Investment Banking Overview:An introduction to the industry

Investment Banking Overview:An introduction to the industry

Friday, November 3, 2006Friday, November 3, 2006

Goal of This PresentationGoal of This Presentation

What is an Investment Bank?

What are the opportunities?

Learning more about the business

What is an Investment Bank?

What are the opportunities?

Learning more about the business

What Does an Investment Bank Do?What Does an Investment Bank Do?

Raise capital for clients

Advise corporations, states, or other entities on capital structure, strategy, business combinations

Create and sell securities to institutional and retail clients

Manage money for institutional and retail clients

Trade on a proprietary basis

Raise capital for clients

Advise corporations, states, or other entities on capital structure, strategy, business combinations

Create and sell securities to institutional and retail clients

Manage money for institutional and retail clients

Trade on a proprietary basis

An Investment Bank’s ObjectivesAn Investment Bank’s Objectives

To be the leading investment bank as measured by share of client activity, market rank and profitability

Manage a diversified portfolio of business and asset classes, making prudent use of Firm capital

Out-perform through market cycles

Be the most relevant advisor to its target client base

To be the leading investment bank as measured by share of client activity, market rank and profitability

Manage a diversified portfolio of business and asset classes, making prudent use of Firm capital

Out-perform through market cycles

Be the most relevant advisor to its target client base

Investment Bank OrganizationInvestment Bank Organization

GLOBAL BANK

Investment ManagementGlobal Private Client

Global Securities Research

& Economics

Global DebtMarkets

Global EquityMarkets

Investment Bankingand

Capital Markets

GlobalPrivate Equity

Global Investment

BankingCommodities

GMI Business ConstructGMI Business Construct

LeveragedLeveragedFinanceFinance

LeveragedLeveragedFinanceFinance

Capital Capital Markets & Markets & FinancingFinancing

Capital Capital Markets & Markets & FinancingFinancing

Strategic Strategic AdvisoryAdvisory Strategic Strategic AdvisoryAdvisory

Sales and Sales and TradingTrading

Sales and Sales and TradingTrading

Principal Principal InvestingInvesting Principal Principal InvestingInvesting

Private Private EquityEquity

Private Private EquityEquity

Global MarketsGlobal Markets Investment BankingInvestment Banking

GMI – Global Markets and Investment Banking

GMI – Global Markets and Investment Banking

GLOBAL MARKETS It’s not just sales and trading

GLOBAL MARKETS It’s not just sales and trading

Global Markets encompasses sales, trading, structuring and origination activities in a variety of product areas. Global Markets professionals provide institutional clients worldwide with a comprehensive range of end-to-end products, services and solutions.

Global Markets encompasses sales, trading, structuring and origination activities in a variety of product areas. Global Markets professionals provide institutional clients worldwide with a comprehensive range of end-to-end products, services and solutions.

Global Markets Product AreasGlobal Markets Product Areas

Equity Trading (Cash, Equity-Linked, Equity Financing & Services, and Strategic Risk)

Credit, Real Estate and Structured Products

Investor Client (Debt & Equity Sales)

Rates and Foreign Exchange

Relationship Management

Hedge Fund Development & Management

Commodities

Investment BankingInvestment Banking Investment Banking professionals originate and execute transactions

– Client focus – identify and meet client needs

– Product focus – opportunistically position expertise with clients

Investment Banking draws on the diverse resources of the firm to deliver the best advisory solutions

– Mergers & Acquisitions Advisory

– Restructuring Situations

– Equity and Debt Issuance

– Financial Sponsors and Leverage Finance

– Corporate Finance

– Investment Management and Private Client

How Does Investment Banking Fit In?How Does Investment Banking Fit In? General Relationship Management: The RM is not only Merrill Lynch's ambassador to

the company, but also the company's advocate within Merrill Lynch

– Product agnostic Advisory: Investment Banking the primary driver

– Primarily M&A

– Expertise of other groups drawn upon Capital Raising:

– Equity: Heavy involvement from equity capital markets

– Debt: Heavy involvement from debt capital markets

– Lending increasingly important: Some companies favor their lenders when choosing an investment bank

Other

– Derivatives becoming increasingly important (opaque pricing)

– Private Equity creates opportunities

– Cross selling becoming increasingly important

– Today almost no interaction with research

IBK: A Wide Range of OpportunitiesIBK: A Wide Range of Opportunities

Mergers &Mergers &AcquisitionsAcquisitions

Mergers &Mergers &AcquisitionsAcquisitions

LeveragedLeveragedFinanceFinance

LeveragedLeveragedFinanceFinance

Financial Financial InstitutionsInstitutions

Financial Financial InstitutionsInstitutions

Energy & Energy & PowerPower

Energy & Energy & PowerPower

ConsumerConsumerConsumerConsumerHealthcareHealthcareHealthcareHealthcare

Telecom & Telecom & MediaMedia

Telecom & Telecom & MediaMedia

TechnologyTechnologyTechnologyTechnology

FinancialFinancialSponsorsSponsorsFinancialFinancialSponsorsSponsors

RetailRetailRetailRetailReal EstateReal EstateReal EstateReal Estate

Multi Multi IndustriesIndustries

Multi Multi IndustriesIndustries

CorporateCorporateFinanceFinance

CorporateCorporateFinanceFinance

RegionalRegionalOfficesOffices

RegionalRegionalOfficesOffices

Product GroupsProduct GroupsProduct GroupsProduct GroupsCoverage GroupsCoverage GroupsCoverage GroupsCoverage Groups

