Investment Banking Overview: An introduction to the industry

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  • 1. Investment Banking Overview: An introduction to the industry Friday, November 3, 2006
  • 2. Goal of This Presentation
    • What is an Investment Bank?
    • What are the opportunities?
    • Learning more about the business
  • 3. 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
  • 4. 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
  • 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. GMI Business Construct Leveraged Finance Capital Markets & Financing Strategic Advisory Sales and Trading Principal Investing Private Equity Global Markets Investment Banking
    • GMI – Global Markets and Investment Banking
  • 7. 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
    • Rates and Foreign Exchange
    • Relationship Management
    • Hedge Fund Development & Management
    • Commodities
    • Equity Trading (Cash, Equity-Linked, Equity Financing & Services, and Strategic Risk)
    • Credit, Real Estate and Structured Products
    • Investor Client (Debt & Equity Sales)
  • 8. 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
  • 9. 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
  • 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. Investment Banking Organization Position Background
  • 12. What Do Investment Bankers Do?
    • Idea Generation
      • Strategic Alternatives
      • Capital Raising
      • Risk Management
    • Problem Solving
    • Pitch Book Production – Quantitative & Qualitative Analysis
    • Client Contact
    Origination Execution
    • Due Diligence
    • Documentation
      • SEC Merger and Offering Documents
      • 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
  • 13. What Does an Associate Do?
    • Financial Forecasts and Projections
    • Valuation Approach, Rationale and Modeling
    • Capital Structure and Financing Impacts
    • Merger Consequences
    • Client and Industry Competitive Analyses
    • Briefing Materials
    • Idea/Solution Generation
    • Outline and Organization
    • Drafting and Editing
    • Client “Point Person” for Execution
    • Drafting Documents
    • Due Diligence
    • Marketing Material Preparation
    • Acquisition Project Support
    • Strategic Studies
    • Special Projects
    Financial Analysis: Industry Research: Presentation Preparation: Transaction Execution: Client Support:
  • 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. 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
  • 16. ML Focus: Providing Custom Solutions To Clients For Complicated, Business Transforming Transactions
    • $1.1B full recapitalization of AMERCO/UHaul
    • Refinancing of bankruptcy exit financing
    • $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
    • 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
  • 17. 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
  • 18. 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