Investment Banking Overview: An introduction to the industry

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Investment Banking Overview: An introduction to the industry

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

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