BIWS 400 Questions - All Technicals, Wall Street Prep Redbook 100% Correct!!!

You've never worked in finance before. How much do you know about what bankers actually do? - ANS I've done a lot of research on my own. Based on that, I know that bankers advise companies on transactions - buying and selling other companies, and raising capital. They are "agents" that connect a company with the appropriate buyer, seller, or investor. The day-to-day work involves creating presentations, financial analysis and marketing materials such as Executive Summaries. Let's say I'm working on an IPO for a client. Can you describe briefly what I would do? - ANS You meet with the client and gather basic information - such as their financial details, an industry overview, and who their customers are. You meet with other bankers and the lawyers to draft the S-1 registration statement - which describes the company's business and markets it to investors. You receive some comments from the SEC and keep revising the document until it's acceptable. You spend a few weeks going on a "road show" where you present the company to institutional investors and convince them to invest. The company begins trading on an exchange once you've raised the capital from investors. How much do you know about the lifestyle in this industry? Do you know how many hours you're going to work each week? - ANS I've done my homework and I understand it's going to be an 80-100 hour per week job but I'm not afraid of that. Can you tell me about the different product and industry groups at our bank? - ANS Being a bulge bracket bank, Credit Suisse offers pretty much anything a client could ask for. Restructuring, M&A, LevFin, Debt and Equity Capital Markets. Some specific groups - Financial Sponsors, ECMS, DCMS, Ultra High Net Worth (UHNW). Some specific industries - healthcare, industrials (my previous interviewer), financial institutions, etc. What's in a pitch book? - ANS It depends. 1. Bank "credentials" (similar deals they've done to "prove" their expertise). 2. Summary of a company's options ("strategic alternatives" in banker-speak). 3. Valuation and appropriate financial models (for example, if you're pitching for an IPO you might show where the IPO proceeds would go). 4. Potential acquisition targets (buy-side M&A deal) or potential buyers (sell-side M&A deal). This is not applicable for equity/debt deals. 5. Summary and key recommendations. How do companies select the bankers they work with? - ANS Usually based on relationships. When it comes time to do a deal, the company calls different banks it has spoken with and asks them to "pitch" for the business. This is called a "bake-off" and the company selects the "winner" afterward Walk me through the process of a typical sell-side M&A deal. - ANS 1. Meet with company, create initial marketing materials like the Executive Summary and Offering Memorandum (OM), and decide on potential buyers. 2. Send out Executive Summary to potential buyers to gauge interest. 3. Send NDAs (Non-Disclosure Agreements) to interested buyers along with more detailed information like the Offering Memorandum, and respond to any follow-up due diligence requests from the buyers. 4. Set a "bid deadline" and solicit written Indications of Interest (IOIs) from buyers. 5. Select which buyers advance to the next round. 6. Continue responding to information requests and setting up due diligence meetings between the company and potential buyers. 7. Set another bid deadline and pick the "winner." 8. Negotiate terms of the Purchase Agreement with the winner and announce the deal. Walk me through the process of a typical buy-side M&A deal. - ANS 1. Spend a lot of time upfront doing research on dozens or hundreds of potential acquisition targets, and go through multiple cycles of selection and filtering with the company you're representing. 2. Narrow down the list based on their feedback and decide which ones to approach. 3. Conduct meetings and gauge the receptivity of each potential seller. 4. As discussions with the most likely seller become more serious, conduct more in-depth due diligence and figure out your offer price. 5. Negotiate the price and key terms of the Purchase Agreement and then announce the transaction. Walk me through a debt issuance deal. - ANS 1. Meet with the client and gather basic financial, industry, and customer information. 2. Work closely with DCM / Leveraged Finance to develop a debt financing or LBO model for the company and figure out what kind of leverage, coverage ratios, and covenants might be appropriate. 