Interview Preparation Presentation

8/11/2019 Interview Preparation Presentation

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Interview Preparation

Copyright 2011 Investment Banking Institute

www.ibtraining.com


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Table of Contents

I. Investment Banking Overview

II. Ideal Investment Banking Candidates and Recruiting Season

III. Resume Tips

IV. Common Qualitative Interview Questions

V. Common Technical Interview Questions

VI. Interview Preparation and Tips


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Investment Banking Overview

Full-Service Investment Banks (Bulge Bracket Banks) Citigroup, Goldman Sachs, HSBC, Deutsche Bank, UBS, Morgan

Stanley, Credit Suisse (and previously, Merrill Lynch, Lehman,

Bear Stearns) Major IB groups within full-service investment banks

Leveraged Finance provides debt package for LBOs Ideal for moving on to LBO shops and hedge funds

Financial Sponsor dedicated financial sponsor community coverage

Ideal for moving on to LBO shops Industry Groups Telecommunications, Industrial, FinancialInstitutions, Food & Consumer, Retail, Automotive, Technology, etc.

M&A Groups Executes all the M&A assignments, include mergers,sell-side, buy-side, etc. Ideal for moving on to LBO shops and hedge funds

Financial Restructuring some bulge bracket banks are beginning toestablish these groups, although often there are conflicts Good for moving to hedge funds

Capital Markets Debt and equity capital markets (IPOs, secondaryequity offering, High Yield issues, convertible debt issues)


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Investment Banking Overview (contd)

Boutiques

Refers to small investment banks with limited number of services

M&A - Lazard, Greenhill, Centerview, Blackstone, Evercore

Restructuring - Miller Buckfire, Houlihan Lokey, Chanin,Blackstone, Lazard, Rothschild

Industry Focus Focused on one industry

Allen & Company (media), Petrie Parkman (oil and gas)

Middle Market Refers to smaller deals below $500 million in enterprise value

Houlihan Lokey, Chanin, William Blair, Edward Jones, Duff &Phelps, Raymond James, Goldsmith Agio and many more


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Investment Banking Overview (contd)

Typical Hierarchy at Investment Banks Managing Director (MD)

Markets banks services and brings in clients; big picture banker

Director (2 years and up)

Similar to Managing Director and is training to be an MD, but does more actualexecution than MD

Vice President (3 to 4 years) Responsible for execution of all aspects of transactions and pitches Primary contact for clients and other professional intermediaries Oversees junior financial staff (Associates and Analysts) and serves as the

intermediary between the MD / Director and junior financial staff Controls and plans the projects

Associate (3 to 4 years) Entry level position from MBA and there are also direct promotes from analyst

programs Oversees and guides the analysts, checks work product, builds the more

complicated models and financial analysis

Analyst (2 to 3 years) Typical Analyst Program is two years, with some analysts being offered a thirdyear (which often means a promotion to associate is implicit)

Responsible for most of the financial analyses and presentations Administrative responsibilities (i.e. grunt work)


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Table of Contents



III. Resume Tips





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The Ideal Investment Banking Analyst

Recent undergraduates will enroll into the investment banksanalyst program Analyst programs are usually for two-years with the top

performers being offered a third year, usually implying apromotion to associate after completing the third year.

Important traits of a good analyst Good attitude

Hard worker / endurance

Energy Attention to detail

Do not necessarily need a finance / accounting undergraduate degree,but good grades and intelligence highly valued during interview

Typical responsibilities will include the following:

Pitch books and presentations Valuations (Trading, Precedent, DCF)

Excel Models (LBO, Merger)

Administrative such as Faxing and Delivery


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The Ideal Investment Banking Associate

Recent MBA graduates and Analyst Promotes will enroll intothe investment banks Associate program After 3 to 4 years, Associates can be promoted to Vice President

Important traits of a good Associate Knowledge of finance and transaction processes

Strong understanding of finance concepts, strong technical / modelingskills, strong writing skills

Good manager (calm under pressure)

Good teacher / patience with analyst Client interaction skills (Presence)

Attention to detail

Good knowledge of excel, powerpoint, word

Typical responsibilities will include the following:

Explain/oversee assignments to analysts Pitch books and Presentations

Complicated financial modeling (merger models, LBO models,valuation models, refinancing, etc.)


