M&a Group Investment Banking

What Is The Investment Banking M& a Process

The following is an overview of the M& A process from an investment bankerâs perspective:

Let’s take a closer look:

Typical Investment Banker Fees In M& a

Not a surprise that investment banks generate money through transactions. Every time that a deal closes, the investment bank that advised on that deal gains a commission.

As such, when the industry reports revenues of $140 billion in total, itâs not difficult to see how investment banks are generating significant revenue streams for their partners.

Investment banking fees have quite a few variables. At the broadest level, the fee will depend on the type and size of the deal.

In addition, some investment bankers require a retainer . The percentage the banker walks away with at the end of the deal greatly depends on the size of the deal.

According to investmentbank.com, mid to lower market deals should expect to pay their investment bankers based on the Lehman or double Lehman formula , which states the bankers will receive 10%of the first million.

Finally, the Aligned Method is another way fees are determined. Some believe this method provides more of an incentive for the banker to negotiate the best possible deal. This scale has the investment banker earning 1.75%of the first fifty million.

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Are Product Groups Going The Way Of The Dinosaur

Some believe that product groups especially M& A are redundant and that theres no reason to keep them around since industry bankers can do everything that product bankers can.

Theres some truth to that if youre talking about a broad, sell-side auction where theres nothing unusual about the process youre simply showing the company to lots of potential buyers.

But its less true when you have a more unusual deal or something that requires specialized expertise , so M& A groups wont be going extinct anytime soon.

And its even less true outside M& A: with ECM, DCM, Leveraged Finance, and Restructuring, it wouldnt be practical to consolidate everything.

If youre learning a clients business in-depth, its hard to also spend 20 minutes here and there updating market slides, running a debt model for another deal, and so on theres a reason division of labor has been around since ancient times.

What Are The Typical Activities Investment Bankers Do Every Day

Investment bankers work long hours, often logging close to 100 hours a week, and while no two days may be the same, there are some common tasks these bankers engage in. The job requires strong organizational, analytical, and mathematical skills, as well as robust social skills.

Analysts assist senior level bankers with a variety of tasks, such as creating pitches, models and valuations. Additionally, investment bankers will participate in M& A transaction calls on both the buy-side and the sell-side.

Finally, when the deal moves along, the investment bankers help negotiate the terms of the deal.

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M& a Investment Banking Exit Opportunities

The exit opportunities here depend on the size of your bank more than on the group.

To have the best shot at PE and HF roles, you need to work in M& A at a bulge bracket or elite boutique bank you can also do it from middle market banks and industry-specific boutiques, but its more difficult and will require a lot more networking.

Venture capital is also a possibility, as is growth equity.

You would probably not be the best candidate for asset management roles coming from an M& A group similarly, the corporate finance skill set wont overlap that much with yours.

To be clear, though: your exit opportunities from M& A investment banking are not necessarily better than those from a strong industry group .

If youve gained solid deal experience, and your group has a track record of sending Analysts to buy-side roles, these groups are not much different.

Words From Our Industry Partners

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The M& a Group In Investment Banking

Although this article uses the terms M& A and investment banking interchangeably, there is some distinction. M& A is the main subset of investment banking. Indeed, most of the 3,000 investment banks in the United States are only concerned with M& A and capital raising.

However, the investment banks at the top of the pile offer a more diversified service range that also includes:

• Underwriting for IPOs.

Long Hours And Tight Deadlines

In the early stages of the M& A project, the banker is responsible for doing due diligence on the businesses involved, creating and analyzing valuations, organizing marketing materials, and executing non-disclosure agreements . In a targeted buy-side transaction, the M& A banker typically arranges the actual financing.

The hours for the investment bankers involved in an M& A deal are typically very long and involve tight deadlines. Businesses don’t stop their operations just because they are pursuing an M& A deal, and the conditions of the industry and the value of the company involved continue to change constantly. As a result, financial professionals involved in M& A activity typically experience tight timelines to complete demanding tasks.

