Investment Banking Overview: An introduction to the industry

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Investment Banking OverviewAn introduction to
the industry

• Friday, November 3, 2006

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Goal of This Presentation

• What is an Investment Bank?
• What are the opportunities?
• Learning more about the business

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What Does an Investment Bank Do?

• Raise capital for clients
• Advise corporations, states, or other entities on
  capital structure, strategy, business
  combinations
• Create and sell securities to institutional and
  retail clients
• Manage money for institutional and retail clients
• Trade on a proprietary basis

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An Investment Banks Objectives

• To be the leading investment bank as measured by
  share of client activity, market rank and
  profitability
• Manage a diversified portfolio of business and
  asset classes, making prudent use of Firm capital
• Out-perform through market cycles
• Be the most relevant advisor to its target client
  base

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Investment Bank Organization
GLOBAL BANK
Global Securities Research Economics
Investment Management
Global Private Client
Investment BankingandCapital Markets
Global DebtMarkets
Global EquityMarkets
GlobalPrivate Equity
Global Investment Banking
Commodities
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GMI Business Construct
Global Markets
Investment Banking
Leveraged Finance
Capital Markets Financing
Strategic Advisory
Sales and Trading
Principal Investing
Private Equity

• GMI Global Markets and Investment Banking

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GLOBAL MARKETS Its not just sales and trading

• Global Markets encompasses sales, trading,
  structuring and origination activities in a
  variety of product areas. Global Markets
  professionals provide institutional clients
  worldwide with a comprehensive range of
  end-to-end products, services and solutions.

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Investment Banking

• Investment Banking professionals originate and
  execute transactions
• Client focus identify and meet client needs
• Product focus opportunistically position
  expertise with clients
• Investment Banking draws on the diverse resources
  of the firm to deliver the best advisory
  solutions
• Mergers Acquisitions Advisory
• Restructuring Situations
• Equity and Debt Issuance
• Financial Sponsors and Leverage Finance
• Corporate Finance
• Investment Management and Private Client

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How Does Investment Banking Fit In?

• General Relationship Management The RM is not
  only Merrill Lynch's ambassador to the company,
  but also the company's advocate within Merrill
  Lynch
• Product agnostic
• Advisory Investment Banking the primary driver
• Primarily MA
• Expertise of other groups drawn upon
• Capital Raising
• Equity Heavy involvement from equity capital
  markets
• Debt Heavy involvement from debt capital markets
• Lending increasingly important Some companies
  favor their lenders when choosing an investment
  bank
• Other
• Derivatives becoming increasingly important
  (opaque pricing)
• Private Equity creates opportunities
• Cross selling becoming increasingly important
• Today almost no interaction with research

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IBK A Wide Range of Opportunities
Product Groups
Coverage Groups
Equity Capital Markets
Mergers Acquisitions
Telecom Media
Financial Sponsors
Financial Institutions
Retail
Corporate Finance
Equity Linked Capital Markets
Regional Offices
Real Estate
Consumer
Debt Capital Markets
Leveraged Finance
Energy Power
Healthcare
Technology
Multi Industries
Gaming, Leisure Transportation
Private Equity
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Investment Banking Organization
Position
Background
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What Do Investment Bankers Do?
Origination
Execution

• Idea Generation
• Strategic Alternatives
• Capital Raising
• Risk Management
• Problem Solving
• Pitch Book Production Quantitative
  Qualitative Analysis
• Client Contact

• Due Diligence
• Documentation
• SEC Merger and Offering Documents
• Purchase and Sale Agreements, Other Agreements
• Financial Analysis (Valuation, Accounting Impact)
• Develop Presentation Materials for Board of
  Directors Meetings
• Financial Analysis
• Strategic Rationale
• Market Receptivity/reaction
• Prepare Materials for Internal Committees
  (Merrill Lynch)
• Identify Potential Investors and Develop Investor
  Marketing Materials
• Negotiation/structuring
• Client Management

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What Does an Associate Do?
Financial Analysis Industry Research Presenta
tion Preparation Transaction Execution Client
Support

• Financial Forecasts and Projections
• Valuation Approach, Rationale and Modeling
• Capital Structure and Financing Impacts
• Merger Consequences
• Client and Industry Competitive Analyses
• Briefing Materials
• Idea/Solution Generation
• Outline and Organization
• Drafting and Editing
• Client Point Person for Execution
• Drafting Documents
• Due Diligence
• Marketing Material Preparation
• Acquisition Project Support
• Strategic Studies
• Special Projects

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What Makes a Successful Banker
KEY QUALITIES

Quantitative Ability
Research Skills
Intellectual Curiosity
Entrepreneurial
Communication Skills
Presentation Skills
High Energy Level
Long-Term Commitment
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What Makes a Successful Banker

• Summer Associate
• Be a great first year associate
• First Year Associate
• Be a great associate
• Second Year Associate
• Start showing signs of being a great VP
• Third Year Associate
• Be a great VP

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ML Focus Providing Custom Solutions To Clients
For Complicated, Business Transforming
Transactions

• 1.1B full recapitalization of AMERCO/UHaul
• Refinancing of bankruptcy exit financing
• 875mm Merrill Lynch commitment of capital
• Firm-wide effort spanning three years
• Variety of structures lending against a variety
  of assets and cash flow streams

• Re-IPO of US Airways post-bankruptcy emergence
• 332.5mm concurrent add-on and rule 144A senior
  convertible notes offering
• Offerings were made as part of a 897mm total
  equity raise in support of the merger between
  America West and US Airways
• Firm-wide effort spanning 21 months advising
  America West

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Learning About the Business Do Your Homework

• Read the Wall Street Journal Business Section
  (Credit Markets), Economic Commentary, Equity
  Markets section and Equity Volatility commentary
• Need to be current on major events in business
  world and current market levels
• Other good resources
• Barrons
• Economist
• Institutional Investor, Investment Dealers
  Digest, Derivatives Week
• Know what is going on in the markets (stocks,
  bonds, Federal Reserve)
• Learn as much as you can about the business and
  the different functions
• Understand the job WHY you want to do it, WHAT
  you want to do

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Learning About the Firm

• Research each firm you are talking to
• Web site
• News stories over the past few months
• Know enough to have a general conversation about
  the firm
• Seek out and talk to former employees or summer
  associates about their experiences at a firm
• Every summer program is different, know the
  specifics