Investment Banking Institute Financial Modeling and Valuation Training for Finance Careers
The Comprehensive Guide to Interview Preparation and Resume Revision
IBI COMPREHENSIVE GUIDE TO INTERVIEW PREPARATION AND RESUME REVISION
HOW TO DRAFT THE PERFECT RESUME AND ACE THE MOST CHALLENGING INTERVIEWS
www.ibtraining.com
INCLUDES COMPREHENSIVE COMPREHENSIVE TECHNICAL TECHNICAL FINANCE FINANCE AND ACCOUNTING QUESTIONS AND ANSWERS
BY ASHISH KOHLI Investment Banker and Professor, IBI - MBA, Kellogg Graduate School of Management; Chartered Accountant
This publication contains the opinions and ideas of its author. Neither the author nor the publisher can guarantee the accuracy of the information contained herein. The author and publisher specifically specifically disclaim any responsibility for any liability, loss, or risk, professional or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book.
Author’s foreword foreword Early in my career, I spent the night before an important interview nervously preparing for the following day. I ended up having a disastrous interview for a job that I really wanted due to insufficient and last minute preparation. I wished that I had known someone who could have given me not only great, but also practical advice. I decided there and then that I would speak to lots of people…get lots of advice …and never make the same mistake again… This book is meant to prepare you for not only jobs in the finance industry but also for the important interviews in your life. I want to share my personal experience of an investment banker with some of the leading banks globally and actively leading the recruiting efforts for these banks at some of the most prestigious schools in U.S., Europe and Asia. I believe that this book will serve as an excellent resource for undergraduate and graduate students as well as experienced professionals looking for jobs in finance. I suspect you may be reading this book for many different purposes – perhaps you are reading this because you’ve been scheduled to interview with a firm of your dreams. You are excited about the job and what it might mean for your career. You want to shine but you are nervous that you might mess up. You may also be reading this book if you are applying for undergraduate or graduate school and need to make a resume and have an interview scheduled with the school or alumni. This book will help you prepare for your interview…and prepare you for life. Throughout our lives we are constantly interviewing to sell ourselves and our ideas. The interview process includes applying to undergraduate school, first jobs, graduate schools and jobs thereafter. I strongly urge you to find your passion and use this book to market yourself and find the job that you will enjoy the most. “In the modern world of business, it is useless to be a creative, original thinker unless you can also sell what you create” - David Ogilvy, Founder of Ogilvy & Mather
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TABLE OF CONTENTS
1. Creating a perfect resume………………………………………….. Pg 5 • • • •
Top 10 resume rules……………………………………………Pg rules…………………………………………… Pg 6 Detailed tips for creating your resume………………………… resume…………………………Pg 7 Example resume formats……………………………………… Pg 9 IBI bullet point information………………………… information………………………………….. ………..Pg 11
2. Composing concise cover letters………………………………….. Pg 13 3. Networking for the interview……………………………………... Pg 16 4. Acing the interview…………………………………………………Pg 20 • •
Top 10 rules for interview success……………………………Pg success……………………………Pg 21 Select expected interview questions…………………………. questions…………………………. Pg 23
5. Sending thank you letters and following up on interviews………Pg 25
APPENDICES A. What are the different jobs in Finance?......................... ....................................... ................ .. Pg 28 B. Comprehensive Finance interview questions……………………. Pg 35 C. Recommended reading material………………………………….. Pg 51 D. Resume of author………………………………………………….. Pg 54 E. Action words for resumes…………………………………………. Pg 57 F. Interesting articles………………………………………………….Pg 60
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1. CREATE YOUR PERFECT RESUME
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THE 10 MOST IMPORTANT RESUME RULES Resume is the the most important important one page page of our life. life. It is the “Story” of our professional professional and personal achievements
1. Limit your resume to one page If you cannot summarize your skills and experience effectively on one page, it's probably too wordy and your resume will not make the desired impact on the reader •
2. Ensure that your resume resume is achievement achievement oriented oriented Start your resume preparation by listing your top 10 achievements and skills from your job, school and extra curricular curricular activities activities.. Then use your your list as a basis for writing the resume •
3. Should ideally include 3 sections Experience, Education and Additional Information o Experience should be the first section unless you are currently in school, then Education should be first •
4. Present information information in bullet point point form Ensure a clean, uncluttered layout with plenty of white space. Goal is to create a document that is easy to read and is visually appealing •
5. Start sentences with power words Power Words include “Managed”, “Performed”, “Led” Appendix 2 has a list of action words for your reference • •
6. Distinguish yourself from from others What sets you apart from other students with similar coursework / backgrounds and GPAs? If you were the recruiter, why would you choose your resume out of the hundreds of others? •
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7. Tailor your resume to your audience Help the reader answer the question “Why will this candidate be an asset to my firm?” •
8. Review your resume over over and over again again for typos typos and discrepancies discrepancies Have at least one or a few other people give the resume a close read Resume should be technically and grammatically perfect Review with professional resume writer, friends, school career services • • •
9. Emphasize use use of parallel parallel construction construction Example “performed the analysis and presented results”, not “performed analysis and results presenting” •
10. Never 10. Never lie on on your resume resume It takes 20 years to build a reputation and five minutes to lose it •
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DETAILED TIPS FOR CREATING PERFECT RESUMES HEADING SECTION - Name, contact contact address and and phone number, number, email EXPERIENCE SECTION Should provide details of your career to date, summarizing the companies you have worked for, in reverse chronological order, together with the principal responsibilities and achievements within your various roles o Include the company name and a line describing what the company does, unless it's a household name that needs no introduction o Indicate your job title(s) providing more information on the more recent roles than the earlier ones Be sure to include significant achievements in this section. Wherever you can, use numbers to quantify the direct results of your efforts. Examples include: o “Promoted 2 times in 3 years, six months ahead of peer group for outstanding performance” o Think: what was the issue/challenge? What action did I take? What were the results (quantified if possible)? o Choose specifics not generalizations, “I” not “we” but beware of sounding like you are not a team player Don't go into detail on the jobs early in your career; focus on the most recent and relevant jobs Target vs. General resumes o You will have one general resume which you will need to customize when applying for different jobs o Make sure you target the resume for the job highlighting more of the skills needed for that job
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EDUCATION SECTION Provide detail of your educational qualifications in reverse chronological order, including any professional certifications you have completed o Include Investment Banking Training program bullets under Education Highlight major distinctions and awards you have won o “Graduated top 5% of class” If you are still in college or just recently graduated, focus also on leadership positions and memberships Focus on specific leadership positions held rather than membership in numerous clubs o For example, “Formed investment banking club, comprising of over 100 active members” o Membership in clubs - focus on your role and how you contributed
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ADDITIONAL INFORMATION SECTION / OTHER DATA SECTION This section is very important as it provides an opportunity for you to advertise distinctive skills, give the interviewer a sense of your personality and demonstrate that you are well rounded, competitive and a team player. This should not necessarily be a list of all your sports and interests. Instead focus on two of three diverse examples to stimulate conversation and illustrate personality. Examples include: 7
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Sports Competitive sports – demonstrates to reader that you can handle pressure and discipline o Good conversation topic o Corporate sports including golf, lacrosse, tennis o Team sports demonstrate that you can communicate and work well with others Highlight skills o Proficient in Microsoft Word, Excel and Power point Basic skills is assumed for applicants for finance jobs Highlight distinctive skills within these software (e.g., Visual Basic) o Ability to use research databases like Bloomberg Languages o Be careful as Hindi is not generally the language of business in India o Mandarin and Cantonese are important for working in Shanghai and Hong Kong o For each language listed, state skill level – “Beginner, Proficient, Fluent” Other interests o Including international travel, art Include publications and articles you have written Community leadership programs or volunteer work Professional Affiliations o Focus on current affiliations that are impressive and relevant o
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RESUME FORMAT I XXXX St., Apt. XX New York, NY 10003 10003 Telephone: 212.555.5555
FIRST AND LAST NAME
[email protected]
EXPERIENCE Company Name Associate, Investment Banking, Communications Communications and Electronics Group Group
August 2003 – May 2006 San Francisco, CA
Focused on sell-side mergers and acquisitions advisory for high-growth technology companies
Notable active engagements engagements include:
─ Company Name
July 2001 – July 2003
Analyst, Investment Banking
New York, NY
Supported all transaction stages in various product groups including (i) financial restructuring, (ii) mergers and acquisitions and (iii) financial advisory (business valuations, fairness opinions and solvency opinions)
Notable closed engagements engagements include:
─ ─ EDUCATION University Name Bachelor of Science: Finance and Information Systems
May 2001 New York, NY
ADDITIONAL INFORMATION - Extensive experience in Excel, Word, PowerPoint, Bloomberg, Bloomberg, FactSet, Capital IQ, SDC - Played squash for UK national team
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RESUME FORMAT II FIRST AND LAST NAME ADDRESS TELEPHONE EMAIL
EXPERIENCE 2007-2008
COMPANY NAME
New York, NY
Director, Investment Banking – Corporate Finance, Alternative Alternative Energy Group •
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2005-2007
COMPANY NAME
New York, NY & London, UK
Vice President, Investment Banking – U.S. Advisory Group •
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2001-2004
COMPANY NAME
New York, NY
Senior Associate, Investment Banking Banking – Generalist Group, Media and Telecom Group •
EDUCATION 1997-1999
UNIVERSITY NAME
Evanston, IL
Master in Business Administration, Administration, June 1999 •
1992-1995
Majors in finance finance and accounting. Deans List.
INSTITUTE NAME
New Delhi, India
Chartered Accountant, August 1995 (Equivalent to U.S. CPA)
1989-1992
UNIVERSITY NAME
New Delhi, India
Bachelor of Commerce Commerce (Honors), May 1992 •
Major in accounting and finance.