PrivatePrivateEquityEquityPrivatePrivateEquityEquity

Gaming, Gaming, Leisure &Leisure &

TransportationTransportation

Gaming, Gaming, Leisure &Leisure &

TransportationTransportation

Equity Equity CapitalCapital MarketsMarkets

Equity Equity CapitalCapital MarketsMarkets

Debt Debt CapitalCapitalMarketsMarkets

Debt Debt CapitalCapitalMarketsMarkets

Equity LinkedEquity LinkedCapital MarketsCapital MarketsEquity LinkedEquity Linked

Capital MarketsCapital Markets

Investment Banking OrganizationInvestment Banking Organization

Managing Director: Most senior industry professional with a minimum of 10+ years of investment banking experience

Director: Intermediate officer position with a minimum of 6-9 years of experience

Vice President: First officer position in most firms with a minimum of 3-6 years of experience

Associate: MBAs, first permanent position in investment banking

Analyst: Undergraduate, two to three year program

PositionPosition BackgroundBackground

What Do Investment Bankers Do?What Do Investment Bankers Do?

OriginationOrigination ExecutionExecution Idea Generation

– Strategic Alternatives

– Capital Raising

– Risk Management

Problem Solving

Pitch Book Production – Quantitative & Qualitative Analysis

Client Contact

Due Diligence

Documentation

– SEC Merger and Offering Documents

– Purchase and Sale Agreements, Other Agreements

Financial Analysis (Valuation, Accounting Impact)

Develop Presentation Materials for Board of Directors Meetings

– Financial Analysis

– Strategic Rationale

– Market Receptivity/reaction

Prepare Materials for Internal Committees (Merrill Lynch)

Identify Potential Investors and Develop Investor Marketing Materials

Negotiation/structuring

Client Management

What Does an Associate Do?What Does an Associate Do? Financial Forecasts and Projections Valuation Approach, Rationale and Modeling Capital Structure and Financing Impacts Merger Consequences

Client and Industry Competitive Analyses Briefing Materials

Idea/Solution Generation Outline and Organization Drafting and Editing

Client “Point Person” for Execution Drafting Documents Due Diligence Marketing Material Preparation

Acquisition Project Support Strategic Studies Special Projects

Financial Forecasts and Projections Valuation Approach, Rationale and Modeling Capital Structure and Financing Impacts Merger Consequences

Client and Industry Competitive Analyses Briefing Materials

Idea/Solution Generation Outline and Organization Drafting and Editing

Client “Point Person” for Execution Drafting Documents Due Diligence Marketing Material Preparation

Acquisition Project Support Strategic Studies Special Projects

Financial Analysis:

Industry Research:

Presentation Preparation:

Transaction Execution:

Client Support:

Financial Analysis:

Industry Research:

Presentation Preparation:

Transaction Execution:

Client Support:

What Makes a Successful BankerWhat Makes a Successful Banker

KEY QUALITIES

Quantitative Ability

Intellectual Curiosity

Communication Skills Presentation Skills

Entrepreneurial

Research Skills

Long-Term CommitmentHigh Energy Level

What Makes a Successful BankerWhat Makes a Successful Banker

Summer Associate

– Be a great first year associate

First Year Associate

– Be a great associate

Second Year Associate

– Start showing signs of being a great VP

Third Year Associate

– Be a great VP

ML Focus: Providing Custom Solutions To Clients For Complicated, Business Transforming Transactions

ML Focus: Providing Custom Solutions To Clients For Complicated, Business Transforming Transactions

$1.1B full recapitalization of AMERCO/UHaul

Refinancing of bankruptcy exit financing

$875mm Merrill Lynch commitment of capital

Firm-wide effort spanning three years

Variety of structures lending against a variety of assets and cash flow streams

Re-IPO of US Airways post-bankruptcy emergence

$332.5mm concurrent add-on and rule 144A senior convertible notes offering

Offerings were made as part of a $897mm total equity raise in support of the merger between America West and US Airways

Firm-wide effort spanning 21 months advising America West

Learning About the Business: Do Your Homework

Learning About the Business: Do Your Homework

Read the Wall Street Journal: Business Section (Credit Markets), Economic Commentary, Equity Markets section and Equity Volatility commentary

– Need to be current on major events in business world and current market levels

– Other good resources:• Barron’s

• Economist

• Institutional Investor, Investment Dealers’ Digest, Derivatives Week

Know what is going on in the markets (stocks, bonds, Federal Reserve)

Learn as much as you can about the business and the different functions

Understand the job: WHY you want to do it, WHAT you want to do

Read the Wall Street Journal: Business Section (Credit Markets), Economic Commentary, Equity Markets section and Equity Volatility commentary

– Need to be current on major events in business world and current market levels

– Other good resources:• Barron’s

• Economist

• Institutional Investor, Investment Dealers’ Digest, Derivatives Week

Know what is going on in the markets (stocks, bonds, Federal Reserve)

Learn as much as you can about the business and the different functions

Understand the job: WHY you want to do it, WHAT you want to do

Learning About the FirmLearning About the Firm Research each firm you are talking to

– Web site

– News stories over the past few months

– Know enough to have a general conversation about the firm

Seek out and talk to former employees or summer associates about their experiences at a firm

Every summer program is different, know the specifics

Research each firm you are talking to

– Web site

– News stories over the past few months

– Know enough to have a general conversation about the firm

Seek out and talk to former employees or summer associates about their experiences at a firm

Every summer program is different, know the specifics