Professionals in the field frequently put in 90-hour workweeks, particularly when closing a large deal. The trade-off for the long hours is the potential for a large paycheck. When adding in bonuses to their base salary, investment bankers often make well over six-figures a year. For some finance school graduates, however, this lack of a work-life balance has them opting for a career in equity research over investment banking.

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What Are The Salaries Of M& a Investment Bankers

Investment bankers are often synonymous with high paychecks. Specifically, at the top banks, M& A investment bankers make approximately $100,000 in entry-level positions.

The average range for first year analysts is $70,000-$150,000, with the top banks most likely raising this average. After a few years, analysts typically fall into the range of $125,000-$150,000.

Associates, on the other hand, tend to fall into higher pay ranges, with first year associates often making close to $200,000 and possibly up to $300,000 or $400,000. As associates put in more and more years, some sources have them making close to $500,000 a year.

Finally, vice presidents and partners inch closer to, and sometimes above, the million dollar mark.

Investment Banking Jobs Salaries & Compensation

Investment banking jobs tend to be high-pressure and high-status, but they also offer high salaries and bonuses and top-notch exit opportunities at least, if youre at the right bank and group and youre at the right seniority level.

Heres what a typical career progression would look like at a bulge-bracket investment bank in New York City, including estimates for base salaries and total compensation :

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Connections And Family Business Overlap With Industry Group

I have met a lot of people who come from privileged backgrounds where their parents wanted them to come back and lead the business after. A lot of people have their families entrenched in real estate as developers a job in real estate investment banking and real estate private equity afterwards makes a lot of sense.

Likewise, a lot of acquaintances have disclosed to me that their families have strong manufacturing businesses in China or the broader bamboo network in Southeast Asia industrials or consumer non-cyclical investment banking may make a lot of sense.

It makes the job that much easier to know that you can monetize your talents later.

For Investment Bankers Representing The Sell

• Creating the companyâs pitch deck and sale materials, including its financial projections.
• Consulting with the company on what it needs to do to improve its marketability.
• Advising the company on the best avenues for a sale of the company
• Conducts a valuation of the company based on current company and industry level trends.
• Identifies and contacts potential buyers in the market, usually including several industry contacts of the investment bank and other investment banks with buy-side mandates.
• Acting as a gatekeeper between the selling company and potential buyers, filtering out âtyre kickersâ.
• Conducting negotiations on behalf of the selling company and potential buyers as they express interest in a transaction.
• Facilitating deal closure through provision of documents such as the letter of intent, share purchase agreement, letters to regulators , etc.

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What About Restructuring

Restructuring is a special case because of the specialized knowledge industry bankers cant contribute much there.

At most, the industry bankers may weigh in on the comps, valuation, and potential buyer ideas, but the restructuring/distressed M& A team would do everything else .

The same applies to Special Situations groups at banks since the skills are so specific, you wont share much work with the industry bankers.

A New Era Of Activism

In this episode of #TheInsight, Avinash Mehrotra discusses whatâs contributing to the current wave of shareholder activism and how companies can stay prepared. M& A volumes are down and market volatility is up, creating an environment where activists can more easily accumulate stakes in quality companies trading below their historical averages. As a result, the number of new positions is up nearly 50% year over year. Mehrotra, global head of the Activism and Shareholder Advisory and Takeover Defense practices, stresses that preparing for activism is not only prudent, but an essential part of doing business in todayâs environment.