OTHER DATA •
Languages
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Interest/Hobbies
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IBI Bullet point information to be incorporated into resume: Investment Banking Institute, [Location]
[Month & Year]
Abridged version I: Intensive 4-week financial financial modeling modeling and valuation valuation training training program program •
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Performed company valuations utilizing (i) comparable public company analysis, (ii) precedent transactions analysis and (iii) discounted cash flow (DCF) analysis Built fully-integrated financial statements projection model, LBO model, accretion/dilution merger models, including ability to run operational and capital structure sensitivities within models and data tables for sensitivity analysis
Abridged version II: Completed a four week intensive course on financial analysis, valuation methodologies and advanced financial modeling Performed company valuations utilizing (i) comparable public company analysis, (ii) precedent transactions analysis and (iii) discounted cash flow (DCF) analysis Built fully-integrated financial statements projection model, LBO model, accretion/dilution merger models, including ability to run operational and capital structure sensitivities within models and data tables for sensitivity analysis
Long Version: Participated in a one-month intensive Investment Banking Seminar focused on (i) financial statement analysis, (ii) valuation methodologies and (iii) financial modeling "Normalized" and "Spread" historical and projected financial statements, including in depth analyses of operational and leverage ratios Performed company valuations utilizing (i) comparable public company analysis, (ii) precedent transactions analysis and (iii) discounted cash flow (DCF) analysis Built a fully integrated cash flow model, including 5-year projections, debt and interest schedules, revolver modeling and sensitivity tables Modeled leveraged buy-out (LBO) and merger scenarios, with emphasis on sources and uses, pro forma financial statements, purchase price considerations, synergies, accretion/dilution and ratio analyses, among other concepts General investment banking processes such as pitching, debt and equity financing and sell-side M&A
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Distressed Case Study/Course Bullet Point: •
Pursued a case study for a leading US consumer company regarding its $600 mm recapitalization transaction, including a $106 mm new equity investment by private equity equity investors investors
IBI One Day Investment Banking and Finance Boot Camp at Universities: Investment Banking Institute, [Location]
[Month & Year]
Financial modeling and valuation training program •
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Normalized" Normalized" and "Spread" historical historical and projected projected financial financial statements, statements, including including analyses of operational and leverage ratios Overview of company valuations utilizing (i) comparable public company analysis, (ii) precedent transactions analysis and (iii) discounted cash flow (DCF) analysis and built fully-integrated financial statements projection model
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2. CONCISE COVER LETTERS
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CONCISE COVER LETTERS The cover letter should be kept short and to the point. The cover letter should enable you to tell the recruiter what you can do, should attract attention of the interviewer towards you and focus on follow up action in terms of scheduling a job interview or meeting someone for a cup of coffee. The following should be highlighted in the cover letter:
IMPORTANT POINTS FOR COVER LETTER Keep the length to 2 to 3 short paragraphs •
First paragraph o Focus on why you are writing the cover letter and clearly specify the position you you are seeking seeking If a mutual friend referred you for the job, it might be a good idea to put the name upfront as it grabs the readers attention
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Second paragraph o Focus on why you are qualified for the job (how you fill a need) – research the company and the specifics of the job so you can tailor the letter to the needs of the organization Avoid obvious general phrases e.g. “leverage my analytical skills” o Accomplishment and skills oriented and directed at qualifications needed for the job o Cite specific examples from your earlier jobs but do not reiterate language from the resume word for word o Try not to overuse “I”. This should be about what you can do for the company o Insert a statement that illustrates you have done your research and differentiates differentiates you from others
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Third paragraph o Refer to the enclosed resume o Thank the reader for his time and consideration o Request an interview o If there is no specific job posting, request an opportunity to meet the reader for an informal interview or a cup of coffee For networking letters: perhaps finish the letter with a question to stimulate a response and/or state that you will follow up with a call, otherwise you give up power to the recipient
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SAMPLE COVER LETTER
December 1, 2008 Ms. Kimberly Clark Director of Finance XYZ Company Inc. 453 Park Avenue New York, NY 10018 10018 Dear Ms. Clark, I am writing this letter to apply for the Financial Analyst position for your New York Office. Joe Desmond, CFO of ABC Company, Inc. who I believe you know mentioned that I reach out to you regarding the particular position. I have three years experience as a financial analyst with ABC Company and was promoted to financial analyst within two years for outstanding performance, which was one year ahead of time. I am extremely excited at the opportunity to be part of your growth company and strongly believe that that my prior experience experience and skills skills will enable enable me to be a valuable contributor contributor to the finance team. Please consider my application for this position. I look forward to meeting with you to discuss my experience and qualification. Please contact me at 917682xxxx or through email
[email protected]. I will also call you next week to follow up on this opportunity. Thank you for your consideration. Sincerely, Josh Harris Enclosure Resume
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3. NETWORKING FOR THE INTERVIEW
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NETWORKING FOR THE INTERVIEW Networking is a very important important and and continuous continuous process in in our life. life. As you network network always remember the importance of reciprocity (i.e. what can you offer the person helping you). Reciprocity creates a strong basis for a networking conversation
STUDENTS CURRENTLY IN SCHOOL •
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Most companies have focused “ target school” teams for recruiting o Comprises of HR professionals and employees from the particular division Companies come to campus for presentations and interviews at scheduled dates o Make sure you attend the presentations Learn more about the companies and the job Network with the people who come for these presentations presentations as generally they are alumni from the school
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Organize informational interviews with people in the firm o Realize that these employees are busy so the informational interviews should be focused If you can have a group of interested students, organize for that group to meet the firm at a particular date Generally good for the company as they can market to a larger group of people For one-on-one informational interview make sure you have done your homework and have focused questions, or else these interviews can go against you rather than being helpful
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Your goal is to be selected by the recruiter or person in-charge of reviewing resumes at these firms and get an opportunity to interview with the firm If the Company does not come to your school, make sure you reach out to people at the Company to conduct informational interviews o Alumni are generally the best source a student has to access a particular company Your school should be able to provide you names of alumni at the targeted companies, generally through an online database
EXPERIENCED PROFESSIONALS •
Alumni o Alumni are the best source to network for the job o Education is a lifelong investment and your school’s alumni network can 17
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be helpful for for your entire entire life. Alumni Alumni tend to be receptive receptive when approached because they have gone through similar situations before and are generally receptive to conversation since they have affinity for their alma mater Remember to be courteous and respectful to all and do not expect every alumni to reply to you Approach Alumni and request an informational interview (rather than explicitly asking for a job). Individuals tend to like to talk about their experiences, what they know about the industry, and who might be hiring Focus on bonding with the individual. The more the person likes you the more likely they are to help you with your search Always ask for referrals / other individuals to talk to. The chances are the alum will have a number of contacts in the industry Do not forget that every conversation you have is an interview. Be prepared and and ask good, specific specific questions questions
Headhunters o Establish relationships with headhunters Initiating a relationship with a headhunter is best when you are not looking for a job o Make sure you know the right headhunters to approach o Know the difference between retained and non retained search firms o Some headhunters are domestically focused and other internationally focused o Headhunters specialize in particular industries, and in particular areas of finance and accounting
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Friends and Acquaintances Acquaintances o Network with friends and and acquaintances acquaintances you know know and you might might even be able to utilize their contacts Use Professional Online Social Networks o e.g., Linked In www.linkedin.com Professional Associations o Taking an active part in professional associations and it is a great way to meet people from different walks of life who could have contacts at the places you want want your job job Cold Call o If your alumni network is not that strong and headhunters and friends have not been able to get you the interview you want, cold calling and sending your resume to HR and people at the Company is an option Less chances of conversion but it is better to have said that I tried than to have said I did not give it my best shot in life The Company’s website will usually have HR contact information or ways to apply for a position
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IMPORTANT POINTS TO CONSIDER •
Have goals goals both short-term short-term and long-term o Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success” -Pablo Picasso, Artist o
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“Give me a stock clerk with a goal and I’ll give you a man who will make history. Give me a man with no goals and I’ll give you a stock clerk” -CEO of JC Penny
Be persistent persistent o “Sticking to it is the genius! Any other bright-minded fellow can accomplish just as much as I did if he will stick like hell and remember nothing that’s anything works by itself. You got to make the damn thing work. I’ll never give up, for I may have a streak of luck before I die” -Thomas Edison, Inventor
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Be confident confident but not overly overly aggressive aggressive o History will be kind to me, for I intend to write it. -Winston Churchill, Former Prime Minister of Great Britain Be enthusiastic enthusiastic o “Enthusiasm is one of the most powerful engines of success. When you do a thing, do it with all your might. Put your whole soul into it. Stamp it with your personality. Be active, energetic, be enthusiastic and faithful, and you will accomplish your objective. Nothing great was ever achieved without enthusiasm” -Ralph Waldo Emerson, Poet and Philosopher
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Setbacks will happen but how you handle them is important o
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“Success is the ability to go from failure to failure without losing your enthusiasm” -Winston Churchill, Former Prime Minister of Great Britain
