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The Capital Markets & Careers in Investment Banking. March 30, 2011. Contents. Introduction What Investment Bankers Do Valuation Theory Valuation in Practice The Current Market Environment Career Considerations Appendix. I. Introduction. Introduction. Annemarie T. Schovee

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The capital markets careers in investment banking

The Capital Markets & Careers in Investment Banking

March 30, 2011


Contents

The Capital Markets & Careers in Investment Banking

Contents

  • Introduction

  • What Investment Bankers Do

  • Valuation Theory

  • Valuation in Practice

  • The Current Market Environment

  • Career Considerations

  • Appendix


I introduction

I. Introduction


Introduction

The Capital Markets & Careers in Investment Banking

Introduction

Annemarie T. Schovee

Managing Director, Group Leader(410) [email protected]

  • Current Responsibilities

    • Mergers and Acquisitions

    • Corporate Finance

  • Previous Professional Experience:

    • Managing Director, US Leader

      PriceWaterhouseCoopers Securities, LLC

    • Principal, PriceWaterhouseCoopers, LLP

    • Managing Director, Bank of America Securities (formerly Nationsbank Capital Markets)

    • Analyst, Shearson Lehman Hutton, Inc.

Timothy J. BurkeDirector(410) [email protected]

  • Current Responsibilities

    • Mergers and Acquisitions

    • Corporate Finance

  • Previous Professional Experience:

    • Analyst, Giuliani Partners LLC (former subsidiary of Ernst & Young LLP)

    • Associate, PriceWaterhouseCoopers LLP


Introduction1

The Capital Markets & Careers in Investment Banking

Introduction

Headquartered in Buffalo NY, M&T Bank Corporation is a fully integrated financial services company and is the 15th largest bank in the United States

M&T Bank Corporation

Investment Banking

CommercialBanking

Trusts and Investments

Capital Markets

RetailBanking

In one of the most turbulent banking markets in history, M&T Bank’s disciplined management and culture has set the Company apart from the competition:

2-Year Stock Performance Relative to the S&P 500 at 12/31/10

Source: M&T Bank

*BB&T, Regions, Marshall & Ilsley, PNC, SunTrust, Key Corp


Introduction2

The Capital Markets & Careers in Investment Banking

Introduction

Top Honors

  • Named one of the “400 Best Managed Companies” in America . M&T was one of only 44 companies nationwide and one of only two banks to qualify for the Forbes “Platinum Honor Roll”

  • 2009 Greenwich Excellence National Award Winner: Financial Stability in Middle Market Banking

  • Named to Fortune magazine’s roster of “America’s Most Admired Companies,” ranking second among “Super-Regional Banks”

  • “Outstanding” Community Reinvestment Act rating from the Federal Reserve Bank (May 2009)

  • Through the M&T Charitable Foundation, M&T made $15.1 million in charitable donations to 2,941 organizations in 2009

  • Business Week ranked M&T Bank among the Top 10 companies in the nation for charitable giving as a percentage of revenues

  • More than 2,700 M&T Bank employees volunteer their time with more than 4,700 community and not-for-profit organizations


Ii what investment bankers do

II. What Investment Bankers Do


What investment bankers do

The Capital Markets & Careers in Investment Banking

What Investment Bankers Do

Arrange Capital and Business Combinations

  • Utilize controlled auction processes and the laws of supply and demand

  • Maximize negotiating leverage to optimize terms for client (typically the seller or issuer)

  • Maximizes speed to close – minimizing risk of an uncontrolled external event disrupting

    Arrange Business Combinations (M&A)

    Arrange Capital (Corporate Finance)

Investment Banker

Buyer

Seller

Investment Banker

Investor

Issuer


What investment bankers do1

The Capital Markets & Careers in Investment Banking

What Investment Bankers Do

How it Works: The Laws of Supply and Demand

  • Through a properly managed auction process, an investment banker creates demand

  • Demand creates negotiating leverage –the ability to extract value in monetary and contractual terms

Buyer/ Investor

Buyer/ Investor

Investment Banker

Buyer/ Investor

Seller/ Issuer

Buyer/ Investor

Buyer/ Investor


What investment bankers do2

The Capital Markets & Careers in Investment Banking

What Investment Bankers Do

Transaction Lifecycle

4-6 months in total

6-8 Weeks

4-6 Weeks

6-8 Weeks

Understand

Objectives

Prepare for

Transaction

Market the

Company

Select Lead

Party

Complete the

Transaction

  • Identify and manage transaction issues

  • Coordinate detailed due diligence

  • Advise on structure and negotiate agreements

  • “Quarterback” process and various constituents and maintain timing

  • Close transaction

  • Prepare management presentation

  • Negotiate term sheet(s)

