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If an interviewer wants to assess if you really want to become an investment banker, usually they'll ask you the question, why investment banking?But what if they want to go a little bit deeper?
One of the ways that they can assess this is by asking a different question, which is pitch me a deal. All right, all right, all right.Welcome to Investment Banking Insights.
This is the only show dedicated to helping you learn both the technical and non-technical aspects of the investment banking process.Hi, my name is Alex Mason, and I am your host, and I'm so grateful that you're joining me today.
I wanna talk about something that I've actually never discussed here on this show before, which is deal pitches.
Deal pitches can be really important tools for demonstrating to your interviewer as you're going through the recruiting process that not only do you really want to do investment banking, but you have a sense of what you're getting yourself into and also an opportunity to show a little bit of creativity on your part as well.
So let's go ahead and get into this.What is a deal pitch?A deal pitch is simply giving a scenario, typically a merger and acquisition scenario, and describing it to the interviewer while also giving your critical opinion on it.
And this accomplishes a couple things.It shows them that you're serious about a certain industry or group based on the firms that you're talking about.
And it also shows that you're the type of person who does their research and can speak intelligently about current events
and also do it in a way that isn't just regurgitating information that you read somewhere but injecting some of your own thought into it.So that's why deal pitches are important and they're very common in investment banking interviews.
So let's talk about the anatomy of a deal pitch so that you understand what goes into it at a high level so you can begin to prepare your own deal pitches as you work towards your interviews.So I think of deal pitches in the sense of
Two main components, there's kind of like these two main components that I think about.The first are your basic facts.So basic facts, these are the things that are just fundamental about the deal itself.
So for example, in the case of an M&A deal pitch, which is probably your most common type of deal pitch, you're gonna have who is the buyer, Who is the target?So who is the buyer actually buying?And buyer, you know, this could also be acquirer.
Just depends on how you want to say it.Who's the buyer?Who's the target?You also want to understand what is the size of the acquisition?Is this a meaningful acquisition for this acquiring company?Or is it really just not a big deal?
Is it something that they kind of you know, maybe they're just kind of using their pocket change and their balance sheet to actually buy this business.
So you want to understand size in terms of both absolute metrics, like how big is it in millions or billions, but then also what's the relative size of the deal.So that's another nuance that's important.
Now, in addition to these variables, you can also look at consideration. What is, and remember, this is kind of from our basics, what is the currency being used here to buy this company?So are you talking about cash?Are you talking about stock?
Or are you talking about a bit of both?And remember that cash can refer to both cash on the balance sheet of the acquiring firm, or it can also refer to debt, more commonly money that's borrowed in some form. for the acquisition of the business.
And so you can get even deeper than that.If you're talking about debt, what type of debt are we talking about?Are we talking about a term loan?Are we talking about a company issuing bonds?
If so, what's the interest rate that they're issuing the bonds at?Knowing these facts at a detailed level will help demonstrate that you understand the deal thoroughly and help improve your credibility when you're giving your answer.
So that was consideration.The other thing that we also wanna talk about here is the timing.So when is this deal getting done?It's important when you're giving a deal pitch not to give a deal that's stale.
So you don't want something that closed a year ago, for example, or maybe not even closed six months ago.Once the deal has happened, that's kind of it, it's done.
The investment bankers who are working on that deal have done their work, the fees have been paid, the merger or the acquisition has happened and then everyone kind of moves on to the next thing.
So what we really want to focus on when giving our deal pitch is focusing on specific deals that have been announced but not closed.So somewhere between announcement and closure.
This is the area that we wanna focus on because this is the anticipatory phase, right?This is the phase where investment bankers are working their magic to actually make this deal happen.
The deal has been announced, and of course, investment bankers are involved before things are publicly announced, but now we can talk about it, right?
Because there's been a press release, so-and-so is acquiring such-and-such firm for X number of dollars.Here's the consideration, here's the size.
relative and absolute and we believe this deal is going to close in December or January or whatever, but there's usually some kind of dates that you're getting for understanding when the deal is going to close.
So remember somewhere between announcement and closure is a good fertile ground for picking deal pitches to talk about in your interviews.So that is timing.
Another thing I want to talk about, and this leads really into the next point, strategic rationale. And this gets to the question of why?Why is this deal getting done?
Now, every management team that ever publicly announces a deal is going to give some kind of rationality for why they're making this deal happen. It could be because they just want to strengthen their competitive position more generally.
They might want to expand into a certain geographic area.Maybe they're doing it because there's some intellectual property that's really going to help set them apart.
You have to dig in a little bit deeper than just looking at the raw facts in order to understand why is this happening.And that leads us to the second major part of a deal pitch.And that is what is your critical opinion of this deal.
Because investment bankers, they don't just want to know that you know about a deal, although that's nice.They want to know what you think about it.Because as an investment banker, guess what?You're going to be the one doing deals.
So you should have an opinion about the deal.Here are some things that you want to think about as part of that process.So why does this deal make sense? That's really question number one.Why does this deal make sense?
And you wanna think about this from multiple angles.It always helps to get multiple perspectives on the same set of facts because then you can really add dimension to your answer and show that you can think very broadly.
So why does it make sense for the acquirer? What about the target?Why does it make sense for the target?And then you can even go beyond this.So why does this make sense for the company's customers or the investors?
If you understand the answers to these questions, you can have a really good sense of the pros and cons of this deal and give your view on it.
So for example, a deal might make really good sense for the target shareholders and their investors because a high premium is getting paid.
But maybe it's not so good for customers because a lot of costs are going to get cut and maybe the brand equity of the combined firm is going to go down because of short term profit seeking.Who knows?
But that's just a hypothetical example to illustrate how you can think about these things.So that's one question that you can ask.And then conversely, why does this deal not make sense?
It's really just taking the first question and then flipping it on its head, right?Thirdly, we can ask the question of how does this deal fit into broader trends?
So does this deal make sense in the broader landscape of the industry or even in the broader economy?What are some things that might be triggering this deal to be happening now?Is it safety or regulatory issues?Is it fashion trends?Is it,
environmental concerns, think about the macro factors, and this is kind of where you put your consultant hat on a little bit, and think about the broad landscape of what might be affecting this deal happening.
What are the levers or the triggers, so to speak, that could be impacting this deal?Next, you can think about the consideration. We talked about consideration, but what do you think about it?Should the consideration have been different?
Does this deal make more sense if stock is used, or if cash is used, or if a combination is used?You could go into that.And then you could also think about, is anything else that's interesting?
So once you dig into the materials of the actual deal itself, you'll usually uncover some interesting things about the companies involved.
So feel free to bring those up if you think that they have some kind of bearing on the deal itself or on the life of the company's post deal.So really, if we look at this from a broad perspective, what are we doing?
We're telling people the basic facts of what we know, and then we're giving our opinion on those facts.
And with this very simple combination, you can demonstrate a significant amount of knowledge about an industry, about particular companies, and your opinion on the specific situation in a very short period of time.
And so that's the high level overview I wanted to give you.
And just to give you a framework for how to approach these, what we're going to do next time is talk about a specific deal that I've been looking at and give you an example pitch and then break down that pitch so that you understand the different components and also how to deliver it.
Because it's not just about gathering a collection of facts.That's really phase one.But phase two is committing it to memory and learning how to deliver it in a way that connects with your interviewer and impresses them.
So that's what we're gonna be focused on next time, here on Investment Banking Insights, and I will see you next time.Take care.
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