Invest in yourself yourself o Keep developing your professional skills o Education is a continuous process and keep doing courses or seminars which enhance your resume and separate you from other candidates Choose a job you will enjoy going to work everyday o “I’d rather be failure at something I enjoy rather than be a success at something I hate” -George Burns, actor and comedian And finally, finally, there is no substitute substitute for hard work o “Some people dream of success while others wake up and work hard at it” - Anonymous
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4. ACING THE INTERVIEW
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TOP 10 RULES FOR SUCCESSFUL INTERVIEWING 1. First impressions impressions are very important important Dress conservatively and professionally for the job o Good very dark suit Shine your shoes o Black lace-up shoes Impressive briefcase or a folder o Do not have a lot of stuff or bags with you Stand tall, shake hands firmly Be positive o Appropriate expression of emotions including smile, enthusiasm and affirmative body language and outlook Make eye contact and speak with confidence Remember name of the interviewer •
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2. Be on time for the interview interview Arrive at least 15 minutes early for the interview so you are relaxed and can collect your thoughts before the interview •
3. Know every detail detail in your your resume For internships or work you have done make sure you can talk about your role on a particular particular transaction transaction you have highlighted highlighted “Your” role and what you did on the team is important •
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4. Research the the Company before before the interview interview Look at the company's website and annual report Search the Internet for any news about the company Remember that there is no excuse for not knowing the ins and outs of the company, especially since information is easily accessible on the Internet • • •
5. Research the the job and the the person interviewing interviewing you you in case you know prior to to the interview interview Make sure you are familiar about the requirement of the job Search the Internet for the background of the interviewer if you know who the person is o Linked In and other social networking sites have a lot of information • •
6. Be prepared to answer questions questions you do not know Qualify what you know and what you do not You are not expected to know every possible question to get the job but how you handle questions you do not know is very important o Do not be alarmed or nervous. How you handle pressure situations is important for the interviewer. Think for a few moments and calmly admit you don’t know the answer “I will have to get back to you” • •
7. Make sure you you have done enough mock interviews with people who would provide provide you critical feedback Make sure you have practiced expected questions in the interview and hopefully written answers to these questions before the interview •
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Practice, Practice and Practice o Just like in competitive sports, hard work and practice will make you perfect
8. Make sure you you listen to to the questions questions and answers answers of the interviewer interviewer carefully Confirm what you have heard if you are not sure – “I just want to be sure that I heard you correctly”, “Could you please repeat that” o If you give an answer and the interviewer mentions that it is not the right answer do not mention at that point that you had not heard him/her correctly Discuss and not argue with the interviewer Do not interrupt the interviewer – let the interviewer complete their thoughts while all the time really listening to what they are saying before offering your own Pause for a second before answering the question o Signals that you have listened to the other person •
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9. Create a list of questions for the interviewer There will likely be time at the end of the interview for your questions Be sure to have a list of questions that spark the interviewers interest and are not easily answered by going to the Company website • •
10. Send a thank you note within 24 hours of the interview Email is fine as some decisions are made quickly but it is usually better to follow up with note in mail Address any questions you couldn’t answer during interview or any open issues •
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SELECT EXPECTED INTERVIEW QUESTIONS An interview for finance jobs generally lasts 30 minutes • •
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Expect some questions addressed below in a finance interview I strongly encourage you to develop answers preferably in writing to the questions below before before your interview. interview. This will help you you in current current and future future interviews interviews Finance interviews are generally a mix of “fit” and technical questions The last 5-10 minutes of the interview is generally reserved for you to ask the interviewer interviewer questions about the job and the firm
Below is a list of questions you should expect to be asked in a finance interview. I highly recommend that you WRITE THE ANSWERS TO THESE QUESTIONS as you will be using these throughout all your life •
Tell me about yourself or Walk me through your resume? o
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Interviewer has not had the chance to review the resume in advance of the meeting and also gives him an opportunity to hear “your” story In approximately 2 minutes (keep it short and to the point) walk the interviewer through your resume starting with your education and then your work experience Highlight key points/achievements and focus on why you made those decisions End with why you are interested in the job you are interviewing for Have a flow in the story - show natural progression in jobs you have had or why you made the decisions including companies you worked for and positions First impressions are very important – some people say that they have made up their mind about the candidate in the first five minutes of the interview Focus on more recent experiences, and ones that are relevant to the position you are seeking Two minutes is a good time for this question, but if you see that the interviewer is engaged you can spend an additional minute or so Do not read from your resume “you should have practiced this question before – look at the interviewer while answering this question”
Why investment banking? o
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Highlight how you became interested in investment banking, For example, you met investment bankers while working alongside them if you are an auditor or a lawyer and was really interested in the work they do Like working on transactions Show qualities important to investment banking - attention to detail, ability to work long hours/the willingness to sacrifice personal life, analytical abilities Steep learning curve How it is different from other areas like consulting – transactions are shorter than consulting projects and you see results right away Answers like “I want to make a lot of money” should be avoided – Money is something which will come in the long term
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Why Goldman Sachs or Citigroup or the Company you want to work for? o
Make sure you understand the differences between the various investment banks Bulge bracket, mid-market, commercial banks with investment banking divisions and boutique banks Culture of these banks Transactions they have done Make sure you know about the recent deals the bank has done Type of clients they have Core strengths of these banks in terms of products whether M&A or leveraged finance Speak to people you know at those banks and mention that these are the things you found from those people to the interviewer If you would like international experience or work in a particular country make sure that the bank is strong in that area
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Two questions to ask the interviewer at the end of the interview? o
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Make sure you know the title of the interviewer – different question for a managing director vs. analyst Prepare these questions in advance Specific questions regarding the qualities required for the ideal candidate for the position Do not be negative about the Company in the questions you ask
In your work experience describe the the 2 main projects/de projects/deals als you have done? o
Focus on your role in the transaction or project Interviewer wants to see what your role is even if the deal is too big or small and if it succeeded or not Make sure you prepare and write this down – again, this is something you will use time after time
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5. SENDING YOUR THANK YOU LETTERS AND FOLLOW UP ON YOUR INTERVIEW
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THANK YOU LETTERS • • •
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Keep the length brief to 2 to 3 short paragraphs Personalize the letter. Do not use a generic letter for every employee you meet Group correspondence can be sent if you met several people at the Company. However, individual thank you notes are preferred Does a thank you letter make or break chances of getting a job? o May not get you the job but demonstrates that you have interest in the job and always good to thank people for their time and consideration E-emailed thank you note or sent by post? o Companies make their hiring decisions quickly so email may be appropriate o It is always good to send a hard-copy version via mail Proofread: Sloppy, poorly written thank-you letters, riddled with typos, misspellings, and grammatical errors could cost you the job
FOLLOW UP ON YOUR INTERVIEW AND JOB OFFER •
If you have got the job, make sure you thank all the people who helped you achieve your goal o Alumni, headhunters, friends and all other people who helped you A number of people forget to do this as they deem it is no longer important – you do not know when you may need them again or where you meet them again in your life Thank people even after an informational interview or if you had a chance to meet them for coffee
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SAMPLE THANK YOU LETTER January 2, 2009 Mr. Patrick Larsen Director, Investment Banking ABC Company Inc. 345 Park Avenue New York, NY 10128 10128 Dear Mr. Larsen, I want to thank you very much for interviewing me today for the investment banking associate position at your firm. I enjoyed meeting you and learning more about the mergers and acquisitions group at ABC Company Inc. The interview strengthened my enthusiasm for the position and interest in working for ABC Company. I believe my education and prior experience at XYZ fit nicely with the job requirements, requirements, and and I'm certain certain I will make make a significant significant contribution contribution to the firm. I would like to reiterate my strong interest in the position. Please feel free to call me at the telephone number listed above if I can provide you with any additional information. Again, thank you for the interview and for your consideration. Sincerely,
John Harris
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APPENDICES A. WHAT ARE THE DIFFERENT JOBS IN FINANCE?
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WHAT ARE THE DIFFERENT JOBS IN FINANCE? 1. Investment Banking The main functions of an investment bank are Capital Raising (Equity and Debt Financing) and Merger and Acquisitions and other advisory work. Investment banks can be grouped into three main categories: •
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Bulge Bracket Bracket Banks o Largest global investment bank dealing with almost all types of products and operating in all types of sectors or industries catering to both large capitalization and mid cap and small cap clients Mid-market Mid-market Banks and Commercial Banks with investment investment banking banking capabilities capabilities o Mid market banks focused on mid cap and small cap companies (generally companies with market capitalization under $10 billion) o Commercial banks with investment banking capabilities focus on providing investment banking capabilities to their corporate clients Boutique Banks Banks o Focused on mergers and acquisitions and advisory work and private equity and debt financing
Bulge Bracket Banks
Commercial Banks with Investment Banking
Banc of America/Merrill Lynch Barclays Citigroup Credit Suisse Deutsche Bank AG Goldman Sachs JP Morgan Lazard (Strong M&A advisor) Morgan Stanley Rothschild (Strong M&A advisor) UBS
BNP Paribas Dresdner Kleinwort HSBC Macquarie Group Mitsubishi UFJ Financial Group RBC Capital Markets Royal Bank of Scotland Scotia Waterous Societe Generale TD Securities Inc.
Middle Market Banks Cantor Fitzerald Cowen & Company Friedman Billings Ramsey Jefferies & Company, Inc. Piper Jaffray & Co.
