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What’s The Deal With Investment Banking?

October 11, 2010

Bill D’Alessandro worked in industry coverage and M&A at two different investment banks before joining (a Pamlico Capital portfolio company) to work on acquisitions and corporate development. He blogs infrequently about finance, technology, and entrepreneurship at Ready, Fire, Aim.

How did you get into investment banking?

Like most students, I hit information sessions pretty hard during the fall of my junior year. In the spring, several investment banks came to campus to interview, and I landed an internship with KeyBanc Capital Markets in their industrial technology group in Charlotte, NC. I worked hard at the internship and was given an offer to return after graduation – to Key’s Cleveland, OH headquarters. Ohio wasn’t where I wanted to be, so I spent fall of my senior year interviewing at several investment banks before finally taking a job at Edgeview Partners, an exclusively M&A-focused firm also in Charlotte.

What will I really be doing as an intern at an investment bank?

A lot of people don’t have a good grasp of what investment bankers actually do. There are a ton of definitions out there,but a simple summary is that investment banks help companies to raise capital (through debt or equity offerings) or sell themselves (M&A). In both cases,bankers prepare all the marketing materials and help to broker the deal (similar to a real estate agent selling a house). As an intern, your job is to help out with things like industry research and PowerPoint slide creation, with occasional runs to pick up takeout or coffee for the team.

Are the hours really as long as I’ve heard?

That depends what you’ve heard – and it also depends where you work. Your hours will vary a lot based on the deals you are staffed on, and some groups at some banks are notorious sweatshops. However, most full time (post-college) investment banking analysts will spend between 70 and 90 hours each week in the office. That’s roughly equivalent to 9am-midnight on the weekdays (65 hours), and then variable hours during the weekend depending on your workload. When a deadline is looming, hours can get crazy – I once caught an hour of sleep sitting up in a bathroom stall at 4am before returning to my desk to finish cranking out a pitch book. As an intern your hours might be a little shorter, but never leave the office until you’re sure the analysts you’re working with don’t need any more help, and never complain – you’re there to work for the summer and get that return offer, not sight see (sorry).

What questions are they going to ask me in the interview?

A lot of students freak out before interviews for an investment banking internship, expecting to be peppered with technical questions about bond math and fixed charge ratios. The reality is that your interviewer knows you’re still in college and haven’t been exposed to a lot of this stuff – they’ll tailor their questions accordingly. The key things you want to demonstrate are an understanding of the job, a strong work ethic, and that you’re a generally normal and social person.

However, since I know you want more specific details, here are three questions you can be almost certain will come up:

Q: Why are you interested in investment banking?

A: If the best thing you can come up with is “I want to make a lot of money’, you might as well cancel your interview now. The correct answer here is dependent on the group you’re interviewing for (M&A, industry coverage, etc) but the thesis is the same. The key is to convey an understanding of what the job entails – contrary to what you may see in the movies, it’s not all power ties and screaming pit traders. One of the most interesting things about investment banking is the opportunity to learn a ton about your clients – in an M&A group, you might spend 3 months selling a defense contractor, then the next 3 months diving into the quick oil change industry. If you’re interviewing for an industry coverage group, make sure you emphasize your interest in that specific sector.

Q: Why do you want to join our firm specifically?

A: Here’s another one where you need to have done your homework. Now’s a good time to parrot back some of the things you learned about the firm in the information session (you did attend their information session didn’t you?) You can also prep for this question by using your career services office to contact alumni that work at the bank – ask them what makes their firm unique.

Q: What are 3 ways to value a company?

A: Ah, finally a “technical question’. Despite what you may have heard, this is about as hard as it’s going to get for internship interviews. You covered the first valuation method in your introductory finance class – discounted cash flows. Use the time value of money to obtain a present value for the firm’s future cash flows. If you’re a little rusty on this, click here for a refresher.

The other two methods are comparative – we’ll compare the company you’re trying to value with others that are similar to it. There are two different types of yardsticks – public comparables and precedent transactions. “Comps’, as they’re called in the industry, are publicly traded companies that are similar to the one you’re trying to value. “Deals’ are completed acquisitions of public or private companies. These externally validated valuations give you an idea of what your similar company is worth. The key concept to understand here is called the “multiple’ – you don’t compare the values of the comps and deals directly, you compare their EBITDA multiples. Divide a company’s market capitalization (comps) or sale price (deals) by its EBITDA, then apply that multiple to your company’s EBITDA to get the expected valuation.

What part of the interview do students mess up most often?

Far and away, the most common reason prospective interns get dinged is for personality. Even if you nail all of the above questions, you’re not getting the spot unless you click with the interviewer. It sounds unfair, but it’s true. If I’m going to hire someone and then spend 90 hours a week with them, we need to click personality-wise. More students just need to relax and be themselves – connect with your interviewer and show them you’re a normal person who’d be fun to have a beer with. That’s the secret that career offices never tell you.

Thanks Bill! To get started,  start searching for internships in finance today.

{ 1 comment… read it below or add one }

Marilynn January 20, 2014 at 6:42 am

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