected transactions. It compares the transaction values paid for selected companies to the respective companies’ financial results to determine transaction multiples. Typical benchmarks include multiples of net income and book value (equity value multiples) and multiples of Sales, EBITDA and EBIT (enterprise value multiples) </li></ul><ul><li>Transaction multiples define the prices that acquirers are willing to pay for companies in that industry in the context of a deal. By applying transaction multiples to financial results of the company being analyzed, it is possible to determine a range of value </li></ul><ul><li>In contrast to the “Comparable Company Analysis,” this approach is generally based upon multiples paid for control of a company (i.e., includes control premium) </li></ul>Comparable Transaction Analysis Basic Finance / Valuation Workshop 36
  46. 46. Comparable Transaction Analysis <ul><li>A good understanding of the background and factors surrounding a transaction is necessary to extract meaningful conclusions from the analysis. In particular, specific deal circumstances are likely to have an impact on prices paid, including: </li></ul><ul><ul><li>Nature of transaction (minority stake vs. control, incidence of other contractual arrangements, auction vs. negotiated sale) </li></ul></ul><ul><ul><li>Attractiveness of the target company </li></ul></ul><ul><ul><li>Relative needs of seller vs. buyer (i.e., a distressed seller may get a lower price) </li></ul></ul><ul><ul><li>Identity of acquirer (strategic vs. financial, foreign vs. domestic) </li></ul></ul><ul><ul><li>Underlying market conditions (state of M&A, equity, financing markets) </li></ul></ul>Importance of Situational Understanding Basic Finance / Valuation Workshop 37
  47. 47. Discounted Cash Flow <ul><li>The DCF analysis is based on the premise that ownership is essentially a claim on the cash flows generated by a firm’s assets </li></ul><ul><li>The method entails estimating the free cash flows (“FCF”) available to all investors (equity and debt holders) and discounting these cash flows back to the present using an appropriate cost of capital to arrive at a present value for the assets </li></ul><ul><li>These assets may be financed in a multitude of different ways, but because the returns generated by these assets are available to all providers of capital, and to avoid distortions caused by a particular capital structure, the cash flows should be considered on an unlevered basis (i.e., free from financing considerations) </li></ul><ul><li>The company’s operational value (prior to adjustments for non-operating assets) can be broken down into two components: </li></ul><ul><ul><li>Present Value of free cash flows up to cut point for terminal (or continuing) value calculation; </li></ul></ul><ul><ul><li>Present Value of terminal value </li></ul></ul><ul><ul><li>Company value = PV (FCF) =  FCF t / (1+r) t + TV / (1+r) n </li></ul></ul><ul><li>The discount rate r is the Weighted Average Cost of Capital (“WACC”), which reflects the required returns by both debt and equity investors for investments with the same risk profile </li></ul><ul><li>The company’s operational value must be adjusted for non operating assets such as investments in unrelated subsidiaries, discontinued operations, hidden assets, contingent liabilities, etc. </li></ul><ul><li>The company’s equity value is obtained by deducting the value of the Company’s financial debt and other non-working capital debt </li></ul>Discounted Cash Flow Basic Finance / Valuation Workshop 38
  48. 48. Discounted Cash Flow DCF Process Basic Finance / Valuation Workshop Forecast Unlevered Free Cash Flows Choose Discount Rate Calculate Terminal Value Discount FCFs and Terminal Value Determine Firm Value Subtract Net Debt and Adjust for Non-Operating Assets and Liabilities Determine Equity Value Review Results 39