The Insight

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For Investment Bankers Representing The Buy

• Establishing the buying companyâs ultimate goals from a transaction, gaining insight into the kinds of companies that will allow them to achieve these goals.
• Advising the company on recent transactions and what they can expect to pay for a transaction in the market. This is a particularly important role for investment bankers in the case of cross-border deals.
• Contacting target firms and gauging their interest in a transaction of some form.
• Conducts valuation of the companies that express interest in being acquired or entering a merger.Like the sell-side process, this usually includes several industry contacts of the investment bank and other investment banks with sell-side mandates.
• Conducting negotiations on behalf of the buying company and potential sellers as they express interest in a transaction.
• Ensuring that deal diligence is conducted thoroughly for the buy-side.
• Facilitating deal closure through provision of documents such as the letter of intent, share purchase agreement, letters to regulators , etc.

Wait So What Do Mds In Product Groups Do

Great question. If Managing Directors are responsible for winning clients, what would an MD in a product group do on a daily basis? The coverage or industry group brings in the client, so why would you even need MDs in the M& A group?

Usually the product group MD does 1 of 2 things:

Scenario #1 is more common when its a large and high-profile deal a $50 billion merger, for example or when its an unusual transaction that requires specialized knowledge.

For scenario #2, remember that Managing Directors still have tons of contacts in the industry even if theyre only executing deals every time they pitch the company to a new buyer, thats another name added to their Rolodex.

So the division between product and industry group responsibilities isnt as straightforward as you might think.

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Origination Equity & Debt Capital Markets

J.P. Morgans Capital Markets groups, in partnership with the industry coverage and M& A groups, enable us to serve our clients holistically. We offer a wide range of services, from origination to structuring, executing and syndicating financing for clients globally.

Equity Capital Markets

J.P. Morgan is widely recognized as a global leader in capital raising, combining superior origination strength and structuring expertise with exceptional distribution capability. The firms underwriting activities range from initial public offerings to follow-on equity issues, and from public transactions and private placements for wealthy nations and emerging markets.

J.P. Morgans origination capabilities include:

• Initial Public Offerings
• Private Placements

Debt Capital Markets

Serving corporate, institutional and government clients, J.P. Morgans presence in the global credit markets is unmatched. The firm combines superior debt origination and structuring expertise with exceptional distribution capabilities to a large base of investors.

The origination team works directly with issuers, including corporations, banks and sovereign governments that seek funding. J.P. Morgan advises these clients on debt financing strategies, from a simple bank loan to multi-billion-dollar capital raising across asset classes. Colleagues partner across borders to deliver successful structuring, marketing and pricing. The business then distributes that product to investor clients.

What Is M& a Advisory Work Really

First, well begin with some basic terminology:

• Sell-Side M& A: When an investment bank takes on the role of an advisor to a potential seller , this is called a sell-side engagement.
• Buy-Side M& A: Conversely, when an investment bank acts as an advisor to the buyer , this is called a buy-side assignment.

Other services include advising clients on joint ventures, hostile takeovers, buyouts, and takeover defense.

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Count On An Industry Leader To Close The Deal

Raymond James has one of the most highly regarded, broadly experienced advisory practices in middle-market investment banking. Our M& A practice delivers a broad array of financial advisory offerings, including transactional and strategic advisory services for both private and publicly held companies. Our advisory services leverage the firms deep industry knowledge and relationships across the corporate and private equity landscape to provide clients with best-in-class execution.

Mergers & Acquisitions Expertise

• Mergers, Acquisitions and Tender Offers
• Leveraged Buyouts

Give Me Some Deals Please

So lets say youre working on an M& A deal between 2 pharmaceutical companies what would the M& A banker do, and what would the healthcare banker do?

• Initial Pitch: The healthcare banker would do most of this, including coming up with the right sets of comps and the correct list of potential acquirers.
• M& A Process: The work here would be split, but not necessarily based on whos better at what if the healthcare banker is busy, the M& A banker might take over and do more, and vice versa. Yes, the M& A analyst is more likely to get the modeling work all else being equal, but its not always so clear-cut.
• Closing Dinner: If the budget allows for it, you both get to go bask in glory just make sure you dont try to share anything there

Heres an example of what the work split might be for a tech company IPO, between the technology industry banker and the ECM banker:

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