Drafting an IM..
You’re an analyst / associate working on a gnarly sell side. You’ve just been sent a link to the pre-process VDR where the client has already uploaded hundreds of documents covering everything from headcount progression to a detailed map of parking spaces. You’ve been told you have two weeks to turn a draft of an IM, starting from scratch. How do you approach it? Do you plan sections first, or do you head straight into the VDR to read the materials? How do you keep track of what you’ve read / processed (to prevent the inevitable “the 2019 reg cap position is on page 46 of the July management accounts, have you not been through the VDR?”)
TL:DR - based on your experience, please share your tips / tricks / the best process to tackle creating an IM, from a blank ppt and hundreds of docs.
Not a super senior guy here, but you did say analyst / associate, so being the latter I guess I've earned the right to voice up.
Nearly all the CIMs I've seen follow the same format, as you would agree:
- Company at a glance / introduction
- Key investment highlights (this usually covers key business-related strengths, favorable market trends, good management etc.)
- Zoom into each key investment highlight
- Financials summary
- More detailed financials
- Boring stuff like EH&S / ESG
So I would start by creating a skeleton of empty slides, which you can already think of given that you know what business it is. Then, already knowing what the business is like I would first focus on what KIH there would be. What is the specific strength of the business? Is it 'stable, predictable cash flows (sorry, infra guy here)'? Is it dominant market share with huge gap vs. 2nd in place? Are there market tailwinds (legislations, market size growth, COVID-related etc.)? Once you identify these you can then naturally think about what data you will want to show (key contracts, customer base, market share, market developments, trends). For financials, needless to say - already build in a table with metrics you want to show.
From this point onwards it's not that difficult - try to fill in the data with what you have. If not, I would just leave a sticker and say 'to be requested' - CIMs are rarely fully drafted in the first go and you will have to get back to the company for more info anyways. The bigger / more organized the company, the easier this would be.
Hopefully this helps - honestly I can't think of any other way to approach this, so hopefully smarter people will show up and bring a different perspective.
This is good advice. Will add that you should ask the powers that be for some direction as to the investment highlights / narrative that they want to convey.
You would often have a call with mgmt to go through the business and their views on key strengths before drafting an IM. Are there any board documents in the VDR, or materials they did on the business before (debt raises, equity raises, board annual materials, etc.)? Apart from that, ask around for any other IM's your team knows of from a similar sector, and especially look at prospectuses in the similar sector as they will have investment highlights there (e.g. for a business like About You which IPO'ed last year, you would look at prospectuses for other online apparel retailers).
That is all I would say in addition to what the above poster has added.
While I'm a big fan of templating and organizing things with a skeleton outline very early on in any process, I will jump into the data first to at least familiarize myself with what's there. Even though IMs follow a standard format, I'm more concerned that I know what I have to rely on before settling into creating an outline. If I find that I'm missing something that might be important, I can spot it early on and get a jump on requesting the information. It sounds silly, but if I'm reviewing, let's say, forecasts and the assumptions aren't clear, there is nothing that backs up the rationale, or I have concerns on pricing issues, I find it easier to go back and ask for it as early as possible so I'm not scrambling later on. Case and point - and since I know the healthcare space fairly well - if I'm evaluating data from a pharma company and there's nothing to help me understand the pricing and rebating assumptions, I will go back and ask for them, especially since pricing and rebate assumptions drive the revenue assumptions.
That said, it goes hand in hand with the one thing I do no matter what - I write down where to find things that I'll need. This way, I know where to search so I don't waste time later reading through documents trying to find something that is important. I'll sit with a legal pad and just note the document name, what the document is, and where I can find any relevant information in order to have a running list. It just helps me organize my outline by highlighting exactly where to find the info. To be clear, I'm not talking about doing a deep dive early on, but perusing the information to understand the key sections, topic headers, and map out the data I have on hand.
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