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Lateral Analyst and Associate Hires


Bulge bracket and boutique investment banks will consider hiringanalysts or associates that either have at least one year of

experience as an analyst/associate at another bank, or have someother professional experience where skills are transferable toinvestment banking

Other professional experience with transferable skills could becommercial banking, research (equity, debt, credit), corporate

development at a corporation, experience in the insuranceindustry, accounting, etc.

The important factor here is that the lateral analyst or associatecan demonstrate that he / she has developed the skills necessary

to be a good investment banker


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Recruiting Season at Investment Banks

New Analyst and Associate Hires

All of the bulge bracket banks and many boutique investmentbanks have entire recruiting departments focused on hiring new

analysts and associates The primary recruiting source are universities / undergraduate

programs for analysts and MBA programs for associates

Many investment banks have a target list of schools, whichtypically number about 20, and usually include the ivy-leaguesand other high-ranking universities

The banks work closely with the universities job placementservices to arrange off-campus and on-campus recruiting eventsand interviewing schedules

If your undergraduate institution / MBA program is not on thetarget list, you have to work a little bit harder, but you canstill get interviews


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If your school is not on the target list, you should;

Network, network, network: call everyone you know that works ininvestment banks (analysts, associates, vice presidents, etc.) and

send them your resume and try to get informational interviews Contact the investment banks recruiting department directly

find the name of the person that is in charge of analyst orassociate recruiting

Find the names / email addresses / phone numbers of analysts,associates and vice presidents that work in the bank / groupwhere you want to work (website information); send them anemail with short introduction of yourself and what you want (i.e.a job) and attach your resume; follow up the following week witha phone call

Start early: dont wait until the recruiting season is alreadyunderway


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The investment banking recruiting season for full-time analyst andassociate class starts in September of the year prior to the start datefor the new class The typical start date of the new analyst and associate classes is the

August or September following graduation Therefore, the interview season for this start date is the prior September

(i.e. when analyst candidates start their senior year and associatecandidates start their second year of MBA program)

However, many investment banks fill their full-time analyst and

associate needs through their summer internship programs Many analyst and associate candidates attain summer internships at

investment banks for the summer between their junior and senior year /summer between first and second year of MBA program

Investment banks recruiting season for summer interns starts in January ofthe same year of the summer internships

Often following the summer internships, the summer analysts andassociates receive full-time offers to start the following fall, once theyfinish school


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Lateral analyst and associate hires occur all year long, and aremore linked to current needs at the group or bank level

Interested lateral analyst and associate candidates can learn of

opportunities by contacting the investment banks recruitinggroup or the investment bankers / group directly

Often, investment banks hire headhunters to find lateralanalyst and associate candidates


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Resume Overview and Tips

Besides having good academic credentials and workexperience, structure and formatting of the resume are veryimportant

Most bankers (interviewers) will glance at the followingimportant sections and will not read the whole resume Previous work experience (internships for undergrads) and any

relevant transactions

School, major, GPA, standardized test scores (GMAT, SAT)

Outside activities Common resume mistakes

Formatting (think of it as an art piece)

Should not be longer than one page

No typos and grammatical mistakes (double check everything!) Make sure you are familiar with your resume and can discuss

every point

Do not embellish your roles on any previous financial transactions


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Resume Example

Review resume sample


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Table of Contents



III. Resume Tips





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Common Qualitative Questions?

Please walk me through your resume and tell me a little bit ofyourself Candidates should take this opportunity to go through their

academic and professional history quickly, and emphasize anyacademic or professional experience that make them goodcandidates Academic Example: - I majored in accounting and finance, and earned

A's in all of the accounting and finance classes; my overall GPA was3.9 and my SAT scores were 1500; I was the president of my schools

finance club as well as the editor for the school newspaper Professional Example: During my time at Company XYZ, I spent a lot

of time building pitch books and buyers lists, spreading comparablecompanies and building models such as DCF, Merger and LBO

Outside Activities: show ability to multi-task and still be successful: Eg: While I know that any spare personal time would be limited while

working here, during school, I was captain of the rowing team which tookabout 25 hours a week, at the same time that I maintained a 3.8 GPA

Eg: I worked 30 hours a week to put myself through school, at the same timeas I did a double-major where I maintained a 4.0 in my major courses


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Common Qualitative Questions? (contd)

Why do you want to be an investment banker?

