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The Practical Side of Investment Banking October 10, 2006.

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Presentation on theme: "The Practical Side of Investment Banking October 10, 2006."— Presentation transcript:

1 The Practical Side of Investment Banking October 10, 2006

2 Table of Contents 1.Citigroups Investment Banking Michigan Team 2.Structure of an Investment Bank 3.Deal Teams and the Role of an Associate 4.Why Citigroup?

3 1. Citigroups Investment Banking Michigan Team

4 Citigroups Investment Banking Michigan Team Randy Barker Co-Head, Global Fixed Income John Ciolek Energy James McCummings Global Communications Timothy Devine FIG Stephen Schiller Client Strategy Hugo Verdegaal Latin America Managing Directors Nathan Eldridge Mergers & Acquisitions Jodi Schenk Mergers & Acquisitions Victor Voorheis FIG Peter Kapp FIG Directors Rich Harding Healthcare Daniel Lee Global Communications Jas Singh Energy Keith Anderson London Ramon Gonzalez Global Communications Susan Manuelle Global Industrial Christa Volpicelli Global Industrial Vice Presidents Ben Riback (A4)* Global Consumer Arun Prasad (A3) Health Care Owen Bittinger (A3) Palo Alto Benjamin Carpenter (A3) Los Angeles Paul Croci (A3)Pablo Pallas (A3) London Martin Valdes (A3)* Latin America Sarah Ransdell Bayer (A2) Palo Alto Patty Yang (A2) Hong Kong Jason Godley Generalist Julius Peter Generalist Harsh Singh Generalist Associates * Team Co-Captain 1

5 2. Structure of an Investment Bank

6 What is an Investment Bank? Traditional Investment Banking ResearchSales & Trading Capital raising –Debt –Equity Strategic advisory services –Mergers & acquisitions –Restructuring –Takeover defense Analysis and recommendations of stocks and bonds Includes company coverage and sector coverage Distribution and execution arm of the investment bank Sells and trades stocks and bonds Manages the firms risk and makes markets for the securities underwritten by the investment bank An investment bank typically consists of three distinct, but related businesses: 2

7 Large / Global Small / Regional Who are the Leading Investment Banks in the United States? 3

8 Structure of an Investment Bank Conduit to the Corporate Client Client Investment Banking Coverage Groups Other Product Groups M&A Capital Markets Bank Loans Inv. Grade Debt High Yield Equity Chinese Wall Financial Strategies Derivatives Liability Management Pensions Corporate Banking Sales & Trading Research Private SidePublic Side 4

9 Products and Services Balance Sheet Management Hedging Share and Debt Repurchases Debt Exchanges Consent Solicitations Capital RaisingEquity Investment Grade Debt High Yield Debt Syndicated Loans Bridge Commitments AdvisoryM&A Restructuring Financial Strategy An investment bank provides numerous corporate finance functions. 5

10 Industry Coverage Groups Consumer Energy, Power & Chemicals Financial Entrepreneurs Financial Institutions Health Care Industrials Communications Real Estate Technology 6

11 3. Deal Teams and the Role of an Associate

12 Structure of a Typical Deal Team Client Investment Banking Coverage Officer IBD Support Accountants Associate Analysts Capital Markets Compliance/ Legal Attorneys The Coverage Officer has primary client responsibility and the Associate ensures that all members of the working party, both internal and external, are informed and working together. 7

13 Strategic Advisory A good investment banker is a trusted advisor to their client – a CEOs first call for strategic advice Investment bankers are most valuable when they can provide unique insight regarding a companys operations or strategic direction As part of a normal client dialogue, investment bankers will show clients strategic ideas that may or may not be obvious to their client CEOs often use their bankers to approach potential counterparties on an informal basis Investment bankers typically handle negotiations and most other aspects of the M&A process, allowing management to focus on running their business –Valuation –Process management –Structuring –Fairness opinion –Purchase/Sale documentation –Whatever else it takes 8

14 Strategic Advisory – M&A Purchasing other companies –Friendly Mergers –Hostile Takeovers –Leveraged Buyouts Selling companies –Selling entire companies –Spin-off of subsidiaries Defending Company Buyouts –Poison Pill 9