  • Coordinate limited due diligence

  • Select course of action and partner

  • Sign LOI & move forward on an exclusive basis

  • Understand the Company’s objectives

  • Assemble and prep the team

  • Perform our initial due diligence

  • Gather documents, financials, etc and begin to create “deal story”

  • Review modeling, financials, & projections

  • Prepare Information Memorandum and related materials

  • Identify potential acquirers/investors

  • Finalize contact strategy

  • Contact potential buyers/investors

  • Solicit proposals

  • Evaluate Indications of Interest

  • Create competitive bidding environment

  • Select most favorable offers and move forward

Timing can be influenced by many factors, including availability of company information, complexity of the deal, market environment, and attractiveness of the target company


Iii valuation theory

III. Valuation Theory


Valuation theory

The Capital Markets & Careers in Investment Banking

Valuation Theory

  • Common Tools for Valuation

    • Valuation is much more of an art than a science

    • While there is no steadfast approach, methodologies can be split between company specific and market based analysis


Valuation theory1

Comparable Company Analysis

$US millions

Financial Data

Valuation Data

Market

Enterprise

Latest Twelve Months

Margins

Enterprise Value / LTM

Company Name

Cap

Value

Revenue

EBITDA

Gross

Gross

EBITDA

Revenue

EBITDA

Company A

$1,355

$1,940

$2,286

$343

$754

33.0%

15.0%

0.8x

5.7x

Company B

909

1,417

2,140

257

428

20.0%

12.0%

0.7x

5.5x

Company C

1,270

1,214

1,448

261

366

25.3%

18.0%

0.8x

4.7x

Company D

1,724

1,862

1,579

205

347

22.0%

13.0%

1.2x

9.1x

Company E

333

390

332

50

83

25.0%

15.0%

1.2x

7.8x

Company F

8,345

8,811

9,293

1,580

2,788

30.0%

17.0%

0.9x

5.6x

Company G

294

389

531

80

117

22.0%

15.0%

0.7x

4.9x

Mean

25.3%

15.0%

0.9x

6.2x

Median

25.0%

15.0%

0.8x

5.6x

Adj Mean

0.9x

6.1x

The Capital Markets & Careers in Investment Banking

Valuation Theory

Public Comparables Calculation Example

“Equity Value” = Stock Price * Number of Shares

Company Specific Operating Performance

Valuation Metrics

Market Cap + Debt - Cash

  • Review variability in the gross and operating margins within set and against target

  • Consistency in multiples supports lack of variability across the sector

    • Review highs and lows to see what might be driving value or depressing value

  • Time series analysis and industry fundamentals are critical to gaining perspective


Valuation theory2

Comparable Merger & Acquisition Transactions

$US millions

(Implied)

Financial Data

Valuation Data

Target /

Date

Enterprise

Latest Twelve Months

Enterprise Value / LTM

Acquirer (Sponsor)

Announced

Value

Revenue

EBITDA

EBITDA %

Revenue

EBITDA

Target A

2/20/09

$54.9

$80.0

-

-

0.7x

-

Acquirer A

Target B

1/15/09

$370.2

$330.0

$59.4

18.0%

1.1x

6.2x

Acquirer B

Target C

12/21/08

451.1

432.3

69.2

16.0%

1.0x

6.5x

Acquirer C

Target D

11/2/08

89.2

97.0

12.6

13.0%

0.9x

7.1x

Acquirer D

Target E

10/15/08

36.0

33.0

6.6

20.0%

1.1x

5.5x

Acquirer E

Target F

8/3/08

38.4

40.0

7.2

18.0%

1.0x

5.3x

Acquirer F

Mean

17.0%

1.0x

6.1x

Median

18.0%

1.0x

6.2x

The Capital Markets & Careers in Investment Banking

Valuation Theory

M&A Comparables Calculation Example

  • Review data for consistency – study outliers

  • Volume of transactions can be as important as valuation data

  • Look to see who is acquiring (strategic v. PE)

