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?

 

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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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"

 

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.

 

One of my good friend's Dad was an MD at a respected bulge bracket back when lotus was first coming out and quickly became known as the "lotus modeler". Hearing him speak about his experiences of having everyone come to him to build models, sounds like it was the biggest mistake of his life. He showed me some of his models he makes in Excel and everything is in R1C1 style... it's just painful.

 

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.

 

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)?

 

They were the money at the table hence you would bend over to receive some money what ever was the price - when they were in such monopoly's they could basically price the interest at whatever level they wanted and would have great returns. Also consider that currencies were a lot less stable back then, hence lending gold was frequent to hedge inflation/currencies changing due to some new emperor.

 

I went down a fun rabbit hole as a consultant and discovered that McKinsey slides from the late 90's were literally just clipart and those textured backgrounds, replete with slide animations like the letter-by-letter typewriter (unfortunately not the laser pew-pew-pew)

Be excellent to each other, and party on, dudes.
 

I vaguely recall having to purchase a software called something like Alcar Value Planner/Planning, back in the late 1980s for the analysts when I worked in the corporate library of a Japanese bank.

This would have been in the Lotus 1-2-3 spreadsheet software heyday - which was an IBM product. And we used Wang word processors! Wang Laboratories, oh goodness, haven't thought of that in ages! We had a "cool room" for the printers and fax machines since so many of the earlier versions of computer equipment peripherals didn't have decent internal fans, if they existed at all!

I wouldn't get my introduction to Microsoft's Excel, version 2 or 3, I want to say, until the early 1990s.

 

Not banking related, but my father was active in Silicon Valley in the late 1980s and early 1990s. When keep track of transactions, he recalled recording them on Lotus 1-2-3 and basically said in those days it was IBM or nothing. It was until 1992-1993 that he jumped over to Windows and Quattro Pro, and then by 1997, everything was just Microsoft Excel.

"Work ethic, work ethic" - Vince Vaughn
 
Howard Hughes:
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?

A form of banking existed even before the 80s. It probably looked more like merchant banking or some form of today's world but 99% of prices based on word of mouth. It makes sense that you had to have a high tolerance for coke and viagara back in those days. There's no honor in your entire day's work being based on how good of a cock sucker you are to super rich SOBs.

 
iBankedUp:
There's no honor in your entire day's work being based on how good of a cock sucker you are to super rich SOBs.

I have some bad news for you about being partner at a firm.

“Doesn't really mean shit plebby boi. LMK when you're pulling thiccboi cheques.“ — @m_1
 

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"Out the garage is how you end up in charge It's how you end up in penthouses, end up in cars, it's how you Start off a curb servin', end up a boss"
 

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