If you're a junior in M&A, pitchbooks are not just the bane of your life - they are your life. For all the talk of steep learning curves and increased responsibility, analysts and associates in investment banks will spend 99% of their time preparing the financials to pitch for a potential deal for clients.
M&A deals are fickle things that fall through easily, and a lot of pitches are not successful. For the analysts and associates, this still means doing a ton of work for a deal that may or may not happen. Traditionally, pitchbooks for M&A deals were 100-page beasts packed full of financial and strategic analysis. These days, at least in some cases, investment banks are working to slim them down.
"We’ve talked to our clients – they hate big books, and most people hate producing them, so we try to keep the length down," William Rucker, CEO of Lazard, told Financial News recently.
Nonetheless, a good pitchbook is key to impressing senior bankers and clients alike. Students are being given the chance to show their prowess at creating investment cases in a competition called the UK Investment Banking Series (UIBS), run by the finance societies of universities like the London School of Economics, University College London, Imperial College London, Kings College London and Oxford University.
The M&A Challenge allows students to act as advisors to a potential deal, and pitch their ideas to senior investment bankers. We've spoken to Danyeel Shah, who works in FIG M&A advisory at a British investment bank in Canary Wharf, and Victor Nourrissat, who is currently an analyst at a bank in the City and one of the winners of last year's competition, on what makes the perfect pitchbook. We've also included some examples from the winning entries of previous years - the proposed deals were acquisition of airline Aer Lingus by IAG, the acquisition of Netflix by Apple and the acquisition of Kabel Deutschland by Vodafone.
Before we get into the nitty-gritty, it's worth bearing in mind what the point of a pitchbook is. Shah says that juniors are often so consumed by getting all the financial analysis straight, they forget the whole purpose of the deal. "It's a marketing document, it needs to be crisp and concise, and - most importantly - show what the opportunity is. A lot of juniors focus on getting the financials right, without thinking about what the message is."
Junior bankers don't deliver pitches to clients, it's the directors and managing directors who get to do this. In most cases, the pitchbook is printed out anyway. In other cases, says Shah, senior bankers use the pitch document as a "placeholder" and go through the entire presentation talking more about the ideas and the selling points of the deal. "Let's say you have an hour to talk through the pitch, and you want to field questions and queries throughout. 10 slides is enough - more detail can be included in the appendix."
Most pitchbooks will contain an executive summary explaining what's to come in the presentation. They'll almost certainly include some slides on the people pitching their deal, highlighting their credentials, as well as those demonstrating how global and well-ranked the investment bank is. But you should also give a brief summary of what it is you're trying to achieve before all this. This is the second page of the Netflix presentation:
Imagine you're a client on the receiving end of a beauty parade from investment banks all pitching the same deal, or in the case of the UIBS competition, a judge having to sit through the same fictional M&A transaction. Every pitchbook will set the scene with a macro view of the industry. It can get repetitive.
"There are two things you need to do here. Really understand the market and which financials make sense as a comparison or which can provide an accurate macro view. In other words, research the industry and keep it relevant," says Nourrissat. "And then, of course, make sure everything is spot on. Any typos or mistakes will completely undermine your credibility."
Here's a snapshot from the Aer Lingus pitchbook:
After the macro view comes the analysis of both the target and the acquirer and it's essentially the same deal as the macro view - you'll be peddling out a lot of similar financial analysis to your competitors. Keep it concise, keep it accurate. "There's a real danger people can switch off at this point, before you've got your message across," says Shah.
But, more importantly, start to outline why the deal makes sense strategically. Why, exactly, are the strategic views and histories of these companies compatible?
This is really the crunch point. You've set the scene with the macro and company analysis, this is where you get to tell everyone why it makes sense. If you lose the client, or the audience, here then all the financial analysis that comes afterwards will be a mere distraction. "This is where a lot of the juniors fall down. It's difficult to switch from an academic environment where you have to include as much detail as possible to really distilling the key points and making a compelling investment case," says Shah.
Here are some examples:
All the heavy lifting done by the analysts and associates in investment banking comes next. This means, generally speaking, that you'll provide a valuation of the company to be acquired. This includes the key skill of any investment banker - the discount flow analysis (DCF). This is then followed by the financial analysis on how the deal will be structured and financed.
Nourrissat's team won last year by pitching on the Aer Lingus deal and provided a lot of harder analysis here. This, he believes, is where you can gain a competitive advantage: "This is your chance to shine. The data is trickier to analyse than for the strategic view, and most companies are interested in the bottom line. It also showcases that you have the skills banks need."
Here are some examples from the winning entries:
Loads of work, but ultimately not core enough or too boring to be of interest to most people? Stick in the appendix and console yourself with thoughts that someone will appreciate all the analysis you've done.
If you want to enter the UIBS M&A challenge this year, then the competition closes for team registration on 19 October. You can apply here.
Photo: Getty Images