Boutique Banks Alvarez and Marsal Duff & Phelps GMP Securities Rodman and Renshaw Saegent Advisors
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Bulge Bracket Investment Banks generally have industry and product groups. o Industry groups represent almost all industries including consumer products, healthcare, financial institutions, technology, media and telecom, energy group o Product groups include mergers and acquisitions, restructuring, leveraged finance, debt capital markets and equity capital markets The typical structure of investment bank is: o Analyst – Typically join after undergraduate and some outstanding analysts are promoted to associated associated in approximately approximately three three years o Associate – Join after MBA or other graduate programs or are analysts which are promoted to to associates. associates. Sometimes, Sometimes, banks hire hire associates associates with industry industry experience o Vice Presidents – Associates are promoted to Vice President in three to four years o Senior Vice President or Directors – Vice Presidents are promoted to Senior Vice Presidents in two to four years o Managing Directors – Directors are promoted to Managing Director within two to four years
2. Venture Capital •
Venture Capitalist typically raise money from institutional investors to form a fund for a period of time time generally generally 10 years, years, using it to to invest in in start up high-growth high-growth potential private companies. companies. They hope to generate generate a return return or profit profit later when the start-ups start-ups go public via IPOs or are are sold Venture capital firms include: - 3i Group - Benchmark Capital - Draper Fisher Jurvetson - Kleiner Perkins, Caufield and Byers - New Enterprise Enterprise Associates Associates - Sequoia Capital
3. Private Equity - Leveraged Buyouts •
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Leveraged Buyouts involve making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage Companies selected for these transactions are typically more mature than those invested by venture capital funds funds and tend tend to generate generate predictable predictable operating operating cash flows flows to service service the debt loads
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Blackstone Group Kohlberg, Kravis Roberts Bain Capital Carlyle Group Apollo Group Apax Partners Candover 30
4. Sales and Trading •
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Sales and Trading could involve working in Equity, Debt, Commodities, Emerging Markets or Currencies product group Sales and Trading is offered by almost all the investment banks who receive commissions and fees for performing those services o In Sales, you help maintain relationships with institutional investors, and match the banks services and products to their needs o You work with the Trading and Research teams to provide comprehensive client coverage, including fulfilling client requests for market updates, executing client orders and providing institutional clients with information about specific securities You may also provide marketing ideas and help initiate transactions o In Trading, you help senior traders cover institutional accounts and make markets in your group's particular range of products. You will assist the senior traders in managing risk, liquidity and exposure and you may support all aspects of the trading desk: pre-trade analysis, research on index constituent changes, inbound and outbound trade processing and the design of optimal strategies for large trades o Proprietary Sales and Trading is when the bank uses its own balance sheet to trade. Goldman Sachs made an enormous amount of its profits through proprietary proprietary sales and and trading
5. Equity and Fixed Income Research •
“Sell Side” Equity E quity analysts research stocks and write reports on public companies with their views on the particular company’s stock price – generally buy, sell or hold o Securities analysts are usually further subdivided by industry specialization or sectors o Among the industries with the most analyst coverage are biotechnology biotechnology,, financial services, services , energy, and computer hardware, software and services Fixed income analysts research bond issuers. Fixed income analysts are also often subdivided by asset class. Among the fixed income asset classes with the most analyst coverage are convertible bonds, bonds , high yield bonds and distressed bonds
6. Hedge Funds •
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A hedge fund is a private investment fund open to a limited range of investors that is permitted permitted by regulators to undertake a wider range of activities than other investment investment funds and also pays a performan a performance ce fee to its investment manager A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital capital and deliver positive positive returns returns under all all market conditions
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Some of the leading hedge funds are:
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SAC Capital Atticus European Fund RAB Capital. London Appaloosa Management Citadel
7. Accounting Firms •
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Accounting Firms have corporate finance groups which perform mergers and acquisitions and private capital raising work and also transaction advisory groups which specialize in financial and other due diligence work Accounting firms also have audit and tax groups which would also allow you to obtain your chartered accountancy or CPA professional certification. Some of the leading accounting firms are:
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PricewaterhouseCoopers LLP Deloitte & Touche LLP Ernest & Young LLP KPMG LLP Grant Thornton LLP BDO Seidman LLP McGladrey & Pullen LLP
8. Investment Management •
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Investment management is the professional management of various securities (shares, bonds etc.) and assets (e.g., real estate), estate ), to meet specified investment goals for the benefit of the investors Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds) funds) The term asset management is often used to refer to the investment management of collective investments, investments , whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors The provision of 'investment management services' includes elements of financial analysis, analysis , asset selection, stock selection, plan implementation and ongoing monitoring of investments. Some of the leading investment management firms include
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BlackRock PIMCO D.E. Shaw & Co. Wellington Capital Management JP Morgan Asset Management 32
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T. Rowe Price ING Investment Management
9. Commercial or Corporate Banking •
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A corporate or commercial bank is a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public. Commercial banking is also known as business banking They also provide other services including providing documentary and standby letter of credit, credit, guarantees, performance performance bonds, bonds, securities underwriting commitments and other forms of off balance sheet exposures and currency exchanges Some of the leading commercial banks are:
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HSBC Bank of America JP Morgan Wells Fargo Barclays
10. Private Wealth Management •
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Private Wealth Management is the term generally used to describe highly customized and sophisticated investment management and financial planning services delivered to high net worth investors Generally, this includes advice on the use of trusts and other estate planning vehicles, business succession succession or stock option option planning, and the use of hedging hedging derivatives derivatives for large blocks of stock Some of the leading firms include:
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Morgan Stanley Private Wealth Management Bank of America Raymond James Piper Jaffray Goldman Sachs UBS Credit Suisse
11. Corporate Finance Jobs at Companies •
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All leading corporations have corporate finance and mergers and acquisitions groups which work with investment bankers to identify and execute transactions Further, these companies often offer analyst and associate positions which include intensive financial modeling. Some of the leading firms include:
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Pepsi Coke BP plc Pfizer
12. Management and Strategy Consulting •
Management and Strategy consulting jobs involve working to improve the performance of companies by evaluating all aspects including Strategy, Finance, Operations and Marketing and Sales. Managing and Strategy consulting jobs value financial modeling experience Some of the leading firms include:
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McKinsey & Company The Boston Consulting Group Bain & Company Monitor Group
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B. COMPREHENSIVE FINANCE INTERVIEW QUESTIONS
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QUALITATIVE INTERVIEW QUESTIONS Finance job interviews generally will involve a mix of “fit” and “technical” questions. Some other qualitative questions besides the ones highlighted earlier in the document you might be asked are: Some of the Fit Questions are •
What are your strengths? o o o o o o
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Analytical and quantitative skills Communication skills Attention to detail Multi tasking projects Ability to work long hours and work “smart” Provide examples
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Weakness should be genuine, but that you recognize it and have taken steps to address it Some people say that I expect too much from my colleagues in terms of high standards Interviewers will see through obvious self-serving “weaknesses” like “I work too hard”
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What other banks are you interviewing with? o
Make sure the other banks you highlight are similar to the bank you are interviewing with for example Compare a bulge bracket bank to another bulge bracket bank in case you highlight you want to work for a large global bank Show that you understand what the bank does are if you show keen interest, you are interviewing with other banks having similar capabilities
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What other areas are you interviewing for – consulting, corporate etc? o
Show focus in your job search You are competing in an industry where your peers want this job badly Consulting and banking are different in terms of style of interviews Consulting interviews are more case based where you would be given a case and the interviewer will ask your thoughts on that case Finance interviews have a more conversation style Generally, people who interview across the board end up not getting the job they want o Reason is a lot of work goes in networking and trying to get an interview and preparing for those interviews
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TECHNICAL INTERVIEW QUESTIONS ACCOUNTING QUESTIONS Some of the questions are more relevant to the undergraduates while some may be more relevant to graduates and experienced professionals who are currently in the industry. I have divided the sections into basic questions and advanced questions. Generally, advanced questions will be applicable to people interviewing who currently are working in finance and accounting or for candidates who have taken finance and accounting classes in school.
“You have to understand accounting and you have to understand the nuances of accounting. It’s the language of business and it’s an imperfect language, but unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements-you really shouldn’t select stocks yourself” -Warren Buffet
BASIC QUESTIONS What is a balance sheet, income statement and the cash flow statement? •
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Balance Sheet o Tells us the company’s assets, liabilities and shareholders equity or a company’s financial status at a specific point in time Income Statement o Tells us how much money has the company earned or represents a firm’s operating results during a set period of time i.e. a fiscal year or quarter Answers the question – How much profit has the company made for the 3 month or 12 month period?
