It's all about preparation. You need to have crystal clear answers, thought out in advance, to prove your interest in and qualification for the job to which you are applying.
The key topics will be:
Here's an array of the questions you might be asked and what books you should read to know the answers...
Study and Career History
1. Why did you choose your degree subject?
2. What have you learned from your studies that can be applied in your future career / career in investment banking?
3. What have you gained from the things you have done aside from your studies at university?
Motivation
4. Why do you want to work in finance?
5. Within the overall field of finance, why do you want to become an investment banker?
6. Why do you think you are suited to a career in investment banking?
7. Is there anything that puts you off working in investment banking?
8. What other careers are you considering and why?
Understanding of the Job
9. What do you think you will be doing in your first X months / years in investment banking?
10. What types of financial models will you build? What purpose will they serve? What research will you be asked to do?
Understanding of the Market
11. What have been the main causes of the credit crunch? How will the credit crunch play out from here?
12. What opportunities does the credit crunch present to financiers?
13. Name a live investment banking deal that interests you / that the interviewing bank is involved in. What are the main issues at stake?
14. What is the current price / level of: FTSE100? S&P 500? Bank of England Base Rate? LIBOR? Barrel of Oil? Ounce of Gold? The Dollar? The Euro?
Understanding of the Employer
15. Explain our business model. What do we do different or better than our competitors?
16. What are the key milestones in our history?
17. Who is our CEO?
18. What deals that have been announced publicly are we currently involved in?
19. What are our values towards our customers? Our employees?
Theoretical Understanding
20. What are the different ways to value a company / a share / a bond? What are the strengths and weaknesses of each approach?
21. When is a good time to sell an asset? When is a good time to buy?
22. Why is accounting profit different from cashflow and why is cashflow a better measurement of a company's financial health?
23. How do you derive the cashflows to be entered into a DCF model? How do you calculate the discount factor to be used in the model? What is the formula?
24. What are the main issues to be negotiated in an M&A deal?
25. If there was a difference between the stand alone valuation of a target company in an M&A deal and the price demanded by its current owners to acquire it, what would justify paying this "control premium"?
26. What are (a) the various advantages or (b) the disadvantages of (c) equity finance or (d) debt finance to (e) the company raising the finance or (f) the investor investing the money?
27. When companies float to become listed on the public market, what are (a) the advantages and (b) the disadvantages? Why do some public companies become private again?
29. What are the risks inherent in the following: Buying a company? Selling a company? Lending money? Borrowing money? Taking out an option? Writing an option?
30. How can each of the above risks be mitigated?
General
*1. "Vault Guide to Investment Banking" *- Tom Lott - the easiest-to-read and most informative guide we have seen about investment banking; essential reading
2. "Vault Guide to Finance Interviews" - D. Bhatawedekhar - introduction to some of the technical knowledge required across all aspects of banking and finance
3. "All You Need to Know About the City: Who Does What and Why in London's Financial Markets" - Christopher Stoakes - An interesting and comprehensive introduction to the world of banking. Easy to read.
** 4. "Accounts Demystified"** - Anthony Rice - the best introduction we have seen to accounting for non-accountants
5. "The Age of Turbulence" - Alan Greenspan - the best insight into global macro economic forces over the last 30 years, despite the recent bursting of the Greenspan bubble.
6."Acquisition Essentials: A Step-by-Step Guide to Smarter Deals" - Denzil Rankine & Peter Howson - a good introduction to the different stages of a deal
** 7.***"Corporate Valuation"* - David Frykman - the best introduction to the key subject of valuation; easier to read than either of the classics Copeland or Brearley and Myers
** 8. "Valuation: Measuring and Managing the Value of Companies"** - Tom Copeland - classic textbook, quite technical
9."Principles of Corporate Finance" - Richard Brearley and Stuart Myers - classic textbook, rather heavy and very technical
10."Monkey Business" - two years in the life of an investment banking analyst...easy to read and quite humorous
*11. "Big Deal" *- Bruce Wasserstein - dauntingly large book, but actually very readable and easy to understand; starts with account of major recent M&A deals, then reviews the classic M&A / corporate finance services and techniques
12."Barbarians at the Gate" - Bryan Burrough and John Helyar - classic business biography of the take-over of RJR Nabsisco in 1988; a thrilling account of a real deal; reads like a novel.
