Investment banking deal process

Do banks lower their fees in an attempt to win business? Oct 29, — am. Basically at the junior level though once announcement occurs there is very little to do except the occasionally news run update.

Investment banking is a specific division of banking related to the creation of capital for other companies, governments and other entities. Investment banks also provide guidance to issuers regarding the issue and placement of stock. Broadly speaking, investment banks porcess in large, complicated financial transactions. It may also include the issuing of securities as a means of raising money for the client groups, and creating the documentation for the Securities and Exchange Commission necessary for a company to go public. Investment banks employ investment bankers who help corporations, governments and other groups plan and manage large projects, saving their client time and money by identifying risks associated with the project before the investment banking deal process moves forward.

Overview of Investment Banking Functions in M&A

An Investment bank is a financial services company or corporate division that engages in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated with corporate finance , such a bank might assist in raising financial capital by underwriting or acting as the client’s agent in the issuance of securities. Most investment banks maintain prime brokerage and asset management departments in conjunction with their investment research businesses. As an industry, it is broken up into the Bulge Bracket upper tier , Middle Market mid-level businesses , and boutique market specialized businesses. Unlike commercial banks and retail banks , investment banks do not take deposits. From the passage of Glass—Steagall Act in until its repeal in by the Gramm—Leach—Bliley Act , the United States maintained a separation between investment banking and commercial banks.

The Role of Investment Bankers in M&A

The typical process for evaluating and completing a new private equity investment opportunity has many different and structured steps that can vary widely by PE firm, and can differ greatly due to specifics of the target company or the transaction process.

Ingestment initial investment evaluation can happen very quickly, but the entire process may take several months or even a year or. Then, as more information is gathered, the firm conducts due diligence, creates and develops very detailed financial models, and evaluates the pros and cons of the opportunity prior to final approval and execution of the transaction. Sourcing for investment pocess can be difficult and grueling, but it is an essential skill one needs if bankint to have a successful career in the PE industry.

Other sources include meeting with various companies, company screens through databases for specific criteria, industry conferences, and conversations with industry consultants and experts. Opportunities sourced through any of these means is referred to as proprietary sourcing —i. Another common way to receive potential bznking opportunities is through a financial intermediary, such as an investment banker. Companies often hire investment banks to sell businesses via Confidential Information Memorandums CIMswhich are distributed to potential acquirers, possibly including both financial sponsors private equity firms and strategic buyers.

This is typically characterized as a public auction. Once a private equity firm has officially signed a deal with the target company, both parties will jointly issue a press release announcing the transaction. From there, both parties will work investmen closing the transaction, which can take dexl a few months to a year to complete, depending on the size and complexity of the transaction. Sourcing of an Investment Opportunity Sourcing for investment opportunities can be difficult and grueling, but it is an essential skill one needs if aspiring to have a successful career in the PE industry.

Even though the general aspects of the process are the investment banking deal process across various firms, the details can vary invesment depending on how the investment opportunity was sourced proprietary sourced vs. The larger the firm, the more formalized the investment committee process will be and the higher the probability that public auctions will be used. Conversely, growth equity firms tend to work investment banking deal process more proprietary-sourced deals where they have less competition and are dealing more directly with management.

Growth equity firms also have less formalized investment committee processes because there are typically fewer partners in the firm, thereby requiring less work to build consensus among the porcess before the investment can be.

Signing a Non-Disclosure Agreement NDA : In a public auction, investment bankers will often send out teasers, which are page summaries about the company up for sale. In a proprietary-sourced opportunity, investment teams will often sign an NDA directly with the target company in order to receive some confidential information regarding the company from management. At the same time, the investment team may start reaching out to investment banks to hear their thoughts on the company and understand how much debt financing and what type would be available for an acquisition of this company.

The management team will present an overview of the company while the deal team is allowed to ask them questions about their business. In order to prepare for the management presentation, the investment team will create an initial due diligence question list similar to questions discussed in the Commercial Due Diligence section.

The first Investment Committee meeting can have a variety of different purposes, depending on the PE firm. If approved, dfal investment would proceed into dal diligence and discussions with the target company and its investment bankers. At this point, the target company and its investment banking advisors will generally choose a few bidders to move on to the next round in the auction process.

Further due diligence with management: The target company will begin providing more detailed confidential information in what is typically referred to as a virtual dataroom to the bidders that proceed beyond the first round. At this point, private equity firms will begin reviewing all of the relevant dataroom files and start to prlcess more specific, detailed questions to the management team. Follow-up due diligence calls will be held through the supervision of the investment bankers with specific members of the executive and non-executive management team.

Also, based on the dataroom files, the deal team will start brainstorming the critical issues that they will often hire third-party consultants to help investigate. Building an Internal Operating Model: After having detailed conversations with the management team on all of the main drivers behind the business, the investment team will start building a detailed operating model for the business based on reasonable forecast assumptions.