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Cash Flow Statement o Tells us how much cash the company has flowed in and out of the business for the period o Cash flow statement is derived from the income and balance sheet i.e. if you have the income statement and balance sheet, you can make the company’s cash flow statement o Answers the question - Why is it that the Company has $1,000 Net Income which we will see from income statement but $2,000 in cash? o Cash is not the same as Net Income
What is EBITDA? •
EBITDA or Earnings before Interest, Taxes, Depreciation, and Amortization is an indicator of a company's financial performance and cash flow, which is calculated as follows: o EBITDA = Revenue - Expenses (excluding tax, interest, depreciation, and amortization) or EBIT which is operating income plus depreciation and amortization
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EBITDA can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing decisions EBITDA is widely used as a measure of cash flow for a company and as a popular leverage covenant – Total Debt to EBITDA and EBITDA to Interest Expense It is a non-GAAP measure o You will not see EBITDA on the Company’s income statement statement but will have to calculate it Though EBITDA is widely used by the investment community, it has several drawbacks o EBITDA leaves out the cash required to replace old equipment, which can be significant significant Assumes that fixed assets don’t require capital replenishment, which may be challenging for fast growing firms Not a good tool tool for companies companies whose assets assets have shorter lives lives o EBITDA ignores a company’s tax obligation, which is a cash-absorbing expense o Some companies may reclassify operating expenses as extraordinary charges to enhance EBITDA o It overlooks the working capital requirements for more investing and accounts receivable to support growing sales
What is working capital? •
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Working Capital can be used as a measure of both a company's efficiency and its short-term financial health Working capital is calculated as: o Working Capital = Current Assets - Current Liabilities Positive working capital means that the company is able to fund its short-term liabilities with its short term assets. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets including accounts receivable and inventory If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term
ADVANCED QUESTIONS If you add $100 of depreciation depreciation expense expense in the the income statement with a 40% 40% tax rate, how does that that affect the income statement and how does the balance sheet balance? balance? •
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This is an excellent and one of my favorite interview question which shows how the three financial statements – income statement, balance sheet and cash flow statements are related to each other Income Statement o Depreciation is an expense so operating income or EBIT declines by $100. Assuming a tax rate of 40%, net income declines by $60 Cash flow statement o Net income decreased by by $60 so cash cash flow which starts with with Net Income Income will decrease by $60 o Depreciation increased by $100 as it is added back in the cash flow statement so cash flow from operations increased by $40 38
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The ending cash balance increases by $40 as a result of cash flow from operations increasing by $40 which goes to the balance sheet
Balance Sheet o The $60 reduction of net income causes retained earnings to decrease by $60 o Cumulative depreciation increases by $100 so Net PP&E decreases by $100 o PPE will decrease decrease by $100 and cash goes goes up by $40. $40 cash change shows how the 3 statements are linked to each other
A company buys a car for $1,000 dollars on Jan 1, 2008. How will the income statement, statement, cash flow and balance sheet be affected for the period Jan 1, 2008 to December 31, 31, 2008? •
Let us assume that the depreciation method used for the car is straight-line method over 5 years and a 40% tax rate is assumed o Income Statement The depreciation expense for the period Jan 1, 2008 to December 31, 2008 will be $1,000/5 which is $200 Net Income will be reduced by $120 as you would get tax benefit of $80 o Cash Flow Statement $1,000 was spent to buy the car so Capex will increase by $1,000 so there will be a $1,000 use of cash in cash flow from investing activities so a use of cash of $1,000 Cash flow statement starts with net income which comes down by $120 in the cash flow statement Depreciation expense is added back in cash flow statement so $200 is added back So net change in cash is -1000-120+200= -$920 o Balance Sheet Cash is down by $920 from the cash flow statement Gross PP&E goes up by $1,000 Accumulated depreciation increases by $200 Net PP&E goes up by $800 ($1,000-$200) ($1,000-$200) Net Income reduced by $120 which makes shareholders shareholders equity reduce by $120 Therefore, assets came down by $120 (-$920+$800) and shareholders equity came down by $120 so assets = liabilities + shareholders equity and the balance sheet balances •
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What is goodwill and how is it calculated? •
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Goodwill is calculated by: o Equity purchase price paid for the Company - Target’s fair market value of equity Book value of equity is book value of assets – book value of liabilities = shareholders equity on the balance sheet (Assets – Liabilities = Equity) o Financial statements are historical 39
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Numbers on the balance sheet in the annual reports or 10-Ks and 10-Q’s are also book assets and book liabilities
What is Fair Market Value of Equity = Fair Market Value of Equity is book value of assets and liabilities revalued to fair market value for example land which is generally shown on books at cost and is not depreciated may have a significant adjustment Market Value of Equity paid is the fully diluted shares outstanding * share price (including premium if any) for a public company Accounting rules state that goodwill no longer should be amortized each period, but must be be tested once once per year for impairment impairment o Absent impairment, goodwill can remain on a company’s balance sheet indefinitely
Valuation Questions BASIC QUESTIONS What are the common valuation methodologies used to determine the value of the Company? • • • • • •
Total Enterprise Value or Public Market Valuation Comparable Company Analysis Comparable Transaction Analysis Discounted Cash Flow Analysis Leveraged Buyout Analysis Other methods could include: o Sum of the Parts Analysis o Liquidation Analysis which is generally used in bankruptcy and not part of the standard investment banking methods
What is Enterprise Value and how is it difference from Equity Value? •
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Total Enterprise Value is Equity Value + Debt + Preferred Stock + Minority Interest – Cash o Enterprise Value represents the value of the operations of a company attributable to all providers of capital – equity, debt and preferred o Enterprise Value means the value of the company as it is trading in the market today Equity Value or Market Capitalization is Fully Diluted Shares outstanding multiplied by price per share
What are the common valuation metrics? •
Enterprise Value (EV) / EBITDA, EV/Revenues, EV/EBIT, Price Earnings Ratio are the most commonly used valuation metrics o LTM data and one or two year forward data is generally analyzed o Some industries have different metrics for examples Financial institutions use Price/Book ratio 40
ADVANCED QUESTIONS Explain fully fully diluted market capitalizati capitalization? on? •
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A company’s fully diluted market capitalization equals its share price multiplied by the number number of fully diluted shares shares outstanding outstanding Basic shares represent the number of common shares that are outstanding today or as of the reporting date of the company o Basic shares outstanding should be found in the front page of the Company’s most recent 10K or 10Q or annual report for UK companies Fully diluted shares equals basic shares plus the potentially dilutive effect from any outstanding stock options, warrants, convertible preferred stock or convertible debt To calculate the dilutive effect of stock options we typically use the Treasury Stock Method. The options information can be found in the company’s latest 10K or annual reports for UK companies o Options information is not broken out in the 10Q or other filings of the Company If the company has other potentially dilutive securities e.g. convertible preferred stock or convertible debt we may need to account for those as well in our fully diluted share count o We need to make sure that we either account for convertible debt as debt or as equity else we will be counting it twice o Generally, if the security is in the money we should treat it as equity
Explain a Discounted Cash Flow (”DCF”) (”DCF”) analysis analysis? “To properly value a business, you should ideally take all the flows of money that will be distributed between now and judgment day and discount them at the appropriate discount rate. That’s what valuing businesses is all about. Part of the equation is how confident you can be about these cash flows occurring. Some businesses are easier to predict than others. We try to look at businesses that are predictable” -Warren Buffet “I look for businesses in which I can predict what they’re going to look like in ten to fifteen year’s time. Take Wrigley’s chewing gum, I don’t think the Internet is going to change how people chew gum” -Warren Buffet
The “Discounted” Cash Flow (DCF) analysis values a company or business based on the “Net Present Value” (NPV) of the company’s future cash flows •
In order to do a DCF analysis, the following steps need to be completed o Project free cash flow for a period of time Generally 5 years or 10 years Depends on how much of the cash flows you can predict For growth companies it might be better to stretch the cash flow for 10 years
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Free cash flow equals o EBIT less taxes plus D&A less capital expenditures less the change in working capital We start from EBIT and not Net Income because we want the unlevered free cash flow Does not include interest expense and so is independent of debt and capital structure The value we will get will be the Enterprise Value of the company as the numerator is the unlevered free cash flow of the company and the denominator is the weighted average cost of capital Next step is is to calculate calculate Terminal Terminal Value o Terminal Value is the value of the Company from year 6 or 11 to infinity depending upon if we projected our cash flows for 5 or 10 years at the end of year 5 or year 10 Next step is to present value the projected free cash flows and terminal value, at the appropriate discount rate, also known as weighted average cost of capital (WACC) Adding the present value of the projected cash flows and the present value of the terminal value gives us the DCF value of the Company
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How do you calculate Terminal Terminal Value Value of the company? •
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There are two methods for calculating terminal value o Gordon Growth method or o Terminal Multiple method To use the Gordon Growth method, we choose an appropriate rate by which the company can grow forever after we have projected the company’s cash flow for 5 or 10 years o Growth rate should be modest, for example, average long-term expected GDP growth or inflation Try growing a company which has $100 mm of cash flow at 20% for 300 years let alone infinity Difficult to see what number it is as it is a huge number – companies cannot grow forever at 20% rate or even 15% rate o To calculate terminal value we multiply the last year’s free cash flow, year 5 or year 10 by 1 plus the chosen growth rate, and then divide by the discount rate less growth rate o Terminal Value = (Ending Cashflow x (1 + Growth Rate)) / (Discount Rate - Growth Rate) The second method, the Terminal Multiple method, is the one that is more often used in investment banking o We need to take an operating metric for the last projected period which could be year 5 or year 10 and multiply it by an appropriate valuation multiple Most common metric to use is EBITDA We typically select the appropriate EBITDA multiple by taking what wh at we concluded co ncluded for our comparable company analysis on a last twelve months (LTM) basis o Big assumption made is that the EBITDA multiple
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used in year 5 or 10 is the LTM multiple or that the multiple does not change in 5 years This is the reason why we do a sensitivity analysis for the EBITDA multiple
Explain Weighted Weighted Average Average Cost of Capital (WAAC)? (WAAC)? •
