Colgate University Investment Banking

Colgate University Investment Banking
Discussion Materials Prepared For Colgate University Investment Banking February 19, 2011 CONFIDENTIAL DRAFT

Notice to Recipient Confidential
“Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a registered broker-dealer and member of FINRA and SIPC, and, in other jurisdictions, locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed. These materials have been prepared by one or more subsidiaries of Bank of America Corporation for the client or potential client to whom such materials are directly addressed and delivered (the “Company”) in connection with an actual or potential mandate or engagement and may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with us. These materials are based on information provided by or on behalf of the Company and/or other potential transaction participants, from public sources or otherwise reviewed by us. We assume no responsibility for independent investigation or verification of such information (including, without limitation, data from third party suppliers) and have relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance prepared by or reviewed with the managements of the Company and/or other potential transaction participants or obtained from public sources, we have assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. These materials were designed for use by specific persons familiar with the business and affairs of the Company and are being furnished and should be considered only in connection with other information, oral or written, being provided by us in connection herewith. These materials are not intended to provide the sole basis for evaluating, and should not be considered a recommendation with respect to, any transaction or other matter. These materials do not constitute an offer or solicitation to sell or purchase any securities and are not a commitment by Bank of America Corporation or any of its affiliates to provide or arrange any financing for any transaction or to purchase any security in connection therewith. These materials are for discussion purposes only and are subject to our review and assessment from a legal, compliance, accounting policy and risk perspective, as appropriate, following our discussion with the Company. We assume no obligation to update or otherwise revise these materials. These materials have not been prepared with a view toward public disclosure under applicable securities laws or otherwise, are intended for the benefit and use of the Company, and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without our prior written consent. These materials may not reflect information known to other professionals in other business areas of Bank of America Corporation and its affiliates. Bank of America Corporation and its affiliates (collectively, the “BAC Group”) comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and strategic advisory services and other commercial services and products to a wide range of corporations, governments and individuals, domestically and offshore, from which conflicting interests or duties, or a perception thereof, may arise. In the ordinary course of these activities, parts of the BAC Group at any time may invest on a principal basis or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions, for their own accounts or the accounts of customers, in debt, equity or other securities or financial instruments (including derivatives, bank loans or other obligations) of the Company, potential counterparties or any other company that may be involved in a transaction. Products and services that may be referenced in the accompanying materials may be provided through one or more affiliates of Bank of America Corporation. We have adopted policies and guidelines designed to preserve the independence of our research analysts. These policies prohibit employees from offering research coverage, a favorable research rating or a specific price target or offering to change a research rating or price target as consideration for or an inducement to obtain business or other compensation. We are required to obtain, verify and record certain information that identifies the Company, which information includes the name and address of the Company and other information that will allow us to identify the Company in accordance, as applicable, with the USA Patriot Act (Title III of Pub. L (signed into law October 26, 2001)) and such other laws, rules and regulations as applicable within and outside the United States. We do not provide legal, compliance, tax or accounting advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by us to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed herein is being delivered to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent tax advisor. Notwithstanding anything that may appear herein or in other materials to the contrary, the Company shall be permitted to disclose the tax treatment and tax structure of a transaction (including any materials, opinions or analyses relating to such tax treatment or tax structure, but without disclosure of identifying information or, except to the extent relating to such tax structure or tax treatment, any nonpublic commercial or financial information) on and after the earliest to occur of the date of (i) public announcement of discussions relating to such transaction, (ii) public announcement of such transaction or (iii) execution of a definitive agreement (with or without conditions) to enter into such transaction; provided, however, that if such transaction is not consummated for any reason, the provisions of this sentence shall cease to apply. Copyright 2010 Bank of America Corporation.

