When people think of investment banking, it’s invariably the sharp-suited individuals working on big deals in the mergers & acquisitions (M&A) team. Because of its glamorous reputation, it is one of the most competitive sectors to break into at a graduate level.
As the name suggests, M&A teams in investment banks advise client companies on mergers (where two companies join up as equals) and acquisitions (where one firm takes over part or all of another). Big investment banks only get involved with transactions worth at least $100m, but at the top end, the deals can be worth billions.
A career in M&A demands considerable commitment. M&A bankers advise their clients at stressful and critically important periods in a company’s lifetime. Every deal is unique, and competition between banks is intense, so deadlines are tight and the hours can be punishing. Junior bankers can expect be busy assembling the required financial information and legal documentation late into the night, if the deal demands it.
“A successful M&A banker should be a hopeless optimist because the reality is that the majority of prospective deals don’t happen for one reason or another,” said Jim Frawley, U.S. head of M&A at Macquarie Capital. “You inevitably spend a lot of time and effort on things that never come to fruition – but to be successful, you cannot let that discourage you from working just as hard on the next potential deal.”
There is a relatively straight route up the career ladder in M&A. You start out at analyst level for three years, move up to associate for three years, then vice president, director (or executive director, depending on the bank) and managing director. Within those roles you have a chance to focus on sectors such as consumer, financials, oil and gas or media and telecommunications.
The more senior you get in M&A banking, the more you’ll deal face-to-face with clients. At the junior level you may attend client meetings with more senior bankers but mainly you’ll be focused on complex financial modelling and research to compile the ‘pitch book’ – the document the firm uses to outline its ideas on which companies a client should buy or sell to.
As an analyst, your key tasks will also include working on these client service presentations. A lot of this will involve building a financial model, valuing a company or benchmarking it against its peers.
It is only later that you step away from the number crunching. The key difference between an analyst and an associate is that you take a little more responsibility for the transactions and projects.
M&A also opens the door to careers outside of the sector. Usually referred to exit options, the most common route is to switch across to the private equity sector, where the hours are reduced and pay – assuming you make it to senior ranks – can be much greater. Usually, this happens after between two years working as an investment banking analyst up to second year associate level – after that it becomes an uphill struggle to make the switch.
Later on in your career, after you’ve gained experience working on a some large deals, it’s also common for senior M&A bankers to make the switch in-house into a large corporate, advising it on potential acquisitions or the advisability of a merger.
Given that much of an analyst’s time is spent producing complex financial models used for company valuations, investment banks will expect you to come armed with mathematical skills and a keen aptitude for spread sheets.
“You spend a substantial amount of time preparing, gathering information and synthesising it in such a way that helps clients make decisions that meet their objectives,” said Frawley. “Therefore, an effective M&A banker has to be both strong on the quantitative aspects of the job but also has to be effective at understanding deal dynamics, identifying critical issues and being creative and thoughtful in how to address them.”
Numerical skills are important, but they’re by no means the only things an M&A banker must possess. Banks expect you to be autonomous, a quick-learner and, considering the long hours, be able to maintain focus and accuracy under pressure.
“You should be willing to take responsibility and demonstrate strong communication and interpersonal skills which are needed in order to work successfully with clients and in teams,” said Brian O’Keefe, vice president, investment banking division, EMEA at Goldman Sachs.
The analyst role is a launch pad for your M&A career, and so banks will also expect to see evidence of the skills required further down the line. Frawley said that senior bankers spend their time “developing and nurturing client relationships, originating new business and managing the execution of projects”. Suffice to say, wallflowers need not apply, but any good investment banker also needs business acumen and an ability to think longer-term beyond the current deal.
M&A deals are also all about team-work, so you should feel comfortable working with a range of colleagues across various departments and geographies: “You need to be able to learn quickly, have an innovative mind-set, be a true team player and have the ability to interact with colleagues and clients across the globe,” said Mark Barbour-Smith, COO for M&A, Credit Suisse.