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Weighted Average Cost of Capital or WAAC is a weighted average of the required rates of return for each of the different sources of capital – equity, preferred and debt WAAC is the discount rate used in a DCF analysis to present value projected free cash flows and terminal value WACC reflects the cost of each type of capital – Debt, Equity and Preferred weighted by the respective percentage of each type of capital assumed for the company’s optimal capital structure WACC = [Ke x (E/(E+D+P)] + [Kp x (P/(E+D+P)] + [(Kd x (D/(E+D)) x (1-T)] o Ke = cost of equity o Kd = cost of debt o Kp = cost of preferred o E = MVE of subject company o D = FMV of debt (same as face value unless distressed) of subject company o P = Value of Preferred of company o T = tax rate See (1-T) for Debt in the WAAC formula – reason is interest expense is tax deductible hence the effective cost of debt is Kd(1-t) To estimate the cost of equity, we will typically use the Capital Asset Pricing Model (CAPM) To estimate the cost of debt, we can analyze the interest rates or yields on debt issued by similar companies To estimate the cost of preferred we can analyze the dividend yields on preferred stock issued by similar companies
How do you calculate calculate the the cost of equity? The cost of equity is calculated using the capital asset pricing model (CAPM) CAPM = Rf + Beta x (RM – Rf) • • •
Rf = risk-free rate RM = market rate (Expected return on the market portfolio) RM – Rf = market risk premium (return above the risk-free rate) o Calculated by taking an average of data points over many years in order to incorporate a large sample of events o Amount the stocks, generally the S&P 500 for U.S. companies, have outperformed the risk free rate over a long period of time o Most banks get this rate from data providers like Ibbotson Associates Generally 5-6% recently The risk free rate for a U.S. company is generally considered to be the yield on a 10 or 20 year U.S. Treasury Bond
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Beta should be levered beta and we can get it from Bloomberg
When using the CAPM for purposes of calculating WACC, why do you have to unlever and then relever Beta? •
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Beta is the measure of volatility, or systematic risk, of a security compared to the market as a whole Beta of 1 signals that 1% rise in the market translates into 1% rise in the stock Beta of -1 signals that 1% rise in the market translates into 1% decline in the stock Betas outside of a range of 0.5 to 2.5 should be reviewed for reasonableness In order to use the CAPM to calculate our cost of equity for a private company, we need to estimate the Beta Beta is a function of risk affected by leverage In order to make an “apples to apples” comparison among company returns, leverage needs to be removed from beta We typically get the Beta from comparable companies, often the mean or median Beta However before we can use the comparable company Beta we must first unlever the Beta of each of our comps o Sources like Bloomberg will be a levered Beta so we need to unlever it After un-levering the Betas, we can now use the appropriate comparable company Beta i.e the mean of the comparable company unlevered Betas and relever it for the appropriate capital structure of the company being valued which could be the target capital structure of the company we are valuing. After relevering, we can use the levered Beta in the CAPM formula to calculate cost of equity. BL = Bu x [1 + D/E x (1-T)] Bu = BL / [1 + D/E x (1-T)] o BL = Levered Beta o Bu = Unlevered Beta o T = Tax Rate o D = Market Value of Debt o E = Market Value of Equity
MERGERS AND ACQUISITIONS BASIC QUESTIONS Why do companies do mergers and acquisitions? Companies merge with other companies to gain access into new product markets or broaden the spectrum of their product line Companies merge to enter new geographical markets Enhance brand recognition Consolidate operations to lower costs by achieving the economies of scale. They also consolidate to gain market share Defensive merger: Buy their way in to prevent competition from entering the industry Buy technology or research and development capabilities Acquirer views the Target as undervalued Acquirers own organic growth is slow and it needs to grow via acquisitions •
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ADVANCED QUESTIONS What is an accretion/dilution analysis and why is it important? •
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A EPS Accretion / (Dilution) analysis is primarily used by public companies to analyze the impact on the acquirer’s earnings per share (EPS) of the acquisition of another company o If the acquirer’s EPS increases after the acquisition compared to the EPS before the acquisition acquisition,, it is considered considered accretive accretive o If the acquirer’s EPS decreases after the acquisition compared to the EPS before the acquisition, acquisition, it is considered considered dilutive dilutive Companies are concerned with accretion dilution before making their acquisition decision as it affects the acquirer’s stock price o Generally companies will like to make accretive acquisitions as accretive transactions assume that the company’s stock price should increase As many public companies trade on P/E multiples, any dilution to EPS could result in a subsequent drop in the stock price and vice versa o Example: Let us assume the current share price of the acquirer is $10 and EPS of $1 therefore its P/E ratio is 10.0x or the company trades at 10x earnings o If a 20% EPS accretion occurs (EPS increases to $1.20, the market assumes that the P/E ratio of the acquirer remains the same as before if the acquisition is of a company related to the acquirer o Therefore if the P/E ratio remains at 10.0x, the stock price would increase to $12 In reality the stock price does not go up always because market may not like the acquisition for a number of reasons One of the reasons could be that the market does not believe that that the combined combined company company will be able able to achieve achieve the synergies highlighted by the acquisition
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How do you do an accretion/diluti accretion/dilution on analysis? analysis? •
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For accretion/dilution analysis, we need to project the combined company’s net income or proforma net income and the combined company’s new shares outstanding Proforma net income will be the sum of the buyer’s and target’s projected net income plus/minus certain transaction adjustments which are on a post-tax basis since we are adjusting net income o First adjustment is that we include synergies both cost and revenue synergies o Second adjustment is the additional interest expense which comprises of two parts Increased interest expense if debt is used to finance the purchase and adding Decreased interest income as a result of using the available cash on the balance sheet if cash is used to finance the purchase o Third adjustment is any new intangible asset amortization resulting from the transaction. transaction. Proforma shares outstanding reflects the acquirer’s share outstanding before the
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acquisition plus the number of shares issued by the acquirer to finance the purchase of of the target target in a stock stock deal o Proforma EPS is calculated by dividing proforma net income by proforma shares outstanding o We compare Proforma EPS to the EPS of the acquirer before the acquisition to ascertain if the acquisition is accretive or dilutive What causes dilution in the acquirer’s stock price? •
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If the target has a higher P/E multiple than the acquirer, dilution will occur assuming the acquirer issues mostly new stock for the acquisition, as opposed to using cash If the acquirer borrows the cash to fund a cash purchase of the stock, the increase in interest expense from the new debt may cause dilution If there is a large amount of new amortizable intangibles that arise from the transaction, the increase in amortization expense on the income statement can cause dilution Low or negative synergies as a result of the acquisition If the acquirer overpays for the target company Target company has negative net income
Will the deal be accretive if a company with a high P/E firm buys a company with a low P?E in an all stock transaction? transaction? •
Generally, if the Price to Earnings ratio (P/E) of the acquiring company is lower than the P/E of the target, then the deal will be accretive to the acquirer’s Earnings Per Share (EPS) o The acquirer has to pay less for each dollar of earnings than the market is valuing its own earnings o Acquirer will have to issue proportionally less shares in the transaction o Proforma earnings, which equals the acquirer’s earnings plus the target’s earnings (the numerator in i n EPS) will wil l increase more than the proforma profo rma share outstanding (the denominator), causing EPS to increase
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Synergies means when the sum of the value of the Acquirer and the Target as a combined company is greater than the two companies valued apart Most mergers and large acquisitions are justified by the amount of projected synergies There are two types of synergies o Cost synergies - Ability to cut costs of the combined companies due to the consolidation of operations including closing one corporate headquarters, closing stores that overlap, reducing back office and information technology expenses, economies of scale in terms of buying products, laying off people in the management team and reducing advertising expenses of the combined company o Revenue synergies - Ability to sell more products and/or services or raise prices due to to the acquisition acquisition or merger. merger. For example, example, increasing increasing sales due to cross-marketing of products or expanding in a new area where only one 46
company existed prior to the acquisition Generally, cost synergies are easier to predict than revenue synergies Many mergers and acquisitions do not work and a big part of the failure is not able to realize the synergies the acquiring company had predicted it would be able to achieve prior to the acquisition
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LEVERAGED BUYOUT ANALYSIS BASIC QUESTIONS What is a leveraged buyout? •
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A LBO or leveraged buyout is the acquisition of another company, private or public using using a significant significant amount amount of borrowed borrowed capital to meet the cost of the acquisition The acquired company is taken private and the typical exit strategy in a leveraged buyout is for for the private private equity firm to sell sell the company company or take it public again again in 3-5 years Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company In an LBO, there is usually a ratio of 80% debt to 20% equity o Ratio is dependent on the company’s cash flow and the industry the company is in and the debt markets o Because of this high debt/equity ratio, private equity companies need to issue bonds which usually are not investment grade and are referred to as junk bonds in order to meet meet their required required IRRs
ADVANCED QUESTIONS What are the uses of an LBO model? •
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While the private equity firm’s IRR is usually the most important piece of information that comes out of an LBO analysis, the analysis also has other uses. A Leveraged Buy-Out analysis is used by private equity firms / financial sponsors to evaluate a potential acquisition o By assuming the PE firm’s required IRR amongst other things, we can back into a purchase price price for the company, thus thus using the analysis for for valuation purposes The goal of an LBO is to acquire a company by financing the purchase with as much debt as the cash flows of the business and the debt markets will support The more debt a financial sponsor is able to obtain to finance an acquisition, the less of an equity investment the financial sponsor has to make The higher the leverage levels, the higher the expected Internal Rate of Return (“IRR”) is for the financial sponsor / private equity firm The goal of an LBO model is to establish expected internal rates of return (“IRR”) for the acquisition using a financial model that reflects the following o Assumptions and the necessary cash needed to finance the acquisition (uses of cash) o Capitalization assumptions: leverage (amount of debt), different debt 47
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tranches, equity investment amounts (sources of cash) o Base case financial projections for the income statement, balance sheet and cash flow based upon the purchase price and capitalization assumptions The LBO model should be built with the ability to run sensitivities for a range of purchase prices, prices, capitalizatio capitalization n structures structures and operating operating assumptions assumptions In addition, we can utilize the LBO model to analyze the trend of credit statistics such as the leverage ratio and interest coverage ratio which is especially important from a lender’s perspective Finally, the leverage buyout analysis is an important valuation methodology which tells us how much the private equity firm will be able to pay to acquire the Company and at the same time generate the IRR it requires. In 2006 and first half of 2007, because debt was cheap and readily available private equity firms were able to win against the strategic acquirers whereas things are quite different in 2008 where most of the major M&A transactions have involved strategic acquirers.
