Investment Banking – Mergers and Acquisitions

This is part 7 of the 9 part series on Investment Banking Basic Introduction.

In this tutorial, we discuss the following –

  • Mergers and Acquisition
  • Investment Banking due diligence
  • Pitch Book


Mergers and Acquisitions Video

Mergers and Acquisitions 

Let’s move forward and look at the heart and soul of investment banking that is the M&A activities so every investment banking associate may want to actually get into the M&A part because it is kind of very exciting and in was lot of money here so investment bank do lot of M and A advisory rules. So let us now look at another important function of an investment bank i.e. is M&A advisory rules and why it is very hot and why people would like to kind join M&A Advisory you will get all answer here. So what exactly is M&A advisory? So you know firms interested in Merger or Acquisitions you know they look at potential targets or you know there could be seller in the market they may want to sell their company and they can probably look at selling their company directly to the buyer but you know this is not something which is a liquid trade were you know there are ready buyer and ready sellers.

Investment Banking due diligence

Role of Investment Banking in Due Deligence

So it is kind of very important to kind of look at every aspects of the Acquisitions and you know companies per say may not be equipped enough to kind of all set of procedures due diligence etc. So there are investment banks who actually help companies achieve that so as you may be aware you know the could be 2 kinds of M&A deals 1 it would be sell side M&A deal this would mean that my company on sale and I want to sale this company at reasonable price. So you may approach in investment banks expressing your concern that you may want to sell the company and obviously the investment bank are made for doing these M&A deals likewise there could be a buy side M&A deal now they would be certain set of clients  who would be companies who would be kind of interested in buying potential companies who is kind of add up not only in terms of revenue but strategically they are you know complimenting in certain business so you know it makes obviously good sense for the buyers to identify potential opportunities and that’s where you know they can take help from investment bank so what exactly investment banks actually do investment banks primarily take care of many different things one is that they look at analyzing targets financial information so as experts in finance you know deep into the financials and see how they are fitting in strategically. No. 2 is they do lot of financial modeling and forecasting and understand scenarios as to what is the amount of benefit Merger or Acquisition may actually lead to they also help in assessing the core operations so they go to the company visit they meet people they try to understand and evaluate the kind of synergies that are kind of possible and likewise they actually help in understanding what is the total cost savings that may happen once these 2 companies may merge and you know at the end of the day they are essentially trying to identify the opportunities and areas of concern and you know identifying risk and benefits with appropriate enterprise valuations numbers so investment banks are adding loot of value here they negotiate with buyers they negotiate with sellers and essentially do all these tasks listed on the slide.

Pitch Book

Investment banking pitch book

So with this when investment banks actually pitch to they clients they take a presentation with respect to the potential targets and acquirers and suggest the clients about whether to the should quire sudden company or not so this presentation is all about calling it has pitch book in industry parlance you know as in analyst and associate you must span majority of the time creating the Pitch Book so let’s see and detail what this pitch book and all or about how the can be created and an imported point of few investment banking. So let us now look at what exactly is a pitch book? Now think about your clients. Let’s take a case were you know you are investment bankers and you are helping your client to identify potential opportunities for buying those companies out so basically you are representing a buy side Acquisition team and you’re helping the  buyer identify key opportunities and let’s say emerging counties. So potential you have looked at many companies as such so what is the pitch book, a pitch book is nothing but a presentation and you know it is made assuming that you clients really don’t have any time what so ever to look at detailed conversation so at one snap shot let say in 2 minutes or 3 minutes will you be able to kind of give heads up to your client that these are the potential targets to look at you know this is overall synergies and this is how it could be a placed. So in fact majority of the investment bankers spend a lot of time in making these pitch books because you know when go to clients they need to have something prepared for as a topic of discussion so think of this as first step forward to client and the client is kind of showing any interest a you know then at later point in time you can talk about the details as such so sample pitch book could be something like this. So as we understood that the pitch book is presentation it contain the following basically overviews the executive summary in the high level details about the potential size and this pitch book content is mainly toward to sale side M&A were you know company trying to sale their own stake to some other company and when we talk about the industry think about you know giving market size, market share, competitiveness essentially brief discussion and a short company profile with appropriate valuation. You know so the most important thing where investment bankers actually talk about relative valuation is not detailed approach of doing financial modeling like what the research analyst may do in the equity research department they; investor bankers in fact just make quick comparable and precedent transactions as a first case of valuations. Comparable may contain multiples like PE, Price to book value multiple, etc. So all in all these are the find print of pitch book which is on the sale side so just to give you more details you know it may contain loot of think information about revenue splits different kind of charts etc. some of the samples are like this. You know as you can see on this chart there could be a share price detailing you know what has happened with the company what has not happened with the company in detail, why the stock price have been moving up or down. So these are the things that you may have to do these are just the samples which I am actually running through this is something like comparable transaction where you are trying to compare certain set of companies and looking at what was the implied valuation at reasonable price. So if you are not able to understand this think about you know making all these once you have completed the valuation module all together because this comes as a part of your regular activity as an investment bankers so this is called as precedent transactions. So I am just running through some of the slides were you may have to work on this as part of your investment banking pitch book. So with this we have learned M and A and we have also look that what is the pitch book.

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