Investment Banking Discussion Materials Prepared For Colgate University Table of Contents 1. Overview of Investment Banking 2. Role of an Analyst 3. Questions? Appendix A. Analyst Success Factors B. Valuation Basics C. Interview Skills and Preparation

Overview of Investment Banking

So What Do Investment Bankers Do? I can sum up what we do in two words and one picture: Ari Gold We don’t create anything and we don’t buy anything; we just sell things that aren’t ours to begin with If the business world were like Entourage, bankers would be the agents, private equity firms and large companies would be the studios, and companies would be the actors and movies And If You Haven’t Seen Entourage… Think of investment bankers like real estate agents but for companies instead of houses Just as a real estate agent introduces buyers and sellers of property, bankers introduce buyers and sellers of companies and try to make a deal happen And just like real estate agents, the only thing at stake is our time – we have no money invested on either side But What Will You Do as an Analyst or Associate? The above is the “high-level” view of what investment bankers do As a junior banker, you’re more like Lloyd: you grab coffee for Ari and take care of his grunt work ____________________ Source: MergersAndInquisitions.com. 1

The Basics Users of Capital: Corporations Governments Municipalities Providers of Capital: Individuals Pension Funds Insurance Companies Asset Managers Corporate Treasuries WALL STREET 2

Individuals Institutions
Overview of Investment Banking Functions of an Investment Bank Sell equity and debt securities, provide research INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH Sell equity and debt securities, provide research PRIVATE CLIENT ASSET MGMT Corporate Finance Services Strategic Advisory Underwrite and Place Securities Advice Financial planning Buy/sell securities Sell equity and debt securities, provide research CORPS GOVTS MUNIS Invest directly Invest directly Invest indirectly by buying mutual funds, insurance policies, etc. Individuals Institutions 3

Mergers & Acquisitions Transaction INVESTMENT BANKING Advise Negotiate CORP CLIENT TARGET Cooperate to originate and/or finance transaction and guide and understand market reaction Cooperate to finance transaction and understand market reaction Communicate SHAREHOLDERS OF EACH COMPANY SALES & TRADING Communicate RESEARCH CAPITAL MARKETS Strategize 4

Constant contact in origination and execution
Overview of Investment Banking Debt or Equity Transaction CAPITAL MARKETS RESEARCH Advise CORP CLIENT Constant contact in origination and execution Roadshow SALES $$$$ Originate Advise Due diligence SYNDICATE I. BANKING TRADING WALL STREET 5

Equity Capital Markets Corporate & Investment Banking
Overview of Investment Banking How It All Works Together Separates private side of GBAM activities (left side) from public side of activities (right side). Compliance and legal ensure flow of information between the two sides does not occur. Seeking advice from bankers as well as access to permanent and working capital. Include Global Fortune 500 companies, as well as sovereigns, municipalities, and sponsors, who operate globally. Consists of global institutional firms such as mutual funds, pension funds, hedge funds, sovereign wealth funds, and central banks, as well as financial institutions and corporate clients. Information Wall Equity Research Equity Capital Markets Issuers Corporate & Investment Banking Syndicate Sales and Trading Investors Debt Capital Markets Research prepares independent views on Equity, Fixed Income, and Macro markets, valued by investing clients as well as internal Sales & Trading teams. Sales interfaces with institutional clients to provide access to the bank’s trading and product platform. Trading maintains market making activity in numerous equity, credit, rates, FX, commodity, and mortgage securities. Fixed Income Research Bankers are the relationship owners of issuing clients and sponsors. Investment Bankers typically work with CEOs & Boards as an advisor on firm strategy (M&A, divestiture) and Capital Raising. Corporate Bankers typically work with CFOs and Treasurers on working capital, treasury, and risk management solutions. Form the capital raising function within the bank. Understands current market environment for capital and structures deals such that issuers are gaining the cheapest access to capital while investors are earning a fair return for respective risks. Origination and structuring of securities occurs here. 6

Role of an Analyst

Role of an Analyst Investment Banking at Bank of America Merrill Lynch
Global Corporate & Investment Banking (“GCIB”) Product Focus Industry Focus Mergers & Acquisitions (“M&A”) Leveraged Finance Financial Sponsors Private Equity Consumer & Retail (“C&R”) Media & Telecom (“M&T”) Healthcare Energy & Power (“E&P”) Real Estate Technology Financial Institutions (“FIG”) Global Industrials (“GIG”) Equity Capital Markets (“ECM”) Debt Capital Markets (“DCM”) Typically a two to three year commitment as an Analyst with potential to remain with the firm depending on performance 7