Explain the steps involved involved in an LBO analysis? analysis? •
Step 1 is to determine what the purchase price will be o The determination of the purchase price is complicated and typically involves a full-scale valuation (DCF, public company multiples and transaction multiples) as well as extensive due diligence including on Company’s operations, financial condition, management team, customers, suppliers and assets o If the Company has publicly traded equity, then typically a purchase price would be calculated much as TEV is calculated (Offer price per share * fully diluted shares) + debt + minority interest + preferred interest – cash o If we assume that we are buying the Company as a multiple of EBITDA we can calculate the TEV required to purchase the Company
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Step 2 is how will the deal be financed and for that we create a Sources and Uses table where Sources equals Uses of funds o Uses reflect the amount of money required to complete the transaction Usually equals the purchase price plus transaction fees and any other cash payment required as part of the transaction o Sources part of the table highlights where the money is coming from, including the new different types of debt, any existing cash that will be used, as well as the equity contributed by the private equity firm o Amount of debt is assumed based on the state of the debt capital markets and the cash flows and the industry where the company is in and the amount of equity required by the private equity firm is the difference between the Uses (total funding required) and all of the other sources of funding Private equity firms would like to put minimum amount of equity so that they can maximize their IRRs
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Step 3 is to create a proforma balance sheet of the company as of the transaction date by changing the existing balance sheet of the company to reflect the 48
transaction and the new capital structure o Intangible assets such as goodwill and capitalized financing fees will likely be created •
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Step 4 is to create an integrated cashflow model for the company o This requires projecting the company’s income statement, balance sheet and cashflow statement for a period of time which could be 5 or 10 years Step 5 is to make assumptions about the private equity firm’s exit from its investment o Typical assumption is that the company is sold or taken public in 3-5 years o An important assumption made is that the company is sold at the same multiple it was bought for example if the company was bought at 8x LTM EBITDA, the assumption is that the company will be sold for 8x EBITDA in 5 years Enables private equity firm to see the IRR’s as a result of capital structure changes without multiple being increased or cost cutting and other operational initiatives
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Step 6 is to calculate the IRRs for the private equity firms o Projecting a sale value for the company allows us to also calculate the value of the private equity firm’s equity stake which we can then use to analyze its internal rate of return (IRR) Step 7 is to look at the credit ratios of the company for the next 5 years and see if the company can support the debt used to finance the transaction o Debt/EBITDA and EBITDA/Interest Expense are two important ratios analyzed besides the other ratios we look at
What are some characteristics of a company that is a good LBO candidate? •
Characteristics of a good LBO target include o Steady cashflows which are important to pay interest and principal payments on debt o Limited need for ongoing capital expenditure or working capital investment o Opportunity for cost reductions o A high asset base to use as collateral for debt
OTHER QUESTIONS Why might a company choose to issue debt vs. equity? •
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Why Equity o Does not require interest payments o If the company has weak or cyclical cash flow to make interest and principal payments payments o Currency for acquisitions Why not Equity o Dilution 49
More expensive than debt Interest on debt is tax deductible When a company has sufficient earning to utilize the tax shield over the life of the debt, the company will typically choose to issue debt When a company's debt level is still relatively low, they will issue more debt to increase the ratio of debt/equity. Companies have to be careful as the amount of debt increase because a higher debt level also increases the probability of bankruptcy. bankruptcy. This threat threat will eventually eventually out weigh the tax advantage advantage if they cross their debt/equity threshold and the company's value will fall with the increase in debt Companies with predominantly tangible assets are more likely to issue more debt than companies with predominantly intangible assets because of the lower bankruptcy cost Earning per share (EPS) is a good measure when choosing between debt and equity financing. Although debt financing saves money from taxes, this newly created interest expense also reduces net income. For equity financing there is no interest expense, but there is a possible dividend expense. More importantly, due to the increase in total number of shares outstanding, equity financing has a dilution effect on earnings Debt is less expensive for two main reasons. First, interest on debt is tax deductible (i.e. the tax shield). Second, debt is senior to equity in a firm’s capital structure. That is, in a liquidation or bankruptcy, the debt holders get paid first before the the equity holders holders receive receive anything. anything. Note, debt being being less expensive expensive capital is the equivalent to saying the cost of debt is lower than the cost of equity o
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What could a company do with excess cash on the balance sheet? • •
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Invest in capital expenditures and/or research and development Invest in the stock and bond market or keep in money market and other interest bearing accounts accounts Identify acquisition targets Share repurchases Dividends
What is LIBOR? London Interbank Offered Rate is an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market LIBOR is fixed on a daily basis by the British Bankers' Association LIBOR is the world's most widely used benchmark for short-term interest rates. It's important because it is the rate at which the world's most preferred borrowers are able to borrow money It is also the rate upon which rates for less preferred borrowers are based. For example, a multinational corporation with a very good credit rating may be able to borrow money money for one year year at LIBOR plus a few points points Countries that rely on the LIBOR for a reference rate include the US, Canada, Switzerland, and the U.K. •
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C. RECOMMENDED READING MATERIAL
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RECOMMENDED READING Accounting and Financial Statement Analysis Warren Buffet and the Interpretation of Financial Statements Mary Buffet Buffet & David Clark
Financial Statement Analysis and Security Valuation Stephen H. Penman
Business Analysis and Valuation Using Financial Statements Krishna Palepu, Paul Healy, and Vic Bernard
Financial Reporting and Analysis Lawrence Revsine, Revsine, Daniel Daniel Collins, and W. Bruce Bruce Johnson
Valuation and Corporate Finance The Practitioner’s Guide to Investment Banking, Mergers & Acquisitions, Corporate Finance Jerilyn J. Castillo, Peter J. McAniff McAniff
Valuation: Measuring and Managing the Value of Companies (Fourth Edition) McKinsey & Company Inc., Inc., Tim Koller, Koller, Marc Goedhart, Goedhart, David David Wessels
Valuation for Mergers, Buyouts and Restructuring Enrique Arzac Arzac
Principles of Corporate Finance Richard Brealey, Brealey, Stewart Stewart Myers, and and Franklin Allen
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Interesting Books on Wall Street The Accidental Investment Banker: Inside the Decade that Transformed Wall Street Jonathan A. A. Knee
Barbarians at the Gate: The Fall of RJR Nabisco Bryan Burrough Burrough and John Helyar
Liar's Poker: Rising Through the Wreckage on Wall Street Michael Lewis Lewis
Monkey Business: Swinging Through the Wall Street Jungle John Rolfe and Peter Troob Troob
Den of Thieves James B. Stewart Stewart
The Bonfire of the Vanities Tom Wolfe
The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the Junkbond Raiders Connie Bruck
Movies Wall Street Date of Movie: Movie: 1987 Director: Director: Oliver Oliver Stone Cast: Cast: Michael Michael Douglas, Douglas, Charlie Sheen Sheen
Boiler Room Date of Movie: Movie: 2000 Director: Director: Ben Ben Younger Cast: Cast: Giovanni Ribisi
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D. RESUME OF THE AUTHOR
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AUTHOR’S BIO Ashish Kohli is a seasoned investment banker and private equity professional with over 15 years of transaction experience across product groups of investment banking and private equity equity including including mergers mergers and acquisitions, acquisitions, leveraged buyouts, buyouts, private private placements, placements, IPOs and secondary offerings, high yield debt and restructuring. Ashish has extensive teaching experience and has led training seminars globally in North America, Europe, Middle East and Asia. He also led Investment Banking Training programs in in the firms where he worked worked including including leading the global analyst analyst and associate training program at HSBC in NY and London . In the second half of 2008, Ashish conducted over 100 days of training across U.S., Europe and Asia including training programs at at Cambridge University and London School of Economics in the U.K. in
December 2008. Ashish started his investment banking career as an Associate in the Investment Banking Division of Credit Suisse/Donaldson, Lufkin & Jenrette in NY where he worked in the M&A, Generalist and Technology Industry Groups (the largest technology investment
banking franchise on Wall Street), advising and raising capital for companies across a number of different sectors. He also worked with DLJ's private equity group, one of
the leading private equity groups on Wall Street. After Credit Suisse, Ashish worked for the Investment Banking Division of Jefferies &
Company Inc. in NY as a Generalist and in the Technology and Media Group where he focused on restructuring and recapitalizations, M&A advisory and capital raisings. He advised Samsonite Corporation on its recapitalization and the deal was awarded the
2003 U.S. Middle Market Deal of the Year by Mergers and Acquisitions Advisor . After Jefferies, Ashish joined the Investment Banking Execution Group (M&A and capital raising) for HSBC Securities (USA) Inc. in NY and London where he executed M&A and capital raising transactions in industries such as consumer & retail, real estate, technology and oil and gas. Ashish then joined ThinkPanmure in NY and UK as a Principal/Director for the Investment Banking and Private Equity Division leading transactions across all industries including Alternative Energy. Ashish is currently a Partner and Senior Banker for the Investment Banking Institute
based in New York, a global financial training firm with training facilities in New York, 55
Atlanta, Boston, Chicago, Washington DC, Dallas, Houston, Denver, San Francisco, Los Angeles, Toronto, London, and Dubai, providing instructorinstructor-led led training training and elearning services to people from leading financial institutions, Fortune 100 companies and academic institutions. Prior to business school, Ashish worked for Arthur Andersen in their business advisory, audit and tax groups. Ashish earned an MBA from the Kellogg Graduate School of Management (Deans
List) and a Bachelor of Commerce (Honors) from University of Delhi. He is also a Chartered Accountant. Select Transaction Experience •