Reasonably Current

Target’s Operating Performance

Enterprise Value

Valuation Metrics


Valuation theory3

Target Data

Revenue

$

63,423

EBITDA

$

9,297

Comparable Company Analysis

$US thousands

Revenue Multiples

EBITDA Multiples

Low

Medium

High

Low

Medium

High

0.7x

0.8x

1.2x

5.5x

5.6x

8.0x

$

44,396

$

53,824

$

76,108

$

51,134

$

51,852

$

74,376

$45 million - $75 million

$50 million - $75 million

Indicative Range of Value

Comparable Merger & Acquisition Transactions

Revenue Multiples

EBITDA Multiples

Low

Medium

High

Low

Medium

High

0.8x

1.0x

1.1x

5.5x

6.2x

7.0x

$

50,738

$

66,178

$

69,765

$

51,134

$

57,940

$

65,079

$50 million - $70 million

$50 million - $65 million

Indicative Range of Value

The Capital Markets & Careers in Investment Banking

Valuation Theory

Applying Multiples - Bringing it All Together

  • Important to translate to equity value too

    • Subtract net debt (debt less cash or $12.1 million in this scenario)

$US thousands


Iv valuation in practice

IV. Valuation in Practice


Valuation in practice

The Capital Markets & Careers in Investment Banking

Valuation in Practice

Keys to Success - Proactive, Proper Positioning

  • Detailed financial analysis – Pro Forma EBITDA

    • Normalizing and adjusting operating performance

    • Analyzing trends, customer dynamics, revenue composition, margins, etc.

  • Highlighting strengths – Competitive Advantages

    • Business is well positioned within its market

    • What sets is apart?

  • Reinforce growth opportunities – “Sell the Sizzle”

    • New customers and markets

    • Complimentary business opportunities

  • Anticipate challenges – Be Proactive

    • Get any challenging items on the table early

    • Mitigate with a proactive explanation

  • Extort market inefficiencies - “Beauty in Eye of the Beholder”

    • Competitive process will flush out outliers

    • Most efficient, creates options and helps ensure success

    • Provides options


Valuation in practice1

The Capital Markets & Careers in Investment Banking

Valuation in Practice

Proper positioning of value drivers yields maximum value

  • Proactively positioned growth opportunities to demonstrate “upside” for investors

  • Rigorous analysis positioned financials in the best possible light

  • Disciplined process drove multitude of attractive mezzanine and equity offers

Project Pump Preliminary Indications of Value ($US millions)

Strategic

Financial

* Process also yielded five mezzanine financing offers with favorable structures


Valuation in practice2

The Capital Markets & Careers in Investment Banking

Valuation in Practice

Capital Structuring Alternatives

A company has two primary options for financing its operations and strategic initiatives: (1) internally generated cash flow , and (ii) external capital provided by outside investors. The following generalizes the sources of outside capital available:

Our job as investment bankers is to provide options for clients that maximize returns to existing shareholders, while minimizing risk (by providing for optimal financial flexibility)

Equity

FinancialFlexibility

High

Common Stock

Mezzanine

Preferred Stock

Debt

Subordinated Debt

Term B

Revolver / TLA

EconomicCost

Low

Low

High


V the current market environment

V. The Current Market Environment


The current market environment

The Capital Markets & Careers in Investment Banking

The Current Market Environment

Capital Markets Back to Pre-Crisis Levels

Sources: Capital IQ


The current market environment1

The Capital Markets & Careers in Investment Banking

The Current Market Environment

M&A Market Showing Signs of Strength

Sources: Capital IQ


Vi career considerations

VI. Career Considerations


Career considerations

The Capital Markets & Careers in Investment Banking

Career Considerations

Current Trends Impacting Employment

  • The financial markets are hot, but the economy is still recovering

    • Credit markets and equity markets are liquid, driving new debt and equity issuances

    • Access to capital is fueling M&A activity

  • The Middle Market continues to provide substantial investment banking opportunities

    • The shakeout from the last market cycle is driving consolidation

    • Sellers that “missed the window” are driving a flurry of new activity

  • The investment banking employment landscape has changed

    • While hiring activity has picked up, displaced experienced professionals are often the first hired

    • A new generation of boutiques and regional firms have entered the market as new pay regulations impact banks’ ability to retain talent


Career considerations1

The Capital Markets & Careers in Investment Banking

Career Considerations

The Investment Banking Career Path


Career considerations2

The Capital Markets & Careers in Investment Banking

Career Considerations

Getting the Analyst Job

  • Getting an investment banking job is difficult, but persistence pays

    • You’ll hear lots of “no’s” - If “no” bothers you, you’re not cut out for investment banking

    • You should exhibit certain “type A” personality traits to get an offer


Appendix recent deal case studies

Appendix: Recent Deal Case Studies


What investment bankers do3

The Capital Markets & Careers in Investment Banking

What Investment Bankers Do

Sell-Side

has been acquired by


What investment bankers do4

The Capital Markets & Careers in Investment Banking

What Investment Bankers Do

Growth Capital Financing

Pet Partners Holdings LLC

has acquired two veterinary hospitals

and redeemed the equity interest of Altazano Management

Growth capital financing provided by


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