Role of an Analyst Banking Hierarchy What does everyone else do?
Directors and Managing Directors manage the teams, go to meetings, and do lots of strategic thinking/negotiating VPs draw up pages and do strategic thinking; lots of meetings/presentation Associates check the analyst’s work and tries to do VP-level work, occasionally presenting at meetings What does an analyst do? An analyst is the numbers and graphics maven Quantitative analysis (standalone operating models, merger models, LBO models, discounted cash flows, specialty models) Industry research Prepare presentations and pitches (board meetings, fairness opinions, management presentations, conference materials) Conduct due diligence and process results Organize roadshows for marketing transactions with corporate clients Managing Director Director Vice President Associate Analyst 8

Presentation Preparation Transaction Execution
Role of an Analyst Your Role as An Analyst Financial Analysis Industry Research Presentation Preparation Transaction Execution Client Support Financial Statement Analysis Comparable Company Analysis Financial Forecasts and Projections Modeling Competitive Analyses Background Description Briefing Materials Drafting and Editing Graphic Design Presentation Support Drafting Documents Due Diligence Marketing Material Preparation Roadshow Logistics Acquisition Project Support Strategic Studies Special Projects 9

Role of an Analyst Valuation Methodologies Valuation Methodologies
Publicly Traded Comparable Companies Analysis Comparable Transactions Analysis Discounted Cash Flow Analysis Leveraged Buyout/Recap Analysis Other "Public Market Valuation" Value based on market trading multiples of comparable companies Applied using historical and prospective multiples Does not include a control premium "Private Market Valuation" Value based on multiples paid for comparable companies in sale transactions Includes control premium "Intrinsic" value of business Present value of projected free cash flows Incorporates both short-term and long- term expected performance Risk in cash flows and capital structure captured in discount rate Value to a financial/LBO buyer Value based on debt repayment and return on equity investment Liquidation analysis Break-up / Sum-of- the-Parts (SOTP) analysis Historical trading performance Expected IPO valuation EPS impact (accretion / dilution analysis) Dividend discount method 10

Role of an Analyst Core Competencies / Qualities 11

Questions?

Questions? Resources Books
The Vault Career Guide to Investment Banking – should be your bible if you’re interviewing The Accidental Investment Banker: Inside the Decade that Transformed Wall Street by Jonathan Knee – one man’s foray into investment banking; gives a good history and overview through the lens of his experience Barbarians at the Gate By Bryan Burrough and John Helyar – story of the landmark LBO of RJR Nabisco Liars Poker: Rising Through the Wreckage on Wall Street By Michael Lewis – called “essential reading for a prospective investment banker interested in the sales and trading side” Online – amusing yet insightful answers to every question you ever had about investment banking and the finance world – overviews of more technical concepts, great for interview prep dealbook.nytimes.com – goings on in the investment banking world – Perez Hilton for investment bankers Other: NYTimes, Wall Street Journal, The Economist, Financial Times, etc. 12

Appendix

Analyst Success Factors

A Great Analyst is Someone Who… Tries to step into the shoes of the rank above Has a positive attitude Is eager to learn Is reliable Is responsible Is accessible (carries Blackberry at all times, communicates well and on time) Is proactive Is resourceful Asks insightful questions Has an inquiring mind and is a thorough thinker Is efficient, organized, has great attention to detail, and is self-sufficient/independent Willing to do grunt work to highest standard Leverages off peers and other analysts Accepts the unpredictability of the schedule (don’t feel victimized by hours works and does not flaunt hours worked) Needs little sleep, has great sense of humor! Is always presentable and well-groomed 13

Your Report Card (Formal) I. Business Acumen Clearly understands the needs and complexity of the business they are serving Develops a compelling sense of purpose and direction Basic knowledge of products and sectors Knowledge of relevant tools, techniques and processes II. Quantitative/Technical Skills Demonstrates strong quantitative ability Rapidly processes and synthesizes information and identifies key issues Delivers required output on time and at required quality and accuracy levels Effectively works on several activities without sacrificing quality or service Clear attention to detail III. Leadership/Attitude Collaborates well with others and shares ideas Exhibits corporate citizenship; participates in mandated training programs, compiles with firm policies Communicates effectively in formal and informal settings; proactive in managing expectations Demonstrates good judgment and decision making capabilities Has a positive attitude and strong commitment to the work Behaves in a way that leads others to trust them Is calm and focused under pressure Works well amidst ambiguity Results oriented 14