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Advised Samsonite Corporation on its $600 million recapitalization transaction including $106 million new equity investment by Bain Capital, Ontario Teachers Pension Fund, and Ares Capital. Deal was awarded the 2003 U.S. Middle Market Deal of the Year by Mergers and Acquisitions Advisor Managed a $2.1 billion IPO for Genuity Managed a $1.2 billion high yield financing for PSINet Managed a $825 million convertible stock offering for PSINet Managed the $750 million AIM listing of Hirco real estate fund in the UK (Hirco is one of India’s leading real estate development companies) Advised William Grant & Sons on its potential $400 million acquisition of Svedka vodka in the U.S. Represented the ad hoc committee of $380.5 million 13% Senior Notes of Mpower Holding Corporation in its successful restructuring Managed a $200 million AIM listing of a close-ended fund focused on renewable energy and environmental services in Asia Advised PSINet on its $720 mm acquisition of Transaction Network Services Advised PSINet on its $1.9 billion acquisition of Metamor Worldwide Managed a $160 million SPAC offering for a company focused on acquisition of consumer and business service companies in the U.S. Advised PlayCore on its $200 million sale to Chartwell Investments Managed a $160 million high yield offering for IMAX Corp Managed a $132.5 million IPO and a $110.7 million secondary offering for ManTech International Corporation Managed a $97.8 million IPO for MTC Technologies Managed a $223.0 million secondary offering for Anteon International Corp. Managed a $232.5 million secondary offering for Endo Pharmaceutical Ltd. Managed a $61.7 mm secondary offering for Modem Media Advised GE on its entry strategy to India including advisor on the joint venture between GE Plastics and IPCL in India, the largest joint venture with a public sector company at that time
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E. RESUME ACTION WORDS
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A accelerated, accomplished, achieved, acquired, addressed, adapted, adopted, advanced, advised, advocated, affected, allocated, altered, amended, analyzed, appraised, approached, approved, arranged, ascertained, assigned, assumed, assisted, attracted, audited, augmented, authored, awarded
B balanced, bargained, bargained, bought, budgeted, built C calculated, capitalized, captured, challenged, chaired, changed, channeled, chose, classified, cleared, closed, co-authored, cold called, collaborated, collected, combined, commissioned, committed, communicated, compared, compiled, complied, completed, computed, conceived, conceptualized, concluded, condensed, conducted, consolidated, constructed, consulted, contracted, contrasted, contributed, controlled, converted, convinced, coordinated, corrected, corresponded, counseled, created, critiqued, cultivated D decentralized, decreased, deferred, defined, delegated, delivered, demonstrated, described, designated, designed, determined, developed, devised, devoted, directed, disclosed, discovered, dispatched, displayed, dissembled, distinguished, distributed, diversified, divested, documented, doubled, drafted E earned, eased, edited, effected, elected, eliminated, employed, enabled, encouraged, endorsed, enforced, engaged, engineered, enhanced, enlarged, enriched, entered, entertained, established, estimated, evaluated, examined, exceeded, exchanged, executed, exempted, exercised, expanded, expedited, explained, exposed, extended, extracted, extrapolated F facilitated, familiarized, fashioned, fielded, figured, financed, fit, focused, forecasted, formalized, formed, formulated, fortified, found, founded, framed, fulfilled, functioned, furnished G gained, gathered, gauged, gave, generated, governed, graded, granted, greeted, grouped, guided H handled, headed, hired, hosted I identified, illustrated, illuminated, implemented, improved, improvised, inaugurated, indoctrinated, increased, incurred, induced, influenced, informed, initiated, innovated, inquired, inspected, inspired, installed, instigated, instilled, instituted, instructed, insured, interfaced, interpreted, interviewed, introduced, invented, inventoried, invested, investigated, invited, involved, isolated, issued J joined, judged L launched, lectured, led, lightened, liquidated, litigated, lobbied, localized, located M maintained, managed, mapped, marketed, maximized, measured, mediated, merchandised, merged, met, minimized, modeled, moderated, modernized, modified, monitored, motivated, moved, multiplied
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N named, narrated, negotiated, noticed, nurtured O observed, obtained, offered, offset, opened, operated, orchestrated, ordered, organized, oriented, originated, overhauled, oversaw P paid, participated, passed, patterned, penalized, penalized, perceived, performed, performed, permitted, permitted, persuaded, persuaded, phased, out, pinpointed, pinpointed, pioneered, placed, placed, planned, polled, prepared, prepared, presented, presented, preserved, presided, prevented, prevented, priced, printed, printed, prioritized, probed, probed, processed, procured, procured, produced, produced, profiled, programmed, programmed, projected, promoted, promoted, prompted, proposed, proposed, proved, provided, publicized, published, published, purchased, pursued pursued Q quantified, quoted R raised, ranked, rated, reacted, read, received, recommended, reconciled, recorded, recovered, recruited, rectified, redesigned, reduced, referred, refined, regained, regulated, rehabilitated, reinforced, reinstated, rejected, related, remedied, remodeled, renegotiated, reorganized, replaced, repaired, reported, represented, requested, researched, resolved, responded, restored, restructured, resulted, retained, retrieved, revamped, revealed, reversed, reviewed, revised, revitalized, rewarded, routed S safeguarded, salvaged, saved, scheduled, screened, secured, segmented, selected, sent, separated, served, serviced, settled, shaped, shortened, showed, shrank, signed, simplified, sold, solved, spearheaded, specified, speculated, spoke, spread, stabilized, staffed, staged, standardized, steered, stimulated, strategized, streamlined, strengthened, stressed, structured, studied, submitted, substantiated, substituted, suggested, summarized, superseded, supervised, supplied, supported, surpassed, surveyed, synchronized, synthesized, systematized T tabulated, tailored, targeted, taught, terminated, tested, testified, tightened, traced, traded, trained, transacted, transferred, transformed, translated, transported, traveled, treated U uncovered, undertook, unified, united, updated, upgraded, used, utilized V validated, valued, verified, viewed, visited W weighed, welcomed, witnessed, won, worked, wrote
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F. INTERESTING NEWS ARTICLES
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INTERESTING NEWS ARTICLES Be careful on what you have have on your resume. resume. Lying Lying on your resume resume can come come back to haunt haunt you -- sometimes sometimes even many years years down the road. Don't fall fall into that trap MGM Mirage CEO to resign on questions on MBA November 14, 2008 Wall Wall Street Journal Journal One of the gambling industry’s most powerful figures, MGM Mirage Chairman and CEO J. Terrence Lanni, said that he will step down from his executive posts, according to The Wall Street Journal. Journal . Lanni is leaving on November 30, citing personal reasons. With recent scrutiny over inflated credentials on the resumes of top executives, Lanni found himself in a dispute with his alma mater about the accuracy of his academic credentials after questions were raised by the WSJ. Lanni said he is leaving due to matters of lifestyle, citing the facts that his family lives in Pasadena, Calif., and he is turning 66 in March. The WSJ originally contacted officials at the University of Southern California, saying that it had no record that Lanni had earned a master’s degree in business administration from the school. However, MGM Mirage’s website says that Lanni holds an MBA in finance from USC. Lanni has joined boards and spoken at the school multiple times over the years and is currently a member of the Board of Overseers of USC’s Keck School of Medicine. Barry Minkow, a private fraud investigator in San Diego, found the discrepancy. "No [MBA] degree was conferred," said James Grant, a USC spokesperson, adding the school had completed a rigorous search of its records in response to the WSJ's queries.
Dean of Admissions at M.I.T. Resigns April 26, 2007 2007 New York Times Times Marilee Jones, the dean of admissions at the Massachusetts Institute of Technology, Technology , became famous for urging stressed-out stressed-out students competing for elite colleges to calm down and stop trying to be perfect. But today she admitted that she had fabricated her own academic educational credentials, and resigned after nearly three decades at the university. "I misrepresented my academic degrees when I first applied to M.I.T. 28 years ago and did not have the courage to correct my résumé when I applied for my current job or at any time since,” Ms. Jones said in a statement posted on the university’s Web site today. 61
"I am deeply sorry for this and for disappointing so many in the M.I.T. community and beyond who supported me, believed in me and who have given me extraordinary extraordinary opportunities. Ms. Jones on various occasions had represented herself as having degrees from Albany Medical College, Union College and Rensselaer Polytechnic Institute, but she had no degrees from any of those places, said Phillip L. Clay, the chancellor of M.I.T.
RadioShack Chief Resigns After Lying February 21, 21, 2006, New York York Times David J. Edmondson resigned as the chief executive of RadioShack yesterday, RadioShack yesterday, only days after he told investors that he intended to stay on despite the revelation that he had lied to the company about his education by claiming two college degrees when he had none. David Edmondson joined RadioShack in 1994 as a vice president. Leonard H. Roberts, the executive chairman of the company, who had chosen Mr. Edmondson to be his successor as chief executive, announced the departure, which he said was a mutual decision between the board and Mr. Edmondson. Mr. Edmondson, 46, had apologized to the company and investors on Friday both for "the embarrassment" that had been caused by the revelation that he had lied about his past, and for the company's poor financial results, which were announced that day. He announced a turnaround plan and said he looked forward to carrying it out over the next 18 to 36 months. Mr. Edmondson, in an interview with The Star-Telegram on Feb. 10, had conceded he did not have two degrees, and that the degree he said he did have was not a bachelor's degree, as he had claimed in the résumé he gave RadioShack when he was hired in 1994. But he insisted he had one degree, a Th.G., a theology degree that the college, now known as the Heartland Baptist Bible College, awards after three years of study. The newspaper said the college said its records showed he had attended for two semesters, but did not graduate. But last Wednesday, the company issued a statement from Mr. Edmondson admitting, "I clearly misstated my academic record and the responsibility for these misstatements is mine alone." The board then announced an investigation, which was canceled yesterday after he resigned. Last week, the stock fell 12 percent, to $19.08, trading at a three-year low, in reaction to the poor performance and the disclosures regarding Mr. Edmondson.
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The Author would like to thank the following individuals who have made contributions to this book.
Name of Individual
School Attended
Work Experience
Phd. MIT
Bridgewater Associates
USA Indranil Ghosh
BA, Cambridge University Brian Linné
BA, St. Olaf College
Deloitte Consulting LLP
Grace Wang
BA, Carnegie Mellon University
Merrill Lynch
Payal Gandhi
MBA, Wharton Business School
Starwood
BA, Northwestern University
CANADA Jeffrey Coles
MBA, Rotman School of
Manulife Financial
Management BSc, University of Waterloo
UK Robert Storm
MBA, Harvard Business School
BP Plc
BA, Cambridge University
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