M&A: a good fit for you?

Merrill's Kevin Smith spoke to Will Hodges about the ins and outs of life in the M&A division.
Investment banking
Types of work

You started in banking relatively late on in your career compared to a lot of people, what would you say was the trigger for you in deciding to make the move over from working in industry?

The reason lies in the difference between being on the advisory as opposed to the principal side. The company I was working for was hit by the financial crisis in 1989 and was taken over. The firm doing the advisory work was Lazard. I liked the role the M&A people played - managing the whole process but not having to deal with what goes on afterwards. I was able to get an interview at Lazard through a friend who was working there, they hired me and I've never looked back. On the advisory side, you get stuck in, work with the client and help them clinch - you are an integral part of the whole process. What you don't have to do is integrate what you've just bought. Integration can take a long, long time and involves dealing with lots of people, whereas, on the advisory side, you can then move on to the next deal. Plus, working in a company, as I was, rarely offers the variety of experience that you get working on the advisory side.

How do you view the trade-off between working in investment banking (working for a good company and earning a good salary), with the tough lifestyle - long hours, pressurised working environment etc.?

I think one of the things that has changed over the last few years is that investment banking is not the only career that involves long hours. When I started out in investment banking not a lot of other professions were doing that, except maybe for lawyers. My sense now is that there are a lot of jobs that are nowhere near as well paid as law or banking, but which require working equally long if not longer hours. I think the really important issue about the job is that if you are interested in it and you enjoy it you don't notice the time. I get in at 8:00 and if I find myself looking at my watch before 7:00 in the evening I'm pretty surprised. Time just flies past - you have so much that's going on. Admittedly the juniors work harder than I do and are here for longer so I'm not making light of what they do but the hours do fly past if you enjoy it. The way I describe it is as having a whole series of puzzles. You might have four or five puzzles on your desk at any one time at various different stages of progression. When you come into work in the morning the interesting thing is you don't necessarily know where each of these is going to end up at the end of the day - the outcome often depends on the work you do during that day. If you are doing some modelling, what's the valuation number? You might be doing some other work trying to figure out what offer price a company might recommend. You are in an auction for an asset, today is D-day, at the end of the day you will know if your client is through to the next round or out of the process. Plus, everyday a new puzzle could land on you desk: a client phones up and says 'we're thinking of doing this, we've invited three banks round next week, are you interested?' so you've got to put together a pitch. It's very, very varied and that's what's great fun.

Are you not limited to an extent by the sector or country team you are in though?

It depends on where you sit in the bank. If you're in an industry team, yes, you focus on that industry but you will do M&A, IPOs, debt financing; if you're in a country team you'll do anything to do with that country. You can have a huge amount of variety regardless of where you sit, which is why I think, in all honesty, for your first three years of working life, it's difficult to better the experience you get in investment banking. You get exposure to a huge variety of different industries as well as different types of projects e.g. IPOs, M&A deals, debt financing and so on. You might decide you like one of them or none of them. You can also work across different countries, to the extent that you have the languages. But actually, the other thing about the work you pick up is the professional quality of what you are doing. For someone just out of university you are going to be working on top-grade projects, for example, a presentation that is going to be made to the Chief Executive of a FTSE 100 company. Something like that has to be absolutely first class in terms of the English, the numbers and how it is all packaged up and presented, so you really do get your skills in all those areas honed to the highest degree. Also, just being in the room with successful people like that you understand how it's done and you learn - I don't know many jobs that offer this at the beginning of your career.

I think investment banking, and particularly M&A, is a great three year training programme if that's how you want to see it. One year isn't enough, but after three years you have someone who is first rate and will be in demand in the job market. That is why we are such a happy hunting ground for hedge funds, private equity firms and the like. They love to let us do the first three years' training and then pick out the best people! We honestly don't hire people with the expectation that they will stay with us for twenty three years and then get stroppy when they leave after three. What we are hoping is that, after three years, people will see that it's good fun, it's interesting, it's well-paid and they will want to stay on - when they do that's a big plus for us.

Some people are put off by the idea of investment banking having very much a 'Wall Street' culture. How would you respond to the public perception of banking being this male, super-macho environment?

It isn't true at all in my experience. For the tabloids, traders and M&A bankers are all the same thing and I think the macho environment is the tabloids' image of life on the trading floors - it isn't like that at all and we get tarred with the same brush. Real life in investment banking, like so many things, is very different from what you read in the papers. We make great efforts to try and encourage more women to join the bank. One thing that interests me a lot is that far more women go into law as opposed to banking, when in fact the hours there are probably longer, so it doesn't seem to be a quality of life issue. This is something we are trying to figure out as women are often the top bankers in their class and when we lose them it's a big loss - so we are very keen to hire more! We are therefore doing everything we can to dispel the 'macho' stereotype but we recognise that we can't change people's views overnight and we shall have to continue to work hard on this.

How do you relate the current challenges facing graduates looking to go into City jobs in relation to the difficulties experienced by previous generations - e.g. the dot-com crash and the early nineties recession?

It's an interesting question. I joined Lazard in October 1990 and around this time the market fell by something like 20%. It was a similarly dire time and I didn't expect to survive for long as the new hire but the economy came back. It came back after the dot-com crash and you've got to assume it will come back again; maybe not tomorrow or even in a year, but certainly in the longer term. If you think you will find banking interesting, then I think it remains a very exciting initial career path that sets you up well to decide what to do next. Banks are still going to be hiring at this level because they need to have junior resources whatever the climate.

Equally, just because things are tough at the moment doesn't mean there aren't things to do. There are always new pieces of work coming up and these novel times are giving rise to novel challenges. Just because you aren't doing a deal a week doesn't mean you aren't going to be learning an awful lot that will serve you well for the future. The way I see it, the deals that happen are the tip of the iceberg. You often learn more from projects that don't happen than from those that do. For example, when deals don't go through for whatever reason you remember what these reasons are for when they come up again. This is how you build up the experience required in order to give clients the right advice. The experience you are going to get now is not going to be prejudiced by what is going on in the markets.

What skills should graduates hoping to get into banking be looking to brush up on in order to get ahead of the pack?

When we hire someone, at whatever level, we are looking at them as potential ambassadors for the firm because when you step outside the office that is what you are. We therefore look for a mixture of skills. You may be a fantastic mathematician but you have to picture yourself being in a meeting with the CEO of a company and having to be articulate, presentable, confident with the numbers you have put together and so on. It's not just a mathematician who can do that; someone who has studied History or Greek can do that too. I think the ideal combination would be someone who has studied something that is mathematical, as we do a lot of work with numbers, along with something like History. Why? Because a typical question you get asked by clients like 'should I buy that company and at what price' is a bit like answering the question "Henry the Eighth was a good king - discuss". It's no good being able to do the numbers if you can't then articulate your conclusion and be ready to debate it.

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