Things to Implement on the First Day Attitude Display a sense of urgency and be enthusiastic about everything you do Demonstrate a positive attitude and be willing to learn as much as you can Inspire Confidence FIRST IMPRESSIONS ARE LASTING!!! Be available (check voic s and s; let people know where you are; call in when you are out) Be accurate (CHECK YOUR WORK) Be reliable Have an opinion Career Development Be proactive and introduce yourself to the members of the group Establish a regular dialogue with your staffer What types of projects/sectors have you worked on? What types of projects/sectors would you like get more exposure to? Establish a regular dialogue with your mentor 15

Take Ownership Know the Objective Why is the team working on this project? What’s the goal for the bank? What’s the history with the client? What’s the angle? Demonstrate Basic Knowledge of the Company / Industry Know key financial data (revenue, EBITDA, equity value, enterprise value, trading multiples, etc.) Read a few research reports on your company to get up to speed Who are the major competitors and end markets? Focus on Quality Control Read work that comes in from other groups. Check it. Read the details that senior people don’t have time to read (that’s how you get invited to meetings) Train Yourself Never delegate something that you can’t do yourself Study every piece of analysis that crosses your desk until you understand it Pick your way through the model Seek out and study precedents Read training manuals 16

STOP Analyst Success Factors Communication Email
Run spell check (set to run auto check) Check the attachment before hitting send Be careful of “Reply to All” (especially for distribution lists) Use a professional tone / be conservative ( can be interpreted differently) NO PERSONAL S Voic Sending: Organize thoughts beforehand and get to the point Receiving: Check voic often Meetings Always consider logistics in advance (building access, dial-in numbers, conference room reservations) STOP 17

Organization Actively Manage Your Time Map out all of the steps of task at hand Estimate the time it will take to complete each step Communicate the schedule / allow teammates to plan accordingly Budget time for associates to review and give comments before distributing to broader team Manage Conflicts Early Communicate time conflicts early and often – most conflicts can be managed Don’t decide yourself what’s more important Keep Lists Write everything down (first casualty of fatigue is memory) Review and prioritize your lists daily Read your list often during the day Organize As You Go Don’t push it off until later Keep your desk and projects organized and easily accessible Save copies of all s 18

Valuation Basics

= Valuation Basics Firm Value vs. Equity Value Net Debt Enterprise
+ 19

Valuation Basics Airline Public Comparables
($ in millions, except per share amounts) Public comparables give a useful understanding of the company’s strengths and weaknesses against a peer group ____________________ (1) Enterprise Value = Market Value of Equity + Short-term Debt + Long-term Debt + Preferred Equity + Minority Interest - Cash and Marketable Securities. (2) Estimates obtained from Wall Street research and calendarized when necessary. (3) Earnings estimates and EPS growth obtained from FactSet Fundamentals and calendarized when necessary. 20

Valuation Basics Recent Aerospace Sector Acquisition Transactions
Acquisition comparables give a useful understanding of where the deal “fits” compared to similar transactions LTM EBITDA Multiple (1) 2004 2005 2006 2007 2008 2009 2010 Strategic Sponsor ____________________ Source: Company filings and Wall Street research. (1) Transaction announced in March 2010 and still not closed. 21

Valuation Basics DCF Analysis Summary of Analysis Advantages
A Discounted Cash Flow Analysis (“DCF”) establishes the “intrinsic value” of the operating assets of a business A DCF is an analysis which represents the present value of each of the (1) free cash flows of the business over the projection period and (2) terminal value Free Cash Flows (“FCF”): Cash flows available to all providers of the capital to the business Terminal value: Portion of the total value of the business beyond the specific forecast period Given the central role of long-term assumptions in the DCF, the results of a DCF should be presented as a range of values as opposed to a single point estimate DCF is more flexible than other valuation approaches in terms of its ability to incorporate the unique attributes of a business, but it is also very sensitive to estimates of cash flow, terminal value and discount rate Advantages Disadvantages Provides an objective framework for assessing risk and cash flows to estimate value Requires users to analyze key drivers of value May be used when no “pure play” comparable companies are available Extremely sensitive to cash flow projections which may be unrealistic Terminal value may be distorted by incorrect estimations of either long-term cash flow or reasonable terminal multiples Validity of the discount rate depends of assumptions for beta and the market risk premium 22

