The Life (Or The Lack Of It) of A Investment Banking Analyst

Key Work

• 1. Preparing all documents and memorandums from proposals/pitchbooks to information/offering memorandum for potential investors
  
  
• 2. Building, running, updating and maintaining financial models
  
  
• 3. Supporting senior personnel during meetings, conference calls and presentations
  
  
• 4. Multi-tasking - On x number of projects at any one time
  
  
• 5. Administrative Stuff - anything a clerical assistant or secretary does
  

Food for Thought

• 1. At the MD & VP level, more time will be spent on relationship building and client interaction skills, so it pays to acquire these skills during your analyst days.
  
  
• 2. There have been murmurs of increasing outsourcing and standardisation of research and other technical aspects of the work (e..g financial modeling), in the form of a global research centre to support literally everyone to cut costs. Will the role of the investment banking analyst/associate disappear?
  

Restructuring: Sell Umbrellas During Rainy Days and Sell Ice Cream During Sunny Days

Introduction

While I-banking is traditionally regarded as a cyclical business - in tandem with the economy, I-bankers have long understood the wisdom of selling ice cream during sunny days (grow by acquiring) and selling umbrellas during rainy days (restructuring)

Restructuring: Motive for Exit

• 1. Sell to focus - No definitive answer on the age-old debate of focus versus diversify
• 2. Sell to diversify - Moving away from the core business
• 3. Sell to get cash $ - a financing strategy
• 4. Sell to correct earlier mistakes - the corporate equivalent of divorce
• 5. Sell to correct market valuation of assets - Avoid conglomerate discount
• 6. Sell to optimise capital structure
• 7. Sell to defend - Sell off crown jewel to avoid hostile acquirers
• 8. Sell underperfoming businesses

Restructuring: Timing

• 1. Sell when the demand for the business to be divested is highest
• 2. Sell when the economy is booming (high stock prices and low interest rates)
• 3. Sell in the year when a cyclical firm reaches peak year earnings (valuation issue)
  

Restructuring: Methods

• 1. Sale of minority interest (usually a private transaction)
  The sale of a block ogf shares to another firm gains the seller fresh capital and attracts a committed partner who might be induced to contribute know-how or other resources. Note that this might affect the balance of voting power anc could be a prelude to a takeover.
  
  
• 2. Divestiture or Asset Sale
  Sale of a portion of the firm to an outside party generally resulting in a cash infusion to the parent. It could potentially take the form of a management buyout (MBO) or a leveraged buyout (LBO).
  
  
• 3. Carve-out
  A carve-out organises the business unit as a separate entity and sells to the public an interest in the equity of the firm through an initial public offering (IPO).
  
  
• 4. Spin-off
  New legal entity is created and new shares are issued, but they are distributed to stockholders on a pro-rata basis such that the stockholder base in the new company is the same as the old company - the same shareholder group owns both companies. Subsidiary becomes a publicly traded company and there is no cash infusion to the parent.

• 5. Split-off
  Split-ups involve creating a new class of stock for each operating unit, spinning the stock to the parent’s shareholders, and dissolving the remaining corporate shell. This resultings in a stand-alone firm, no longer a subsidiary of the parent, owned initially by a subgroup of the former parent's shareholders.
  

Food for Thought

1) The method of restructuring depends on the relationship of the subsidiary to the core business of the parent and the need for control (strategic reasons).

2) Divestitures make up 35-40% of all M&A transactions.

3) The upcoming public sector divestment of the 3 gencos offers a glimpse into divestiture by auction rather than negoitated sale as a method of sale. More about auctions in a later post.

The Major Players In The Singapore Investment Banking (read:Corporate Finance) Industry

Definitions

• 1. Product Portfolio - Investment Banking here refers to mainly mergers & acquistions (M&A) and financing (debt & equity) transactions.
  
  
• 2. Geographical Scope - i) The player (financial adviser) is based in Singapore; or ii) At least one company involved in the transaction is based in Singapore.
  

Categories of Players (Advising on Corporate Finance)

• 1. Investment Banks: Bear Stearns, Cazenove, Citi, Deutsche, Goldman Sachs, Jefferies, J.P. Morgan, Lazard, Lehman Brothers, Macquarie, Merrill Lynch, Morgan Stanley, UBS etc
  
  Most of the banks listed here are bulge bracket players - that compete for the largest deals, involving the largest companies in the Fortune 500. There are exceptions like Jefferies, which positions itself as a middle market investment bank. Non-bulge bracket players are often referred to as middle market players.
  
  Corporate Finance M&A teams are small (6-12 people per bank inclusive of MD, VP, associates, analysts).
  
  
• 2. Local Banks: CIMB GK (Malaysia), DBS etc
  
  Although their work in the corporate and consumer banking space is more visible to the main in the street, both banks listed here have substantial deal flow (number of transactions). For example, DBS has a M&A group, a Equity Capital Markets Group and Debt Capital Makets Group separately. This is considered unsual as most middle market players tned to pool their limited human resources (small team) together to handle both M&A and financing transactions.
  
  
• 3. Big 4 Corporate Finance: Deloitte & Touche, Ernst & Young, KPMG, Pricewaterhouse Coopers etc
  
  While most people still see the Big 4 as accounting firms, a big 4 accounting firm is usually organised alone lines of audit, tax and advisory (including corporate finance). Recently, Deloitte & Touche Corporate Finance and KPMG Corporate Finance have been ranked among the 2008 Top 50 Most Prestigious Banking Employers (30th and 43th respectively) for the first time, bearing testimony to the wider acceptance and recognition of their work.
  
  
• 4. Boutiques: DMG & Partners, Kim Eng Capital, NTan Corporate Advisory, Omega Capital, Primepartners Corporate Finance, SAC Capital etc
  
  The Boutiques usually compete in the Middle Market (transaction values USD 100M ) and are headed by former bulge bracket I-bankers. Boutiques typically have narrower product lines and industry coverage than bulge bracket peers.
  

Food for Thought

• 1. Blurring of the Lines between Middle Market and the Bulge Bracket I-Banks
  
  With the saturation of transaction activity at the top tier, more bulge bracket investment banks are getting involved in mid market transactions, as evidenced by their ranking in Thomson Mid-Market M&A League Tables. Citi and UBS have topped the mid-market rankings worldwide this year.
  On the other hand, some middle market players do possess ambitions of challenging the big boys, but success has been limited.
  


• 2. M&A Waves - The Trough
  
  M&A activity is closely linked to the economy. With the slowing of the economy expected in 2008, I-banking players are preparing themself for the inevitable meltdown by beefing up their distressed debt teams and restructuring divisions.
  
  
• 3. The Gap and The Foot in the Door
  
  The gap in compensation and prestige between the bulge bracket I-banks and the rest have resulted in a revolving door and high employee turnover at the boutiques.