Investment Banking Technical Questions with 100% correct answers

What do bankers actually do? Bankers advise companies on transactions-- buying and selling other companies and raising capital. Bankers act as agents that connect a company with the appropriate buyer, seller, or investor. Day-to-day work includes creating presentations, financial analysis, and creating marketing materials such as executive summaries. Let's say I'm working on an IPO for a client. Can you describe briefly what I would do? 1. meet with the client and gather basic info. Financial details, an industry overview, and who their customers are. 2. Meet with other bankers and the lawyers to draft the S-1 registration statement-- which describes the company's business and markets it to investors. Receive comments from the SEC and revise it until it is acceptable. 3. spend a few weeks going on a "road show" where you present the company to institutional investors and convince them to invest. Afterwards the company begins trading on an exchange once you've raised the capital from investors. Brainpower Read More Can you tell me about the different product and industry groups at our bank? Need to research in advance. Common product groups: M&A, Leveraged Finance, ECM, DCM, Restructuring (at smaller firms) Industry Groups: Healthcare, Retail, Industrials, Energy, Natural Resources, Financial Institutions, Faming, Real Estate, TMT What's a pitch book? It depends on the type of deal the bank is pitching for, but the most common structure is: 1. Bank "credentials" (similar deals they've done to "prove" their expertise) 2. Summary of a company's options ("strategic alternatives") 3. Valuation and appropriate financial models (For example, if you're pitching for an IPO you might show where the IPO proceeds would go) 4. Potential acquisition targets or buyers in M&A deal 5. summary and key recommendations How do companies select the bankers they work with? based on relationships usually. banks develop relationships with companies over the years before they need anything, so when it comes time to do a deal, the company calls different banks it has spoken with and asks them to "pitch" for the business. This is called a "bake-off" and the company selects the "winner" after. Walk me through the process of a typical sell-side M&A deal 1. meet with the company, create initial marketing materials like the Executive Summery and the Offering Memorandum (OM) and decide on potential buyers 2. send out executive summary to potential buyers to gauge interest 3. Send NDAs to interested buyers along with more detailed information like the OM, and respond to any follow-up due diligence requests from the buyers 4. set a "bid deadline" and solicit written Indications of Interests (IOIs) from buyers 5. select which buyers advance to the next round. 6. continue responding to info requests and setting up due diligence meetings between the company and potential buyers 7. set another bid deadline and pick the winner 8. negotiate terms of the Purchase Agreement with the winner and announce the deal. Walk me through the process of a typical buy-side M&A deal. 1. spend a lot of time upfront doing research on dozens or hundreds of potential acquisition targets, and go through multiple cycles of selection and filtering with the company you're representing. 2. narrow down the list based on their feedback and decide which ones to approach 3. conduct meetings and gauge the receptivity of each potential seller 4. as discussions with the most likely seller become more serious, conduct more in-depth due diligence and figure out your offer price 5. negotiate the price and key terms of the Purchase Agreement and then announce the transaction. Walk me through a debt issuance deal 1. meet with the client and gather the basic financial, industry, and consumer info 2. work closely with DCM/ Leveraged Finance to develop a debt financing or LBO model for the company and figure out what kind of leverage, coverage ratios, and covenants might be appropriate. 3. Create an investor memorandum describing all of this. 4. Go out to potential debt investors and win commitments from them to finance the deal. How does debt issuance differ from an IPO process? there are fewer banks involved, and you don't need SEC approval because debt is not sold to the "general public" but rather to sophisticated institutional investors and funds. How are ECM and DCM different from M&A or industry groups? ECM and DCM are both more "markets-based" than M&A. M&A's job is to execute sell-side and buy-side transactions, whereas in ECM/DCM most of your tasks are related to staying on top of the market, following current trends, and making recommendations to industry and product groups for clients and pitch books. You go more in-depth on certain parts of the deal process, but you don't get as broad a view as you might in other groups. What's the difference between DCM and Leveraged Finance? They're similar but Leveraged Finance is more "modeling intensive" and does more of the deal execution with industry and M&A groups on LBOs and debt financings. DCM, by contrast, is more closely tied to the markets and tracks trends and relevant data. But there's always overlap and some banks just have one of these groups, some have both, some divide it dif entirely. Explain what a divestiture is It's when a company decides to sell of a specific division rather than sell the entire company. The process is very similar to sell-side M&A, but it tends to be messier because you're dealing with part of a company rather than the whole thing. Creating a "standalone" operating model" for the particular division they're selling is extremely important, and the transaction structure and valuation are more complex then a "plain vanilla" M&A deal. Imagine you want to draft a 1-slide company profile for an investor. What would you put there? the name of the company in the header divide the slide into 4 parts top left is for the business description, headquarters, and key executives Put a stock chart and the key historical and projected financial metrics and multiples on the top right the bottom left can have descriptions of products and services and the bottom right should have key geographies with a color coded map Let's say you had $10 million to invest in anything. What would you do with it? 1. What are the investor's goals? 2. If they're investing 30-40 years, going for high capital gains, well-diversified portfolio is probably best. If tax free income, municipal bonds. If you owned a small business and were approached by a larger company about an acquisition, how would you think about the offer, and how would you make a decision about what to do? Would weight the price, form of payment (cash, stock, or debt), and future plans for the company compared to my own. We work mostly with technology companies. can you talk about a trend or company in the industry that has piqued your interest Research before. Pick something that is relavant/ timely, the "why" and impact on the market as a whole. Let's say you could start any type of business you wanted, and you had $1 million in initial funds. What would you do? Pick a niche business with high margins and requires little start-up capital and little ongoing maintenance. Some sect of specialized law office. Legal services have high net margins, and to start small, could take off with a million dollars. Personally have always been interested in the law. Can you talk about a company you admire and what makes them attractive to you? Etsy -diversified customer base. everyone from my dad buying my mom's mother day card to my best friend buying her dog bowls -- simple business model with high profit margins. esp strong during coronavirus, no reliance on brick and mortar stores -- competitive advantage compared to other online market places for easy access for sellers and different types of items Let's assume you are going to start a laundry machine business. How would you analyze whether its viable? Need to determine whether its profitable. Identify sources of revenue: location (most important part of any retail business), how many costumers you would get, how frequently they do laundry, and how much they pay each time. Costs: upfront construction/ purchase of building, cost of machines. Probably would need a loan. cost of maintaining and servicing the machines, building maintenance, hiring employees, insurance.