What Does An Investment Banker Do?

What is the day to day work done at an IB firm? More importantly, what is the life cycle of activities that IB firms undertake in order to close deals and earn fees from clients? Below is an illustration of the activities that a firm would typically undertake in a sell-side mandate

The Pitch

• IB firms have to look for clients who will give them a mandate for running a deal process. Senior folks at IB firms spend the bulk of their time in networking and scouting for potential opportunities. One of the key KRAs for senior employees is to actually maintain relationships in the industry and source deals for the firm.
• Once the firm identifies a potential opportunity and sets up a meeting, they prepare what is commonly referred to in the industry as a Pitchbook.
• It is a document that aims to establish the firm’s credibility and make a strong case to the clients as to why they are the perfect partners for the deal.
• The document typically includes the firm’s understanding of the market, the client, competition, expected valuation that they can get for the transaction, and credentials from previous deals that the firm might have run in that industry.

Deal Collaterals

• Once the firm gets a mandate from the client, the team then prepares deal collaterals or documents that explain potential investors about the deal opportunity. It includes an IM (Information Memorandum) and a business plan.
• The IM is a presentation that highlights the industry structure, details about the company and strategic plan for the future.
• The business plan will share the projected financials for the next 3-5 years that the management plans on achieving.
• These documents give detailed insight into the company to investors who scan through these documents and form their view on the attractiveness of the opportunity.

Investor Meetings and Terms Sheets

• If the deal generates active investor interest who like the asset and want to take the next steps, the firm will arrange meetings of the top management and promoters of the company with potential investors.
• This step is generally followed by the submission of non-binding terms sheets by the interested investors indicating the key terms of the deal and, most importantly, the valuation of the company at which they will be looking to invest.

Diligence and Closure

• After receiving the non-binding bids, the client and the IB firm discuss who they would like to invite to the next stage of the deal to conduct diligence and make a binding offer to conclude the transaction.
• Considerations for making this decision could include the investor’s history of doing deals in that industry, the value-add and credibility they bring to the board, their track record, the resources that they bring, and the valuation they are offering.
• Once investors are shortlisted, they proceed with diligence (commercial, financial, operational, legal, and tax) to get a detailed understanding of different aspects of the deal and test their investment thesis before they submit a binding term sheet. The diligence may also throw some adjustments to the deal, which will be discussed with the company and accounted for as pre-conditions to the deal.
• Once the investors have conducted their diligence, they will revisit their understanding and form a final view. If the investors decide to proceed with the deal, there would be final negotiations primarily regarding the adjustments from diligence findings and the valuation at which the deal will happen.
• Upon conclusion, a final term sheet is submitted, and paperwork commences – it typically includes drawing up the Shareholders Agreement and Share Purchase Agreement.
• After the paperwork is agreed on, funds are transferred, and the deal is closed.