Your Complete Guide to Tasks of an Investment Banker

Investment banking is one of the most complicated professions out there.

There are lots of securities to be worked on and types of deals to be understood. That's why every investment banker should every day take time in improving their financial knowledge.

We are going to discuss some of the most common tasks that investment bankers work on, and how you can effectively execute them.

Investment bankers do a lot prettily:

Your Complete Guide to Tasks of an Investment Banker 1

Your Complete Guide to Tasks of an Investment Banker 2

Your Complete Guide to Tasks of an Investment Banker

Working on Pitch Books

What are the different types of pitch books?

There are different pitch books available:

  1. Deals-related – these are pitches that present a present transaction. Examples include M&As (buy or sell side), public offerings, security issuances, etc. There are also called “Targeted Deals” pitch books wherein the bank will present the dilutive or accretive effect on shares of a proposed acquisition deal.
  2. Bank pitches – these are pitches that pitches the banks, it’s products, services and what it can do for the clients
  3. Fairness Opinion – this is a presentation about how fair the valuation of a certain company is. That is, the bank is validating whether the amount to be received or amount to be paid by a company is fair or not.
  4. Management presentations – these are presentations to actual investors during public offerings
  5. Updates – these are presentations that aim to give updates to the clients regarding ongoing deals such as M&As.
  6. Market overviews – presents facts about the market where the client operates

What are the common features of pitch books?

In general:

  • Title
  • Table of Contents
  • Slides about the bank
  • Market Overview
  • Situation Overview
  • Valuation Summary
  • Potential Buyers / Potential Sellers
  • Executive Summary
  • Recommendations
  • Appendix

For Management Presentations or Bank Overviews:

  • Company Overview, including Organizational Chart
  • Market Overview
  • Products and Services Offered
  • Sales overview
  • Historical Financial Statements, and Projected Ones
  • Marketing Methods
  • Market Demographics

How can you create an excellent pitch book?

Create Pitch Book

What are some clients examples of pitch books?

From JP Morgan:

Check the PDF

From Goldman Sachs:

Check the PDF

Check the Article

Morgan Stanley:

Check the PDF

Check the PDF

What are the things you should focus on when doing pitch books?

Pitch books' formats are almost always taken from existing templates of the companies. You would usually start with looking for a transaction that is similar to the one you are working now. From there, you are going to work on the old pitch book but with new names and figures.

When working on a pitch book must consider the following:

  1. 100% update of all information – one of the most common mistakes that an investment banker does is not to update all the information. They tend to copy some facts from the previous template. As such, the banker is faced with a lot of red marks for it. The banker should always recheck the work multiple times.
  2. Proper punctuations, footnotes, and other small stuff should be correctly and adequately provided.
  3. Multiple revisions, sometimes hundreds. A single pitch book can go through a lot of revisions. To get you correct, put the version number at the end of the file name.
  4. Petty tasks. These involve the bankers taking too much time on small and unimportant items such as font size, font type, etc. As a solution, the banker should use the standard fonts, styles, etc of the bank. This way, he/she doesn't have to decide every time and will reduce the time needed for unnecessary tasks.

Working on Initial Public offerings

What are the steps involved in an IPO?

IPO Process

What is a pitch meeting and what is the role of investment bankers?

Pitch meeting is when investment banks meet with clients regarding potential initial public offerings. As the investment banker, your role would include long hours of working on pitch books.

During the meeting, usually only VPs and above would be invited, however, for smaller deals, senior analysts (or even junior analysts) can join. If you have this kind of experience as an associate, you’re lucky.

After the pitch meeting, it would be decided if the IPO would be pushed through. Also, banks who will act as book runners will be chosen. Banks will be chosen based on their experience, expertise, and relationship with the client who is about to offer the IPO.

Your Complete Guide to Tasks of an Investment Banker 3

What do investment banks do in a kick-off meeting?

Kick-off meetings are intended to gather together everyone that will be working on the offering – investment banks, lawyers, bankers, accountants in order to determine the schedule and responsibilities of each.

Associates are usually only there to listen and take notes.

They will also discuss registration requirements and due diligence.

What are the tasks involved in a due diligence?

Some of the tasks include:

Market Due Diligence – this is done to determine the market competition in order to assess/validate how the company will position itself. This type of diligence includes meetings with experts, market research, and the likes.

This diligence also includes calling target customers (current and prospective) in order to determine their opinion of the services and products to be offered by the company.

