In my interview I was asked if I knew what M&A was, and I gave them my answer.

But afterwards they asked me to walk them through an M&A process

I was stumped then because I have always known what M&A was, but not what actually happens in Investment Banks when one occurs, and to the businesses in play.

I told them I didn't know, and they told me if I could walk them through any Financial procedures such as Spin offs, Buy side listings, Divestitures, Underwriting, and raising capital.

Once again I told them what they all meant, but I had no idea how it's done by the Investment Banks.

People who are interested in IBD and finance know the definition of M&A, and other financial services, but how is it actually done? What are the steps that an Investment Bank takes to do any Financial service. Can someone clarify on this?

Comments (2)

Best Response

So the process varies deal to deal, but generally you have a process like the following (this is for a broad auction process)

1. Company decides to pursue "strategic alternative" as bankers like to call it, and hires advisors to run process (bankers, lawyers, consultants, etc.)
2. Bankers refine list of potential buyers to reach out to. Depending on confidentiality and the client, non-disclosure agreements are signed between potential buyers and the seller. This involves the company's internal counsel and the potential buyer's hired and / or internal counsel. Bankers are in the middle of these document mark-ups and discussions
3. Bankers send a teaser which is typically a 1-2 page summary of key investment highlights (frequently sent before NDAs are signed)
4. Interested parties that have signed NDAs are provided "first round" diligence items, usually through a data room. Typically a confidential information memorandum (CIM), a simple model (frequently just output of a more complex seller model), as well as a bid instructions letter and potentially a few other documents are provided to bidders. Bid instructions letter outlines particulars that the client requests be part of the first round bid, whether it is information about the interested party, financing contingency, ability to transact quickly, regulatory issues, first and final round bid deadlines, etc, etc
5. Bidders do a bit of diligence using this information and submit first round "indicative" bids. These are usually non-binding, so bidder can walk away without legal ramifications.
6. Bankers quickly summarize bids and select bidders that will be part of the second round. If there are not many bidders, bankers jobs are now to pretend like there are so many bidders and make flurries of data room activity
7. Bankers open up a comprehensive data room with diligence items, models, documents, etc. Which are used by the bidders to determine their final bid. This includes at some point a purchase and sale agreement (PSA) for the bidders and their lawyers to finalize for the final bid
8. Bankers run several weeks of Q&A logs to answer different bidders' questions. many calls on models, assumptions, etc take place
9. Bankers frequently arrange staple or other types of financing packages to support the trade before final bids come due.
10. Final bids come in and PSAs are negotiated between legal teams. Lots of calls from senior bankers and management team of client, as well as bankers with potential buyers indicating/managing expectations (these are their other clients, after all.....and bankers make a lot more money if they get to do the financing too...)
11. Pick winner and prepare a press release to hit the wire
12. Make a case study
13. Go to a closing dinner
14. Wait a few months for transaction close.

Probably forgetting several things but that's the general process for a broad auction. More targeted processes are usually run to protect information, esp. With publicly traded companies. These involve periods of exclusivity (like 45-90 days of exclusive diligence, etc.).

Spin offs and other stuff you mentioned are similar but involve different steps, like equity carve outs or dividend distributions, recapitalization, etc.

Hope this helps

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