3. Create an investor memorandum describing all of this. 4. Go out to potential debt investors and win commitments from them to finance the deal. How are Equity Capital Markets (ECM) and Debt Capital Markets (DCM) different from M&A or industry groups? - ANS ECM and DCM are both more "markets-based" than M&A. In M&A your job is to execute sell-side and buy-side transactions, whereas in ECM/DCM most of your tasks are related to staying on top of the market, following current trends, and making recommendations to industry and product groups for clients and pitch books. In ECM/DCM you go more in-depth on certain parts of the deal process, but you don't get as broad a view as you might in other groups. What's the difference between DCM and Leveraged Finance? - ANS They're similar and there is some overlap but Leveraged Finance is more "modeling-intensive" and does more of the deal execution with industry and M&A groups on LBOs and debt financings. DCM, by contrast, is more closely tied to the markets and tracks trends and relevant data. Explain what a divestiture is. - ANS It's when a company decides to sell off a specific division rather than sell the entire company. The process is very similar to the sell-side M&A process, but it tends to be "messier" because you're dealing with a part of one company rather than the whole thing. Creating a "standalone operating model" for the particular division they're selling is extremely important, and the transaction structure and valuation are more complex than they would be for a "plain-vanilla" M&A deal. Imagine you want to draft a 1-slide company profile for an investor. What would you put there? - ANS "Put the name of the company in the header, then divide the slide into 4 equal parts. The top-left is for the business description, headquarters, and key executives. Put a stock chart and the key historical and projected financial metrics and multiples on the top right. The bottom left can have descriptions of products and services, and the bottom right should have key geographies with a color-coded map to make it look pretty." Let's say you had $10 million to invest in anything. What would you do with it? - ANS It depends. 1. Always ask what the investor or business goals are. 2. Always ask if there are any constraints, limitations, time horizons, or any other limiting factors. If you owned a small business and were approached by a larger company about an acquisition, how would you think about the offer, and how would you make a decision on what to do? - ANS The key terms to consider would be: 1. Price 2. Form of payment - cash, stock, or debt 3. Future plans for the company vis-à-vis your own plans. Of course, there is much more to an M&A deal than this, but those are the key ones. To make a decision you'd have to weigh each one - there's no "magical" way to decide. You might also point out that if something is particularly important to you - such as retaining a role in the company - then a difference of intentions there could be a "deal-breaker." Let's say you could start any type of business you wanted, and you had $1 million in initial funds. What would you do? - ANS You probably want to say that you'd think about some type of niche business with high margins that requires little startup capital ($1 million is not enough to build 10 factories) and ongoing maintenance - those make it harder to turn a profit and sell the business one day. Can you talk about a company you admire and what makes them attractive to you? - ANS How would you analyze whether a company is viable? - ANS To assess whether it's "viable," you have to determine whether you can make a profit with the business. Think about variables that would affect revenues and expenses and maintenance. Tell me about an M&A deal that interested you recently. - ANS Pitch me a stock. - ANS 1. Give the name and summarize what the company does. 2. Give a brief overview of its financials to indicate its size and how profitable it is. 3. State how it's undervalued or more attractive than its rivals, due to any competitive advantages it has. 4. Say how there is a long-term trend in its favor - it's not just looking good in the past month. 5. Talk about how the next 5-10 years will be really good for the company The 2 most common mistakes: 1. Failing to list specific financial figures. 2. Saying how the company stacks up relative to its competition, and why its prospects are more favorable. Can you explain to me, in simple terms, the subprime crisis? - ANS In simple terms, banks made mortgage loans to people who were in no position to pay them off - or even meet monthly payments. Since interest rates were at historical lows, borrowing was easy. At the same time, mortgages were no longer just loans made to individuals - they were sliced up, combined and "packaged" into securities that banks traded, acquired and sold to investors. A typical "package" might contain mortgages given to both "credible" borrowers as well as mortgages granted to more risky borrowers - the more risky ones were labeled "subprime." Banks acquired these "packaged" assets on the argument that even if one "piece" of the asset was risky or likely to default, the rest still had value. As it turns out, this was false and no one knew what any of these mortgage-related assets were worth - but as unqualified homeowners began defaulting, buyers disappeared overnight and the value of these assets plummeted to $0. As a result, the value of many banks also approached $0 and quite a few failed or went bankrupt in the process - all because the securities were so complex that no one understood their value or the true risks involved. Do you agree with the $700 billion bank bailout? - ANS "Yes" because, as we witnessed with the bankruptcy of Lehman Brothers, if a financial institution that's large enough collapses, it can have ripple effects and bring down the rest of the economy and financial markets along with it. What type of animal / vegetable would you be? - ANS Animal - my friends always said in high school that I looked like a red panda when I smiled Vegetable - Corn! it has blonde hair and I love carbs Fruit - Georgia peach