I think Investment Banking provides the best opportunity todevelop my financial skills such as financial modeling and

company valuation skills as well as honing my client interactionskills.

I want to be challenged, I know that investment bankers workunder difficult work environments but I want to be challengedmentally and physically

I love the financial markets and follow them closely

I would like to read about transactions that I have worked on inthe Wall Street Journal and other financial magazines

Investment Banks have a positive influence on the economy. For

example, the concept of 1 + 1 = 3 is derived from synergiesextracted from merging two companies


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What are your strengths?

The following are nice strengths such as: (a) attention to detail

(b) endurance (c) good attitude

(d) excel skills

(e) understanding financial concepts (i.e., valuation, modeling, etc.)

(f) ability to learn quickly

(g) ability to multi-task (i.e., history of holding jobs while in school, beingon sports teams, etc.)

(h) good communication and writing skills

(i) intellectually curious

The strategy to answer this question is to work into the answerthese skills and how the you already have them, by giving quickexamples for each skill


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What are you weaknesses?

This is a TRICK question. You should not actually tell them yourweaknesses, but spin it. For example:

(a) too anal (b) work too hard

(c) perfectionist

(d) check work product too often

(e) dont sleep enough

You can also take this opportunity to address some obviousweakness in your resume and buff it up. For example:

If you have no academic financial / accounting background, you cansay, Well, from my resume you probably noticed that I didn't majorin accounting or finance, but I do learn quickly as you can see from myhigh GPA and SAT scores. I work very hard to get up to speed, as youcan see from my success at my prior firm


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Why do you want to work at our bank?

Candidate should fully understand the bank in terms of bankssize, culture, target market, and industry focus. It helps to do

prior research Is it a boutique or a full-size bank?

If it is a boutique, you may say, I know that the junior staff receivesmore responsibilities and there are more opportunities to step-upon transactions

If it is a full-size bank, you may say, This bank has the globalresources to serve the fortune 500 clients and I want to be involved inthe high profile deals that this bank has been involved with recently.(Make sure this statement is true, so you need to do the research)

Another universal line can be I have heard that this bank is based

on meritocracy and you are given more responsibilities as longas you are able to handle it or "this group really values andencourages junior bankers to "step up" on transactions


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Where do you see yourself in 5 years?

Currently, I definitely want to stay in the financial servicessector, and would love to be an Associate (VP or Director

depending on entry position) in this group You do not want to mention that you are using Investment

Banking as a stepping stone to another job. You want to be aninvestment banker for LIFE! (even if you dont)

What was your favorite class in school? And why?

Math was my favorite class in school. Numbers came very easilyto me and I enjoy solving complex math problems as well aspuzzles.

I love to write so English was my favorite class. I also read a lotin my spare time.


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Table of Contents



III. Resume Tips





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Common Technical Questions

What is total enterprise value?

It is the total value of the company which can be attributed to all thefinancial stakeholders (equity, debt and preferred holders)

How do you calculate total enterprise value? Equity Value + Debt + Preferred Equity + Minority Interest Cash

What is the difference between total enterprise value and equityvalue?

TEV represents value of whole enterprise, and is calculated as equity

value + debt + preferred equity + minority interest cash Equity value represents only the equity value of the company, and is

calculated as current share price * shares outstanding, or TEV debt preferred equity minority interest + cash

What is minority interest?

If you own more than 80% but less than 100% of another entity, you arerequired to consolidate 100% of the asset and income in the companysfinancial statements. Minority interest represents the portion that yourcompany does not own it is a liability


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Common Technical Questions

How do you calculate equity value? Stock Price x Shares Outstanding

What is the difference between basic shares outstanding and

fully-diluted shares outstanding Basic shares outstanding represent the current number of shares

that are currently issued and outstanding; you can find thisnumber on the cover of the most recent 10-K or 10-Q, Bloomberg,Yahoo finance, etc.

Fully-diluted shares represent the current number of sharesoutstanding plus the dilutive impact that any in-the-moneyoptions, preferred convertible stock, convertible debt and otherconvertible-to-equity securities that exist

Should you use basic shares outstanding or fully-diluted shares

outstanding to calculate the equity value of a company? What is the treasury stock method?

