How was Investment Banking modeling done back in the day?

Have always wondered this. Investment banks have been around long before excel - even back to the 80s and 90s - so how would investment banks and private equity firms create IPO pricing, valuations, LBOs, etc?

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Comments (23)

Jul 6, 2018

Paper and a 12c calculator

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Jul 6, 2018

Damn, that doesn't leave much room to change around assumptions and whatnot

Jul 6, 2018

Anthropologists in southern France recently discovered wall cave paintings that may be remains of a primitive LBO. You think being an analyst is tough? Back in the Ice Age era, analysts were carving DCFs out on stone tablets.

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Jul 6, 2018

Major props to them honestly

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Funniest
Jul 7, 2018

I heard that CS (Credit Sphinx) analysts had to run the Pharaoh's pyramid financing models on tomb walls in hieroglyphics under candle light. Then the Pharaoh decided that slave labour could be used and they had to re-calc the uplift in EBITDA for their MD in one day whilst plagues rained down on them.

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Jul 7, 2018

You think that was bad ask someone who worked on a trading desk how they keep their P&L and bank balance sheet before Excel and Lotus 1-2-3.

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Most Helpful
Jul 8, 2018

I still have to write my history of investment banking post. Someday, I will find the time.

Lotus-123 came out in the early-80s and that changed everything. That, along with the M&A boom, was really the birth of investment banking as we know it today from a junior banker perspective. Excel took over from Lotus in the 1990s but in a sense spreadsheets are spreadsheets. Its no surprise that the first formal analyst programs were in the early to mid 80s.

For a few years before Lotus-123, there was apparently "the computer" which associates (analysts were very rare before spreadsheets) had to book where you provided model inputs and then an hour later, you got outputs.

Before that it was graph paper and a calculator with a typing pool that typed up the model outputs. I'm told my people who were junior bankers in that era that it was a blessing and curse. Obviously it was a pain in the ass but people were thoughtful about the analysis they wanted. There was no "run me an accretion / dilution analysis for 12 targets at 5 different premia using base case, upside case and downside case earnings, and I want that at 8am tomorrow"

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Jul 8, 2018

Damn. Very cool. Were the inputs in "the computer" just part of a template, or could you have some formula wrong that you'd find out after an hour of waiting, and would have to hope you could fix it the next time around?

Jul 8, 2018

I understand you had to input the variables and the formula and then let "the computer" calculate, so any mistake would be seen after the hour. And because "the computer" was often booked up, you wouldn't be able to fix it for a day. Now everyone senior thinks they were gods gift to finance when they were junior bankers, but people who had to use "the computer" say their attention to detail needed to be impeccable because they only had once change to get it right. Of course, anyone who did is in their mid to late 60s and all but a few have retired - there are some vice chairmen around though who were young bankers in the 70s.

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Jul 9, 2018

awesome post! this is why I keep coming to this website

Jul 17, 2018
mergersandacquisitions78:

I still have to write my history of investment banking post. Someday, I will find the time.

Looking forward to that !

Jul 8, 2018

@mergersandacquisitions78 very cool, thanks for the insight. I'd love to see your history of IB write up when you've done it

Jul 10, 2018

I had an MD once who started as an analyst in the 80s. Apparently he was working on some cross-border deal back in the day and he once had to send the model to the offshore office.. by fax.

Jul 10, 2018

Not IB related, but a retiring partner at a law firm once mentioned that prior to advanced Word processing software, legal redlines used to be done by hand by some poor associate. Print the documents, put them side by side, and go to town on the document with a red pen and a ruler.

Bruuuuuuuuuutal stuff. Thank god for technology

Jul 10, 2018

Makes you wonder how many old deals were done with just back of the envelope/napkin and a handshake between old timey finance bros (maybe some would argue not much has changed).

I guess that's why prestige things like where you went to school and who you affiliated with used to matter a lot more, it was basically the only way to actually know that you were talking to someone that knew their stuff or wasn't going to just fuck you over. Glad that has (for the most part) changed but it would be interesting so see the deal life cycle during late 60's/early 70's.

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Jul 10, 2018

I've wondered about this too but more about 18th / 19th century times...you always read about bankers from back in the day (early Rothschilds, Warburgs etc) - how did they do things? just lend some money and expect a return? how did they decide what was a good price to pay to buy a company or land / assets etc? Were some principles like DCF around back then too (in a simple way)?

Jul 10, 2018

While we're at it, what the heck did Consultants use before Powerpoint? Curious to see what a 1970s presentation may have looked like

Jul 10, 2018

I wonder what its gonna be like in 20 years when juniors are talking to a senior bankers about IB back in the day, and seniors going off about excel models and shit and juniors look at each other and go "what the fuck is excel"?

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Jul 10, 2018

My boss was in investment banking in the late 60s and early 70s along side some of bigger names around town. He and some of his fellow phds would program punch cards for larger clients..

Jul 10, 2018

Merchants of Debt (about KKR) talks about how they did calculations on paper, and how it changed once simpler computers showed up, how things got efficient and they could run different cases, etc. Also covers how they made LPs for example.

Jul 10, 2018

Ah very cool. Will have to definitely check that out

Jul 10, 2018