Legal Diligence - most of the tasks here are done by hired lawyers. Their task is to ensure that all necessary registrations are done, as well as no patent or trademark infringements.

Tax and Accounting Due Diligence – this is the work mostly of accountants/auditors. They would review/audit financial books and tax filings, and determine if there are material irregularities that could affect the company after the public offering.

What is an S-1 Registration?

An S-1 filing is actually a term used in the United States that refers to the registration of public offering of a company.

All the papers compiled through the due diligence activities are the ones filed in S-1. After the Securities commission approves the S-1 registration, the company could proceed with pre-selling the shares.

How do banks pre-sell the shares?

Before the selling starts, investment bankers will first be trained how to sell the shares to investors. They will discuss the good points of the company, and how it can be effectively leveraged to clients.

The bank will also discuss the preliminary prospectus. The preliminary prospectus, or red herring, is a summary of the IPO as registered in s-1 but adjusted so that it will like a brochure for the sales.

The prospectus includes offer prices, commissions, net proceeds computations, discounts and commissions of brokers, etc.

After the meeting and the prospectus are ready, investment bankers will start the pre-selling.

The investment bankers will now call and meet prospective major investors in order to determine the actual demand for the shares. After this, they will be able to set the price they will have for the IPO.

How do they pick investors?

Tasks of an Investment Banker IPO Shares

What is a roadshow and how do investment banks conduct it?

A roadshow is when management teams and investment bankers travel to different locations in order to promote the IPO. During this time, they get feedbacks and orders from investors.

Management is usually available during these meetings so that they can answer the questions of the investors. Based on the feedback during the roadshows, the price range set during the pre-selling period might be revised.

Bankers will try to outdo one another by selling as many shares their allocation would allow. Based on the law of supply and demand, the higher the demand for the shares, the bigger the share prices on the actual trading day.

How do bank syndicates allocate the shares to the investing public?

First, bank syndicates are groups of investment banks that, together, underwrites or distributes share offerings. Syndicates are not legal entities, but, merely a team that works together in selling and sharing the risks of issuing new shares.

The allocation will be based on the priority lists of banks. They will first prioritize investors with a long-standing relationship with the bankers. They will also prioritize investors which can generate the highest percentage of commissions for them.

What are the roles of investment banks once share trading starts?

During the actual trading, the banks generally have no obligations anymore. They will just monitor the market prices, and act based on the changes in prices.

How do banks earn from initial public offerings?

Banks earn millions through commissions. The fees for IPOs is usually around 2-5% of the total amount of shares to be sold.

They can also earn by buying some of the shares, and then sell them when the prices are good already. The initial price of shares is usually undervalued and goes higher once the trading starts.

Also Read: What do Investment Bankers Do?

Working on investment banking fairness opinions

What are investment banking fairness opinions?

A fairness opinion is an objective report made by an investment bank about the valuation of a company that is about to be bought or sold. This fairness opinion report is submitted to the Board of Directors before a deal is concluded.

It’s pretty much like the audit report of external auditors that attests the accuracy or fairness of the financial information reported by accountants.

Fairness opinions are usually required by regulatory authorities regardless of the purchase price involved.

What do investment bankers do in fairness opinions?

Are fairness opinions common jobs of investment bankers?

It’s common, though the level of being common differs from bank to bank. Fairness opinions are important to investment bankers because it’s the culmination of what they had learned in investment banking.

Just imagine doing a fairness opinion without even knowing the background of the valuation or how valuation works. In other words, fairness opinions require a high degree of knowledge and experience on valuation. The better you are at valuation, the better you’ll fit with fairness opinion reports.

Why do companies require fairness opinions?

Fairness opinions are most common in advance economies than others.

Having buyouts or M&As doesn’t automatically mean that there would be fairness opinions. It’s a matter of what the management wants.

Usually, fairness opinions happen when there's a bankruptcy situation. The assets must be valued at the most so that more liabilities more creditors can be paid.

Fairness opinions also happen when there’s a divestiture of a conglomerate. Additionally, when there's management buyout, there usually are fairness opinions. This is even truer when there are unfriendly takeovers aka hostile takeovers.

How do investment bankers work out fairness opinions?

Fairness opinions are usually very much time-pressured, time-bound. The reason is that fairness opinions are only done when all parties are already 100% sure that they will push through with the deal. Only that time that they will start fairness opinions.