Valuation Basics DCF - Methodology Forecast Free Cash Flow
Estimate Terminal Value Estimate Cost of Capital Derive an Implied Valuation Range Identify components of free cash flow Develop historical perspective Determine forecast assumptions and scenarios Decide forecast horizon, typically 5 to 10 years Prepare forecast Determine best way to estimate terminal value Exit multiple Perpetuity Exit multiples implied by comparable acquisitions Perpetuity growth rate should be consistent with inflation predictions Examine terminal value contribution to analysis Develop target capital structure Estimate cost of equity (CAPM) Estimate cost of non- equity sources of capital Determine appropriate tax rate Calculate WACC Calculate present value of operating assets by discounting cash flows and terminal value to present Adjust value to reflect other assets (e.g. cash) and liabilities (e.g. debt) to result in value of equity Perform sensitivity analyses Interpret results within decision context 23

Valuation Basics DCF - Calculating Free Cash Flow
Unlevered Free Cash Flow Illustrative Unlevered FCF Calculation Unlevered Free Cash Flow is the cash generated: By all of the operating assets employed in the business Before the effects of financing (i.e. unlevered) Thus, FCF represents the cash available to be distributed to all providers of capital EBIT Less: (–) Cash Taxes Equals: (=) Net Operating Profit After Tax (NOPAT) Add: (+) Depreciation & Amortization (+) Other noncash charges Less: (-) Capex (-) Change in net working capital Equals: (=) Unlevered Free Cash Flow Why Unlevered Free Cash Flow vs. Discounted Earnings… Near term, cash flow can differ substantially from accounting earnings Capex vs. depreciation Non-cash items included in earnings Earnings are more easily manipulated than cash flow Provisions / accruals Revenue recognition policies Inventory accounting (LIFO vs. FIFO) Off-balance sheet financing and special purpose vehicles 24

Valuation Basics LBO Analysis
A leveraged buyout occurs when a financial sponsor acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage. The cash flow is used to de-lever the company increasing the implied equity value. Acquisition funded mostly with debt "Leverage" of 3.0 to 5.0x EBITDA Smaller amount of equity (typically, 30-40% — 60-70% Debt) Value created primarily through "deleveraging" Strong cash flows need to service debt Viable "exit strategy" in 3-5 years Common sources of debt financing Bank debt (senior) Term loans and revolving credit facility High yield bonds (subordinated) Generally supplies a "floor valuation" What can a " financial sponsor" afford to pay? Targets often underperforming or "out of favor" companies 25

Valuation Basics LBO - Capital Structure Alternatives
Components of Capital 26

Interview Skills and Preparation

Overview Interview is the most important element in the job search process Opportunity for you to determine if investment banking and, more specifically, if “XYZ Bank” is a good “fit” General Pointers Be prepared: Know as much about the investment bank and position as possible Know yourself Be honest Have a positive attitude Demonstrate interest Professionalism Practice Ask good and relevant questions 27

What Investment Banks Typically Desire in an Analyst Strong communication skills (written and oral) Motivation, enthusiasm, knowledge of firm and industry Accomplishment (academic as well as personal) Teamwork, group skills, respect for individuals Strong work ethic and integrity Quantitative/technical skills Self-confidence and positive attitude Time management skills, ability to multi-task Creativity Personality (sense of humor, cheerfulness and flexibility in new situations) 28

General Takeaways Do your own due diligence Do you like the type of work required of a successful analyst? Are you comfortable with the lifestyle? (long hours, stressful at times, multi-tasking) How do you feel about New York city or other locations? (NYC is expensive, crowded) Cultural fit of investment bank? (group dynamics, diversity, individuality, professionalism) Opportunities? (training program, responsibilities, deal flow, international, transaction mix) Be prepared Talk with friends, family, professors, recruiters, and schedule office visits and externships Read annual reports, research, recruiting literature, articles and Web site List differences between firms and key criteria for making your own decision Understand what investment banks do and your role in the process Understand yourself, what motivates you, your strengths and weaknesses and be able to articulate those points Practice interviewing – thinking it and speaking it can be entirely different Make the decision for yourself, not someone else – and avoid the “herd mentality” Relax, trust yourself, and have fun! 29

Colgate University Investment Banking

Similar presentations

Presentation on theme: "Colgate University Investment Banking"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Colgate University Investment Banking

Similar presentations

Presentation on theme: "Colgate University Investment Banking"— Presentation transcript:

Similar presentations

About project

Feedback