  49. 49. Leveraged Buyout Analysis <ul><li>A leveraged buyout (“LBO”) is an acquisition of a company in which a financial sponsor (e.g., private investor, LBO fund) invests a relatively small amount of equity (compared to the total purchase price) and uses leverage (debt or other source of financing) to fund the remainder of the consideration </li></ul><ul><ul><li>Debt is repaid with cash flows of the business acquired (conceptually similar to buying a house, renting it out and using the rent to pay the mortgage) </li></ul></ul><ul><li>LBOs are used in numerous types of transactions and corporate finance situations, including: </li></ul><ul><ul><li>Take-privates, in which a public company goes from being owned and traded by a large number of public shareholders to one that is privately held by a small group of investors </li></ul></ul><ul><ul><li>Buyouts of a subsidiary or division of a larger company by a group of investors </li></ul></ul><ul><ul><li>Management buyouts, in which the acquisition is done by the company’s existing management group, often with the backing of a financial sponsor </li></ul></ul><ul><ul><li>Recapitalizations (i.e., re-leveraging the company and paying a large dividend) </li></ul></ul><ul><ul><li>Leveraged acquisitions by corporations </li></ul></ul><ul><ul><li>JV LBOs, in which corporations and financial sponsors partner together to acquire a business in a leveraged transaction (corporations sometimes contribute assets); in most instances the JV structure permits the debt to be off-balance sheet for the corporation </li></ul></ul>What is an LBO? Basic Finance / Valuation Workshop 40
  50. 50. Leveraged Buyout Analysis <ul><li>LBO Analysis is a valuation methodology that provides an indication of: </li></ul><ul><ul><li>The maximum price that a financial investor would be willing to pay for a business on a stand-alone basis (i.e., without any strategic value or synergies) </li></ul></ul><ul><ul><li>The credit statistics and potential equity returns for the business at a given price </li></ul></ul><ul><li>LBO Analysis is used for a number of purposes in various transactions </li></ul><ul><ul><li>Estimates the amount a financial buyer would be willing to pay for a business, helps to identify potential LBO opportunities </li></ul></ul><ul><ul><li>Estimates the potential equity returns to the business, and provides sensitivity of the returns to growth, leverage, and valuation multiple expansion </li></ul></ul><ul><ul><li>Highlights the effects of adding leverage to the business (e.g., recapitalization, take-private) </li></ul></ul><ul><ul><li>Illustrates the debt capacity of business (based both on company specific credit criteria and capital market criteria) </li></ul></ul><ul><li>In LBO Analysis, there are several assumption areas that need to be addressed (Note: it is often easiest to approach them in the following order) </li></ul><ul><ul><li>Develop operating projections </li></ul></ul><ul><ul><li>Determine maximum leverage and capital structure parameters </li></ul></ul><ul><ul><li>Determine the expected method of exit and most likely (and realistic) exit valuation multiples </li></ul></ul><ul><ul><li>Establish return parameters </li></ul></ul><ul><ul><li>Solve for the maximum price within the given criteria </li></ul></ul>Leveraged Buyout Analysis Basic Finance / Valuation Workshop 41
  51. 51. Suggested Reading Material / Resources
  52. 52. Magazines and Newspapers Financial Times Investment Dealers Digest Financial Trader Red Herring Wall Street Journal Daily Deal Suggested Reading Material / Resources 42 <ul><li>Covers technology industry finance. A good resource if you are interested in investment banking in this area </li></ul><ul><li>This daily publication covers developments within or impacting the investment banking industry </li></ul><ul><li>A leading industry publication which covers what is going on at leading firms in both fixed income, derivatives, currencies, commodities and equities </li></ul><ul><li>This magazine covers many recent trends on Wall Street and lists recent security issues </li></ul><ul><li>A leading global newspaper covering business and specialist financial information </li></ul><ul><li>The most widely read business periodical in the world </li></ul>
  53. 53. Books – Corporate Finance Related Capital Ideas Handbook of Fixed Income Valuation: Measuring and Managing the Value of Companies Applied Corp. Finance: A User’s Manual Suggested Reading Material / Resources 43 <ul><li>Tom Copeland, Tim Koller and Jack Murrin. Potent strategies for measuring and enhancing the bottom-line value of any company. How to do a valuation </li></ul><ul><li>Frank Fabozzi. The bible for any job involving fixed income sales, trading, underwriting or derivatives </li></ul><ul><li>Peter Bernstein. Modern financial theory </li></ul><ul><li>Aswath Damodaran </li></ul>

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