Financial Markets
13. "Vault Guide to Sales and Trading" - Gabriel Kim - the best starting point for this area; we cannot recommend the Vault Guides highly enough
*14. "Vault Guide to Investment Management" *- Andrew Schlossberg - again, great introduction; pulls off that rare trick of balancing being easy-to-read with having sufficient detail
15. "How the Bond Market Works" - Robert Zipf - easy to understand textbook
16."Mastering Credit Derivatives: A step-by-step guide to credit derivatives and their application" - Andrew Kasapi
17."Market Wizards - Interviews with Top Traders" - Jack Schwager - strange book - quite involved and is a compilation of interviews with traders about their trading strategies - for wannabe traders
18."Liars Poker" - Michael Lewis - classic real-life account of Michael Lewis' career as a bond trader at Salomon in London, where he reported to John Merriweather (see When Genius Failed)
19."Den Of Thieves" - James Stewart - similar in style to 'Barbarians', but gives an account of the insider trading in the 1980s that brought down Michael Milken and Drexel Burnham Lambert; again reads like a thriller
** 20. "When Genius Failed - The Rise and Fall of Long Term Capital Management"** - Roger Lowenstein - true-life account of the rise and fall of the largest hedge fund in the world run by John Merriweather - the star character in Michael Lewis' Liars Poker.
*1. Goldman Sachs *- by far the best investment bank in the world, bar none, year in year out and just about survived the credit crunch albeit with a loss of its pure-form investment banking status. There is Goldman, then there is everyone else
*2. Morgan Stanley *- second only to Goldman. Usually credited as having a more humane internal culture and renown for employing very high quality staff
3. Rothschild - British in style and with Lazard largely focussed on corporate advisory work rather than all-round investment banking business
*4. Lazard *- see Rothschild. Largely turned round after its troubles surrounding its flotation
5. J.P. Morgan - sheer size means always a force to be reckoned with and benefits from the old Cazenove business in the UK
*6. Greenhill *- with Jefferies, next, emerging as the top two super boutiques, although little difference these days in lifestyle between them and the bulge brackets
7. Jeffferies - see Greenhill
*8. Citi *- big US powerhouse just about remaining as a monolithic business despite calls for a break-up; similar in structure to JP Morgan and Deutsche
9. Deutsche Bank - main European player, striving to establish a major investment banking presence independent of its Debt Capital Markets business
*10. Credit Suisse *- survived the credit crunch better than most, and surprisingly has exhibited better risk management than its normally more cautious brethren UBS
And one other to note...
*11. Blackstone *- tiny M&A department compared to the others here, but you are surrounded by the finest financiers in the world in the private equity business down the hall.
OK. So now you know what it takes to get the job. What you will be doing once you start?
What will you actually do on a day-to-day basis? The following is a guide to life in the day of a M&A Analyst...
The Work of the Bank
First, a refresher of The Big Picture...
The services that the Bank provides to its client include the following: -
In addition, although not strictly M&A work, but occasionally undertaken by M&A practitioners:
Finally, the rest of the Investment Banking Division will be involved in capital markets work. However, it is key not to categorise this as M&A work:
While all work falls into three categories...
...there is not always a clear distinction between when the origination phase ends and the execution phase begins because the Bank's advisory relationships with its clients are a continuum.
Company Research
The research is most likely to be of companies, but also be of investment funds or individuals.Research on companies could include:
Research of individuals might analyse their suitability for an appointment to the Board, or in their capacity as an investor or shareholder, their actions in precedent M&A situations.
Other research might analyse precedent situations, such as what other companies have done historically in the same situation in other M&A deals as a client or target. Such situations could include a deal (looking at due process or management or shareholder reactions), disputes or what happens to share prices after profit warnings.
The Analyst could also analyse the work of other banks, monitor press coverage of clients or relevant events.
Most of this research will be written up into powerpoint slides to be incorporated into "Books" - to be presented to an external audience such as the client or a potential investor.
Modelling Financials
As a starting point for likely further valuations modelling work, the Analyst will model the Company's financial projections. The input numbers will be derived from management or from external analysts, brokers or consultants.
The Analyst may reorganise the forecasts into the most useful format to be used for subsequent valuations work.
The Analyst will almost certainly produce profit and loss and cashflow forecasts, and may or may not produce a balance sheet. Income and expenditure information could be split by any number of variables including product, operating division, office location, geography etc.
The above work will be done in Excel. The model will include presentational output tables and graphs that will be copied into powerpoint slides for incorporation into Books as necessary.
Modelling Valuations
Different valuations models are undertaken to provide answers to different questions about target or acquiring companies or offers. These questions include the following:
There are various modelling methodologies that are either specifically geared to answer one of the above questions, or transcend a number of them.
The three classic valuations models are:
In addition:
Four other models answer specific questions:
Client Management / Transaction Process Management
The Analyst will also get involved in producing the documentation that will regulate the relationship between the Bank and the client and in the various legal and administrative processes that are required by the law, relevant codes or precedents to complete a deal.
As a junior member of the Bank's staff, the Analyst will spend time on a variety of other tasks that help the Bank's work. This will include: attending recruitment events to hire other staff; training and personal development.