IPO underwriting - M&A advisory

So the main focus on the board seems to be on M&A advisory, the groups that do it, and the lifestyle/exit opps.
I'd like to know a bit more about groups that underwrite IPOs.

Which banks/groups are noted for a strong presence in IPOs?
What is it like to be analyst in one of these groups?

 

what kind of modeling goes into ECM / IPO underwriting? standard DCF to come up with the present value of the company's equity and then using that to determine a feasible share price? If there is anyone who has worked in ECM and has underwritten IPOs, I'd love to hear how that whole process works.

as to the less intensive modeling, i can imagine that a lot of the analyst's time is spent creating roadshow pitch-books, which doesn't sound fun-but it sounds better than just doing straight industry coverage, no?

 

could someone clarify about industry coverage vs. non M&A product groups? Assuming the bank's industry groups don't each do their own M&A, where can u go with industry experience?

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piper,

I interned last summer in an industry coverage group, and unfortunately all we did was coverage, i.e. no real modeling, just comps and more comps.

some banks, like the one I worked for, have industry groups who do coverage and product groups who do the real deal execution, whereas other banks have industry groups who execute their own deals.

as for exit opps, i would assume that if you are a VP/MD in an industry group, you would use your industry contacts to land corporate positions in that industry, but it is probably more lucrative to remain a MD unless you are guaranteed a straight shot up that the company's ladder to COO or CEO.

 
Affirmative_Action_Walrus:
piper,

I interned last summer in an industry coverage group, and unfortunately all we did was coverage, i.e. no real modeling, just comps and more comps.

some banks, like the one I worked for, have industry groups who do coverage and product groups who do the real deal execution, whereas other banks have industry groups who execute their own deals.

as for exit opps, i would assume that if you are a VP/MD in an industry group, you would use your industry contacts to land corporate positions in that industry, but it is probably more lucrative to remain a MD unless you are guaranteed a straight shot up that the company's ladder to COO or CEO.

what do you mean by "real modeling"? i would assume some regional offices would do coverage and deal execution.

 
amande96:
Affirmative_Action_Walrus:
piper,

I interned last summer in an industry coverage group, and unfortunately all we did was coverage, i.e. no real modeling, just comps and more comps.

some banks, like the one I worked for, have industry groups who do coverage and product groups who do the real deal execution, whereas other banks have industry groups who execute their own deals.

as for exit opps, i would assume that if you are a VP/MD in an industry group, you would use your industry contacts to land corporate positions in that industry, but it is probably more lucrative to remain a MD unless you are guaranteed a straight shot up that the company's ladder to COO or CEO.

what do you mean by "real modeling"? i would assume some regional offices would do coverage and deal execution.

yes some regional offices do, and some don't.

 
doodoo:
So, you guys are telling me that industry groups don't do modeling? They don't do any M&A/IPO underwriting work, none? If that's the case, can someone tell me how difficult it is to get the group of your choice. Does everyone basically want M&A and the result is the best recruits go to that group?

i believe in some banks industry groups execute their own deals, in others, industry groups just provide coverage and source deals, and then the product groups come in to execute.

 
Best Response
Affirmative_Action_Walrus:
doodoo:
So, you guys are telling me that industry groups don't do modeling? They don't do any M&A/IPO underwriting work, none? If that's the case, can someone tell me how difficult it is to get the group of your choice. Does everyone basically want M&A and the result is the best recruits go to that group?

i believe in some banks industry groups execute their own deals, in others, industry groups just provide coverage and source deals, and then the product groups come in to execute.

what exactly entails "coverage?" pitchbooks? I was always under the impression that those banks with product execution groups still have the industry groups participate on the execution to an extent...is that incorrect?

Which banks have the industry groups do their own deal execution besides GS? Don't almost all of the BB have M&A groups?

 

coverage is following the assigned industry and looking for product opportunities that you can pitch to companies. (telling company x they should merge with company y, etc). depending on the IBD's structure, your industry group will execute the deal itself or it will send the deal on to the product execution group.

i think this varies from bank to bank and also from office to office (NY office vs regional office) hopefully someone who has more IB experience will be able to step in to this conversation and give better details.

 
Affirmative_Action_Walrus:
coverage is following the assigned industry and looking for product opportunities that you can pitch to companies. (telling company x they should merge with company y, etc). depending on the IBD's structure, your industry group will execute the deal itself or it will send the deal on to the product execution group.

i think this varies from bank to bank and also from office to office (NY office vs regional office) hopefully someone who has more IB experience will be able to step in to this conversation and give better details.