As such, investment bankers will have to stay late, or even all-nighters within a week or two.

Since fairness opinions are like backing up the numbers, it's also like putting the company's name on the line. If the valuation is validated by the investment banker but turns out not good in the end, the reputation of the bank is on the line.

As such, investment bankers are expected to be very precise with their work on fairness opinions.

The double pressures of time and high level of precisions makes fairness opinions one the most difficult jobs an investment banker makes.

What advantages do banks have when providing fairness opinion services?

Banks earn commissions from fairness opinions even if the deal is not yet closed (or will not close). It is the opposite of working on M&A deals where banks only get paid if the deal is already closed.

The bank only needs to complete the fairness opinion, and get the okay of the client and they can already earn.

How much do banks earn?

The bank earns about 1% the of the total for deals below USD 1 Billion and about 0.2%-0.5% for deals above this amount. As such, for big deals, the bank earns about a few million, whereas hundreds of thousands can be earned from smaller deals.

Working on Equity Sales Team Memo

When are the circumstances that equity sales team memo must be issued?

Equity issuances are done for several reasons:

Companies need funds for expansion – this is the most common reason why companies issue equity. They would rather have equity than have liabilities with fixed payments of interest and amortization.

Investors want a good exit – IPOs always spell good news for investing public. They think that companies do IPO because the future looks good for the company. As such, brings higher valuation to the company. IPOs are great opportunities for the original investor to make an exit. They will earn the big return on their income if they make an exit during IPOs.

Companies need funds for debt repayments and working capital

A group of investors would want to make an exit, and IPOs are good ways to finance the purchase of those shares

Why do investment bankers need to write equity sales memos?

Equity sales team memos are needed in order to educate the sales team about the company, its products and services, its future and also the way the company wants to be represented.

Equity sales team memo is a tool used in order to make sales team sell more shares. The more shares the bank can sell, the better is its chances of getting more deals in the future.

These memos are also used to get an overview of the company shares, and to assess which possible investors are suited to such securities. This way, they can target their marketing to such investors. They also can determine which locations they should go on the road shows.

For example, if the company is a tech company, the bankers could determine which cities have the most number of investors that are interested in tech securities.

What are the things that are written in a sales team memo?

Offering Summary

This section includes a general summary of the offering :

  • The issuer name and ticker name
  • The type of offering
  • No. of shares to be sold and deal size
  • Overallotment provision
  • Fully Diluted Shares Outstanding
  • Bookrunners, co-managers, etc.
  • Purpose of offering – Is it for expansion? Debt repayment?

Company Overview

Shows what are the services or products of the company, target market, history, sales figures summary, future plans

Investment Highlights

The way valuation was made, reasons why the shares should be bought, strength of the company

Financial Summary

This is a summarized report on Revenues, Sales, Profits, EBITDA, Net Income, Earnings Per Share

Summary Valuation

This presents the major items of valuations used, meaning the metrics and multiples. Some of these items are the computations for Equity and Enterprise Value, Share Price, EV/Sales, EV/EBITDA, etc.

Sources and Uses

Focuses on how the funds generated will be used by the company

Risk Factors

A summary of the specific risks involved when the investor will buy the shares of the company.

Working on Equity Confidential Information Memorandums

What are Confidential Information Memorandums?

Confidential Information Memorandum is a document which details the crucial financial and non-financial information about a company selling itself. Thus, Confidential Information Memorandum is part of the documents when the investment banker is on the sell-side of an M&A Transaction.

Investment bankers create executive summaries that are about 5-10 pages long. These summaries indicate only a snapshot of the selling company. These are then sent to prospective investors. If anyone is interested, the CIM can be sent to them after signing a Non-disclosure agreement.

CIMs are usually 60-100 pages long. It is also known as Information Memorandum or Offering Memorandum.

What are the parts of a CIM?

  1. Company Overview
  2. Key Investment Highlights
  3. Company Products/Services and Market
  4. Organizational Charts
  5. Sales figures
  6. Financial Performance and Projections
  7. Interest details, if the deal is debt-related
  8. Appendices

Valuations are not included in the CIM because it’s merely a marketing document that features the good things about the company.

What is the difference between CIMs and Pitch Books?

Though CIMs and Pitch Books could both contain information about the company, there’s still one big difference. Pitch books are used when you are still pitching, that is, you are still trying to get hired by the client.

On the other hand, CIMs are used when the investment bank is already hired by the company. CIMs are used to show the company how it would present the company in order for it to be saleable.