15 Life of an M&A Transaction The Pitch Specific pitch ideas Beauty contests The Mandate: Deal is Live Announcement Closing: Its Official! Preparation Solicitation of preliminary bids Solicitation of binding bids Negotiations Contract Signing Preparation for announcement –Press release –Q&A script Week of announcement –Market reaction –Roadshow? Bankers work is largely done once the deal is made public Between announcement & closing –SH vote –HSR –Other regulatory approvals Closing –Lucites –Dinner 10

16 Valuation: The Foundation of Every Deal Primary Valuation Techniques Discounted Cash Flow Analysis Public Market Analysis (Comparable Companies) Private Market Analysis (Precedent Transactions) LBO Analysis Secondary Valuation Techniques Pro Forma Consequences Analysis –Accretion/dilution –Capital Structure –EPS Growth Rates Relative Contribution Analysis Liquidation Analysis How is my client trading relative to peers? –WHY is it trading this way? Growth? Margins? Hot market versus fundamentals –HOW can the company improve its valuation? Does an acquisition make sense? What is an appropriate price? Is cash or stock a better choice? What is appropriate leverage? How would the market value the company in a public offering? How long will a company take to pay back debt holders? Do cash flows support an LBO? 11

17 Valuation and the Associate A single, quantitatively derived answer A precise number A static number Lots of number crunching More art than science Heavily dependent on judgment Valuation is NOT...Valuation is... The associate is responsible to ensure numbers are accurate and assumptions are realistic. 12

18 Raise Capital for Clients One of the most common functions of investment bankers is to assist companies in raising capital Investment banks are the intermediaries between users of capital and providers of capital Equity –IPO –Secondary Offering –Preferred Stock Debt –Investment Grade –High Yield Debt –Structured & New Product Financing 13

19 Capital Raising Assignment PitchingPre-Filing Preparation MarketingPost-deal follow-up Pricing / Closing The associate manages the flow of information and therefore must be organized and anticipate everything. 14

20 Capital Raising: Pre-Filing Screen the Deal Internally –Put together all internal memos and coordinate meetings Commitment Committee Investor Issues Committee Organizational Meeting –Establish agenda, timetable, information request list and working group list Due Diligence Meetings Drafting of Registration Statement –Development of business section and positioning –Participation in drafting sessions –Work with underwriters counsel on underwriting agreement Marketing Preparation –Prepare roadshow presentation with company –Coordinate for reds to be delivered as necessary 15

21 Capital Raising: Marketing Prepare memos for sales forces –Institutional sales memo –Retail Sales Memo Coordinate dry-run (company presentation to sales force) Denver 3 one-on-ones Minneapolis 1 one-on-one Milwaukee 2 one-on-ones Chicago 1 one-on-one Boston 7 one-on-ones 1 group mtg New York 6 one-on-ones 1 group mtg Philadelphia 6 one-on-ones 2 one-on-ones Kansas City 1 group call Europe San Francisco 1 one-on-one 1 group call 4 one-on-ones 1 group mtg San Diego Toronto 5 one-on-ones 1 group mtg Montreal 1 group mtg Roadshow: –Responsible that ALL logistics run smoothly –Accompany company to investor meetingskeep meetings on time –Feedback to Capital Markets desk: know how the book is building –ANTICIPATE everything 16

22 Capital Raising: Pricing/Closing Pricing: Handled by ECM –Coordinate bring down due diligence call prior to pricing Finalize registration statement –Meet with lawyers and printers to add in final pricing information Closing: Help coordinate wiring of funds to company –How much? Where? When? Wire instructions via memo to syndicate Post-deal client relationship –Create post-mortem book –Organize closing dinner –Design Lucite 17

23 Keys to Success as an Associate Goals Develop credibility early with team, especially analysts Leadership: Delegating authority Time management skills: Balance multiple projects Understand the transaction and communicate both up and down Develop a rapport with the analysts and communicate the big picture Manage expectations and define responsibilities Get your hands dirty Dont be afraid to ask questions Proactive client interaction Educate senior bankers and exceed expectations Pitfalls Presenting materials with mistakes or typos Waiting to get involved Failure to anticipate Not leveraging firms resources appropriately Getting lost in the detail and missing the big picture Insubstantial interaction with clients Does not properly delegate work Losing confidence under pressure Lack of attention to detail Lack of follow through Lack of involvement in recruiting and training activities 18

24 4. Why Citigroup?