Yeah that's basically my understanding as well, to a large extent. So which BB banks don't have specific product execution groups such as M&A, besides Goldman? Does anyone know if you get to choose, or get assigned to a specific group...or a mixture of the two?

 

When you're working on an IPO, the industry coverage team gets destroyed and the ECM team doesn't really get involved until you're much closer to launching - at least in my experience.

Even before a company makes the final decisions to "Go Public", the Associate/Analyst team work on analysis, comps, pitches, etc. for weeks and weeks. Sometimes you might even start with a dual track sale/IPO process.

Once a company decides to pursue an IPO, the industry coverage team helps draft the Registration Statement. Lawyers do most of the drafting, but client ALWAYS request a sh*tload of research/data and help drafting the industry overview and company competitive advantages section.

Most modeling is limited to simple capital raising impact analysis. You'll model out how any primary proceeds are deployed and how that (and share dilution) impact the financials. This is used to eventually determine the right valuation to set a price range at.

I've also never worked on an IPO where ECM created the roadshow - that is always the job for some poor Associate/Analyst. The roadshow takes MUCH longer than it should, but that's just the nature of having the client, the bankers, the lawyers, etc. always having different opinions on everything from message to formatting.

Besides this there are the internal committee memos, information packets for the sales force and other requests that the industry team fields.

While ECM is involved throughout the process, the junior guys from ECM don't get that busy until much closer to launch. They'll focus on creating timelines for different scenarios, investor targeting, etc.

 

M&A group during a deal. No question.

M&A deals have incredible levels of uncertainty, so you never know when something is going to be requested out of the blue or you are going to have to build in some random functionality into a model.

Only material uncertainties in the IPO process are the market and the timing/significance of the SEC comments to the Registration Statement.

I've also never enjoyed travelling for an M&A deal. Analyst/Associate travel for M&A is generally limited to due diligence, some management meetings and can be pretty grueling/boring.

Travel for an IPO can be pretty ridiculous. Things are little less extravagant today, but in 2007 it was no surprise to see an Analyst on a private jet w/ CEOs travelling to roadshow meetings. To be fair, the Analyst role on a roadshow is to be a glorified travel coordinator/book carrier, but it's still pretty good exposure and you'll eat at some pretty nice restaurants. Keep in mind though, travelling on an IPO roadshow is somewhat rare these days.

 

How do industry groups source deals?

What is sourcing a deal even?

Do they have a client who comes to them for example and says, I want a company that builds truck engines. So they search for all the companies that search this criteria and present them to the client?

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balooshi: Focus on getting a job buddy.

Banana: I know you are talking about IPO's in particular but I know that most industry groups experience modeling along with everything else you said. I agree though that ECM takes a backseat, which is further proof why no one should ever do capital markets.

 

IPOs do not have to be run by an investment bank ... they usually are in the US because bankers act as a broker between investors and the company. I forget the exact terminology when a company does it by itself but it can definitely happen. Problem is they need traders to make a market for the stock which can be a problem if they dont have the backing of a large investment bank.

 

Thanks for the comment, the thing is the local exchange here is very inactive; you'd probably have about only 2 out of 14 counters trading on any given trading day, thats bound to be problematic for the upcoming IPO, right? in terms of a market for the shares

Mansa_Moussa
 

I'm not familiar with this deal, but what vtech is referring to I believe is called a direct to public offering. Like he said, the company sells stock directly to investors. In emerging markets the IPO process is a bit different than in the U.S. and they tend to have a much larger retail component than traditional U.S. IPOs.

I can't think of any anecdotal example of offerings that weren't underwritten, but even those that are underwritten still face liquidity problems in a lot of foreign markets. On exchanges where there is a significant time lapse from the time the IPO prices to when it actually lists, you will see grey market trading in the IPO shares in some of the less-regulated countries.

In China for instance, offerings are divided between A shares and B shares, A shares being available only to domestic investors. The A shares are allocated to investors based on a lottery system, rather than the level of demand at different prices like a traditional bookbuild.

 

On the same IPO, i've valued the company using basic multiples like P/E multiples, MV/Bookvalue etc would these be adequate to give an indicative price for the IPO, or would a full blown DCF valuation be more accurate

Mansa_Moussa
 

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