An operating model is a very detailed revenue and cost breakdown that is based on specific drivers and assumptions e. All of these breakdowns combine real one model to describe the expected financial performance of the company in great. This gives the PE investors procfss detail on the drivers of potential return for the acquisition. Preliminary Investment Memorandum: Once the team investent completed a more detailed investment model, and a comprehensive investment thesis reason for investing and strategy plan to carry out the investment thesisa Preliminary Investment Memorandum PIM, typically pages is compiled to summarize the investment opportunity to the Investment Invedtment.

Sections in the PIM typically include: Executive Summary: Details ingestment the proposed transaction, background, and overall deal team recommendation and investment thesis. Market and Industry Overview: Key market growth rates, trends. Financial Overview: Historical and projected income statement, balance sheet, and cash flow statement analysis.

Exit: Initial thoughts on investment exit options and anticipated timing of exit. Recommendations and Proposed Project Plan: The deal team will recommend proceeding with their proces project plan based on a specific valuation range and budget approved by the Investment Committee.

The project plan will include the hiring of third-party consultants to perform commercial, financial, and legal due diligence, and the team will hold further discussions with potential debt and mezzanine financing providers. Deal teams will typically perform only initial legal due diligence at this stage, since it is the ptocess costly, and will typically hold off on it as long as possible bankibg until the final stages of the bidding process.

The bidder will send specific rpocess to the company based on all key outstanding issues. At the same time, the investment deal team will be negotiating with the financing banks on the debt financing terms. The deal team will also assist the financing banks with their own due diligence by fielding their specific questions and concerns in order to get them more comfortable with underwriting their debt commitment.

The average time for this entire confirmatory due diligence process occurring between the First Round Bid and the Final Binding Bid is approximately 3 to 6 weeks. Update and Final Investment Committee Approval: Depending upon the exact investment process of the private equity firm, an investment deal team must update the Investment Committee on key deal issues in a number of potential ways.

Once all due diligence items are completed and the investment team is comfortable moving forward, a Final Investment Memorandum FIM is completed. A FIM is essentially the equivalent of a PIM which was completed before the First Round Bid that also includes further due diligence from the deal team and third-party consultants, and specifically addresses the key issues introduced by the Investment Committee from the PIM.

At this stage, the deal team will recommend acquiring the target company at a specific valuation, which the Investment Committee will either reject or approve. It is very common for private equity firms to proceed bbanking the first round without submitting a final binding bid or being restricted to a maximum price by the Investment Committee i. This final bid is almost always dea i. The seller procesw its investment bankers will spend a few days discussing the various final bids and will choose a winner.

They will then work exclusively and often exhaustingly! Once a winner has been chosen, negotiations between the lawyers of the seller and the lawyers of the buyer will continue to finalize the Merger Ingestment also referred to as the Purchase Agreement and other related transaction documents.

Several key points in the Merger Agreement will be negotiated, and the most important of those is the Purchase Price Consideration i. Additionally, the Merger Agreement will spell out logistics of the wire transfers to equity and other stakeholders, and how much is to be withheld for post-transaction adjustments. Procexs are a few examples of items that will need to be finalized before closing: Management Equity Roll-Over and Incentive Option Pool: Depending on whether the private equity firm wants banjing keep the current management team, it will start bajking with the executives on their equity roll-over commitment and their incentive option pool.

Note bankinh if the deal consists of the proceds of a publicly-traded company, the private equity firm is prohibited from having any discussions with the management team about compensation before the deal desl actually signed.

Execute Debt Financing: Invdstment a bannking is signed, all parties involved will start working on marketing materials to present to prospective debt investors. In particular, if the debt markets are active and financing is available at attractive rates, the financial sponsor will try to finalize the debt financing as quickly as possible. The transaction closing and the debt financing execution are coordinated with each other, as the debt is a vital part of the transaction funding.

Closing Funds Flow: Once all the necessary documentation is completed, the private equity firm must ensure that everyone is properly paid on time, including selling equityholders, existing debtors, target and acquirer deao, and the escrow agent. Since transactions can reach billions of dollars in size, this part of the process can be very difficult to navigate, given the numerous parties involved, various ownership structures, multiple funding sources, and complicated funding timelines.

Already a member? Private Equity Case Interview Samples. A confidentiality agreement CA or non- disclosure agreement NDA will be enclosed to the teaserregulating the level of disclosure in order to procrss investment banking deal process. Oct 29, — am. Could you give a context to when they would be applicable? Dec 2, — pm. Close Save changes. Acquired cos. The WSO investment banking interview course is designed by countless professionals bankinv real world experience, tailored to people aspiring to break into the industry. Already a member? Thanks for the comment. Often times when a deal is announced, the press release mentions that the deal is «expected to close in a few months. Was wondering if any of you thoroughbred investment bankign could enlighten the rest of us aspiring bankers about the typical deal process from start to finish for a buy-side and sell-side deal. Financial due diligence FDD mainly consists of identifying potential chances and risks within the portfolio company, including capital structure, working capital and capex forecasts. Join Us Already a member?