25 Citigroup is the #2 Global M&A Advisor YTD Source: Securities Data Company, Inc. Note: Data as of September 30, 2006, based on rank date. GlobalU.S.Europe Volume ($B)Rank Volume ($B)Rank Volume ($B)Rank

26 Deal SizeCompanies $89 Billion $71 Billion $44 Billion $41 Billion $38 Billion We Advised on 7 of the 10 Largest Deals YTD Source: Securities Data Company, Inc. Data as of September 30, 2006, based on rank date. Deal SizeCompanies $32 Billion $30 Billion $28 Billion $27 Billion $26 Billion 20

27 We Have Advised on Many Landmark, Cross-Border Deals Source: Securities Data Company, Inc. (1) Advising a non-U.S. or non-European client in a cross-border transaction. M&A deals rank-eligible 2004-YTD 2006 (as of August 31 st ). Announced Cross-Border (2004–YTD 2006) Volume (US$bn) International (1) Client Advisory (2004–YTD 2006) Volume (US$bn) Completed Advised on CNPC Internationals acquisition of PetroKazahkstan US$3,957 mm August 2005 Pending Advised on Mittal Steels proposed offer to acquire Arcelor US$43,632 mm January 2006 Pending Advised on Autostrade SpAs merger of equals with Albertis Infraestructuras US$28,389 mm April 2006 Pending Advised on NYSEs proposed merger with Euronext US$10,203 mm May 2006 Completed Advised on Bavarias sale of a 71.8% stake owned by Santo Domingo to SABMiller US$5,227 mm July 2005 Completed Advised on G-TECH Holdings sale to Lottomatica SpA US$4,736 mm January

28 Citigroups Dominance in Capital Raising THE WALL STREET JOURNAL. YEAR-END REVIEW OF MARKETS & FINANCE Citigroup is a leading bookrunner in Global Capital Markets. Who's No. 1? Leading stock and bond underwriters, by 2005 proceeds. Global Stocks and Bonds U.S. public, Rule 144a, domestic and international equity and euro-market issues, ranked by 2005 proceeds. R10 TUESDAY, JANUARY, 3, 2006 THE WALL STREET JOURNAL. SCORECARD OF WALL STREET UNDERWRITING: FIRST NINE MONTHS C12 MONDAY, OCTOBER, 1, 2006 Who's No. 1? Leading stock-and-bond underwriters, by volume, third-quarter Global Stocks and Bonds In the U.S. public, Rule 144a, domestic and international equity and Euro markets, ranked by first nine months 2006 proceeds. 22

29 So What Does This Mean For You? Acquisition of American Household Inc. Buy-Side Advisor Acquisition Finance $890,000,000 January 2005 $1,310,000,000 June 2006 Acquisition of Vincor International Advisor to Constellation Acquisition by Constellation Brands Inc. Advisor to Mondavi $1,355,000,0000 December 2004 $4,400,000,000 September 2004 New Credit Facility in Connection with Acquisition of Grey Goose Joint Book-Runner Acquisition by GTCR Buy-Side Advisor $240,000,000 January ,850,000,000 February 2006 Financing of Acquisition by Blackstone and Lion Capital Joint Book-Runner European Beverages 7.250% Senior Notes due 2016 Joint Book-Runner $700,000,000 July 2006 ¥18,200,000,000 July 2006 Sale of Tohato, Inc. to Yamazaki Baking Co, Ltd. Advisor to Unison Capital Partners $555,000,000 April 2004 Acquisition by GTCR Buy-Side Advisor $400,000,000 May 2006 Senior Notes Sole Bookrunning Manager $190,000,000 May 2006 Convertible Senior Subordinated Notes Sole Bookrunning Manager $600,000,000 January 2006 Senior Subordinated Notes Joint Bookrunning Manager $1,600,000,000 Pending Acquisition of FileNet Corporation Advisor to IBM $300,000,000 July 2004 Senior Notes Joint Bookrunning Manager 23

30 [TRADEMARK SIGNOFF: add the appropriate signoff for the relevant legal vehicle] © 2006 Citigroup Global Markets Inc. Member SIPC. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citigroup or its affiliates and are used and registered throughout the world. © 2006 Citigroup Global Markets Limited. Authorized and regulated by the Financial Services Authority. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citigroup or its affiliates and are used and registered throughout the world. © 2006 [Name of Legal Vehicle] [Name of regulatory body]. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citigroup or its affiliates and are used and registered throughout the world. 24


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