It is used to calculate the dilutive shares from employee stockoptions and outstanding warrants


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Common Technical Questions (contd)

Please name a few line items from the current assets and current liabilitiessection of the balance sheet? Assets:

Current assets: cash, inventory, accounts receivable, other current assets, prepaid accounts

Gross PP&E, cumulative depreciation, Net PP&E

Other long term assets, intangibles, goodwill

Liabilities and Shareholders Equity Current liabilities: accounts payable, other current liabilities, revolving credit facility

Long Term liabilities: debt, other long term liabilities, pension plan liabilities

Shareholders Equity: retained earnings, other

Total Assets = Total Liabilities + Shareholders Equity

Tell me how the cash flow statement is structured and state how they aredifferent from one another It is separated between cash flow from Operations, Investments and Financing

Operations represents the cash that is generated from the companys operations.Net Income + Depreciation & amortization +/- other non-cash expenses / income + /- changes in working capital + / - changes in other assets / liabilities

Investments related to capital expenditures and business acquisitions and proceedsfrom disposition of assets

Financing related to raising new equity and debt financing as well as paying downdebt


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How is depreciation expense integrated within the threefinancial statements?

Depreciation expense is expensed in the income statement.

However, it is added back in the cash flow statement because itdoes not represent actual cash that is going out of thecompany.

Depreciation expense is also reflected in the balance sheet sincethe net P,P&E is decreased by the depreciation expense for that

period

What are the typical valuation multiple metrics?

TEV/Revenues, TEV/EBIT/ TEV/EBITDA, P/E

Can you use TEV/Earnings ratio for valuations?

No. TEV represents a value to all the stakeholders (debt andequity) and earnings are only attributed to the equity holders -interest expense is already subtracted from the earnings figure


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If a company with a high P/E ratio acquires a company with alow P/E ratio in a stock transaction, assuming everything elsestays constant, will the transaction be accretive or dilutive to

the acquiring company? Accretive assuming that the earnings of the combined company

will still trade at the higher P/E ratio

How do you value a company?

There are three main valuation methodologies that you will use: Discounted Cash Flow

Trading Multiples

Precedent Transaction Multiple


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Briefly describe the three valuation methodologies

DCF projects the cash flow in the future and it discounts it backto calculate Net Present Value (NPV)

Trading Multiples Uses the stock prices of publicly tradedcompanies to calculate valuation metrics such as TEV/EBITDA

Precedent Transactions Uses the actual offer price from anacquisition to calculate valuation metrics such as TEV / EBITDA

What is the main valuation principle difference betweentrading and precedent multiples?

Precedent multiple should be higher because it includes a controlpremium


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Please describe the DCF model in laymans terms DCF projects the free cash flows generated by the company and

discounts these cash flows using a WACC, which considers the riskof the projected cash flows (Net Present Value of Free CashFlows)

DCF then calculates the terminal value of the company usingeither the EBITDA terminal method or the Perpetuity TerminalMethod

The DCF value of the Company is the NPV of free cash flows +terminal value

How do you calculate free cash flow? FCF = EBIT

less: Taxes

Increase/decrease in working capital (WC)Capital expenditures (CapEx)

plus: Depreciation and Amortization


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How do you calculate the terminal value from using theperpetuity growth method / Gordon Growth method?

Terminal Value = FCF(5) x (1+g)

(d g)g = Terminal Annual Growth Rate d = WACC Rate

How do you calculate the terminal value from using theterminal multiple approach?

EBITDA multiple * terminal EBITDA / (1+d)^n

How do you determine the discount rate to be used in the DCF?

WACC


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What is WACC and how do you calculate it? WACC represents the discount rate that you will use in the DCF to

calculate NPV

WACC = [Ke x (E/(E+D)] + [(Kd x (D/(E+D)) x (1-T)] Ke = cost of equity Kd = cost of debt

E = MVE of subject company

D = FMV of debt (same as face value unless distressed) of subjectcompany

T = tax rate

How do you calculate cost of equity? Use the Capital Asset Pricing Model (CAPM)

CAPM = Rf + Beta x (RM Rf)

Rf = risk-free rate RM = market rate

RM Rf = market premium


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Please explain the concept of beta in laymans terms Beta measures the sensitivity of the stock relative to the market

as a whole (systematic risk risk that can by diversified away)

For example, if the company has a beta of 2, that means that ifthe market moves up by 2%, then the companys stock moves upby 4%

Which one is more expensive, equity or debt? Equity is more expensive because it has the lowest seniority in the

capital structure, thus higher risk and higher required return There are no obligations for dividends to be paid, and equity is

the last group to be paid out in a liquidation scenario

Which of the following will have the lowest interest rate:secured bank debt, subordinated debt, preferred equity and

equity? Bank debt. It sits on top of the capital structure and the debt is

collateralized with the assets of the company. It gets paid first ina liquidation scenario


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What does it mean when a note has a PIK structure?