What are some examples of CIMs?

NPC International, Pizza Hut to Barclays and Goldman Sachs

Download the PDF

Draft from Middle Market Business Advisors:

Download the PDF

SBI Capitals Limited:

Download the PDF

Prysmatic Advisors

Download the PDF

Working on Stock Purchase Agreements

What is a Stock Purchase Agreement?

A stock purchase agreement is a document which shows the final agreed terms of the buyer and seller in an M&A.

Stock Purchase Agreements are also called Definitive Merger Agreement.

What are the things included in a Stock Purchase Agreement?

Stock Purchase Agreement are usually taken from pre-existing templates of the bank. So, an investment banker will only have to change the figures, and reword some portions so that it would fit the current scenario.

Here are the things you will be working on a Stock Purchase Agreement.

  1. The parties involved, the type of transaction they entered into and the price agreed upon.
  2. How Existing shares, options, and other dilutive securities will be treated
  3. Warranties and Representations – this portion is added in order to avoid conflicts with existing laws and regulations. This portion would show the limits each party would act in relation to the upcoming M&A.
  4. Covenants – Covenants are for deals related to raising debts. Covenants will tell the company what it can do and cannot do during the term of the loan
  5. “No-shop” or “Go Shop” clauses – "No Shop" clause would prevent the seller from finding other buyers who could potentially buy them. This is to protect the seller from increasing the price of the deal. A "Go Shop" clause would allow the seller to find other potential sellers
  6. Financing – this will show what will be the financing be used for
  7. Penalties/Payments in cases of Termination, including indemnifications
  8. Clauses related to unforeseen and material adverse changes – in case of unforeseen material and adverse changes (e.g. economic depressions), this portion will tell the parties what each would do in such a situation
  9. Conditions to close – summarized form of all the things that need to happen in order to close the deal.

What are some examples of Stock Purchase Agreements?

National Paralegal College:

National Paralegal College Example

Draft Stock Purchase Agreement:

Draft Stock Purchase Agreement Example

Working on client acquisitions and relationships building

What are the different ways they find and retain their clients?

Investment bankers win deals not just by good pitches, but more by good relationships.

They get a lot of clients through their acquaintances. MDs, VPs usually have catch-up meetings with industry contact even if they don’t have an immediate transaction to discuss.

They usually get new deals during the discussions.

For IPOs for example, bankers get a lot of referrals from Venture Capitalists and Private Equity Firms.

When will you be tasked to find new clients on your own?

Entry-level analysts and associates are not given the responsibility to find clients. AT this level, you are tasked to do the computations and due diligence. At this point, your employer would determine if you are ready to take on the task of connecting with clients.

How can you show them that you are ready? You must be able to at least communicate very well with the other members of your team. You should also be able to showcase your networking skills whenever you are out for meetings with your seniors.

VPs and above are the ones that are tasked to find and win deals.

Managing directors in fact, are usually not busy in doing current deals like IPOs. They are more on working on with new or existing relationships. Once they get a deal, much of the work are passed on to the other officers of the investment bank.

How many deals should you expect to close in a year?

On your first year, you won’t probably close more than one deal. If you got more, you’re lucky. Why? Because most of the deals started won’t get closed.

Most of the time, the reason is because it took so long for both counterparties to agree to the same terms. What are the things that delay the deal?

  1. Parties don’t agree on one or some terms, and nobody wants to give way to the other. It took so long they just don’t proceed with it. (e.g. management fees, working capital requirements, non-compete terms, covenants, and warranties)
  2. Too long in looking for the right company to buy, or partner with. Sometimes it is the investment bankers who make this too long, they provide a long and continuous list of prospects until the client got so tired with the process
  3. Due Diligence took so long – In due diligence, both parties should be cooperative. There’s a lot of documents and reports to submit in order to complete the due diligence documents. Sometimes, one or both of the parties do not prioritize the due diligence. The result? Not all documents can be completed, and nothing can be submitted to the governing authorities.

Would you still want to work in investment banking?

There’s still a lot more in investment banking that what are discussed here. This is just an enumeration of what the common tasks that investment bankers face in the workplace. There are a lot of challenges a financial analyst could face at work.

Reading can get you ahead, but, nothing beats real experience. So go out there and get real-life experiences!

Got any questions, send us a message!

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Your Complete Guide to Tasks of an Investment Banker 4

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