PIK stands for Pay In Kind. The borrower does not pay cashinterest to the lenders, rather the interest is added on top of the

note balance and the next periods interest expense is accruedfrom the new balance

Period 0 - $1,000 Balance and 10% Interest Rate per Annum

Period 1 - $100 Interest Payment but is added to the old balance of$1,000 which results in a new balance of $1,100

Period 2 - $110 Interest Payment is added to the old balance of $1,100which results in a new balance of $1,121


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Explain how a company purchasing raw material from a vendorworks its way through the income statement and balance sheet

Company purchases $100 of raw material from vendor

Inventory balance on b/s increases by $100 Accounts payable balance on b/s increases by $100

Company converts the raw material into a final product for sale

Inventory balance on b/s increases by the value-added of $50 of theconversion to the final product: labor, other inputs, etc.

Company sells the final product to customer for $200

Sales of $200 recorded in income statement

COGS of $150 recorded in income statement

Reduction of inventory by $150

Reduction of accounts payable by $100 (company pays vendor) Increase of retained earnings by $50 (profit on the finished good)


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Table of Contents



III. Resume Tips





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Interview Preparation

It is very important to prepare for all of your interviews in thefollowing areas:

Financial Markets Stay abreast of financial news and be able to

talk about the major events (WSJ, Bloomberg, Reuters, YahooFinance, etc.)

Company and Industry Specific Information - www.vault.comand www.wetfeet.com are great sources for industry andcompany specific information

Common Financial Technical Questions This course will help.www.vault.com also sells an interview preparation book

Common Qualitative Questions e.g., Why do you want to be anInvestment Banker?


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Interview Tips

You have a very limited amount of time to make a goodimpression with the interviewers. Please be mindful of themain things below:

Composure You want to be in control of your voice, emotionsand body. Dont show that you are nervous and speak in a calmtone with a steady rhythm. Do not shake your legs or any part ofyour body

Confidence You want to exude confidence but do not be

arrogant. Dont ever tell the interviewer that you are the best orthat they are wrong

Dress Invest in a decent suit, shirt, tie and shoes. Make surethat there are no wrinkles and that you look neat. The styleshould be conservative


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Questions to Ask During Interviews

How many transactions are you on at one time?

What % of your time is dedicated to live transactionscompared to marketing activities?

How many active engaged deals are there currently within thegroup?

How many people are on the transaction teams and how arethey staffed?

How big are your target clients? Why did you join this firm from all the other wall street firms?

How would you describe the culture at this firm?

What are the main responsibilities of an analyst / associate on

your deal team?


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Following Up with Your Interviews

It may not have a bearing on you getting a job with the firm,but thank you e-mails are nice to get

If you choose to send a Thank You email make sure you

double-check / triple-check spelling (firm, name of person,etc.) and that it is the right firm / position

Thank You e-mails also show your interest in the firm andthe position

It is better to somewhat customize each letter since that

shows more effort and the interviewers may compare letters intheir down time

Your goal is to get an offer from the firm even if you are notinterested in working there it is nice to have the option

If you have not heard back from the firm in a while, it isrecommended that you call the contact to just inquire thetiming and drop your interest (use these calls wisely sinceovercalling can be annoying)


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Important Considerations

Even within the same firm, group dynamics can be verydifferent

FIT - When considering which group/firm to work at, it is

important that you feel that the people at the firm share thesame moral values

Hours Certain groups work more than other groups withinthe same firm. It is widely known that leverage finance

groups, M&A groups and financial restructuring groups workvery hard

Reputation Even within the same firm, certain groups willhave better reputation on the street than the other groups

# of Deals It is always nice to have live, engagedtransactions on your resume when you are interviewing again.Marketing pitches are not very marketable, unfortunately

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