Citigroup Practical Banking Pres 06

The Practical Side of Investment Banking
October 10, 2006


Table of Contents
1. Citigroup’s Investment Banking Michigan Team
2. Structure of an Investment Bank
3. Deal Teams and the Role of an Associate
4. Why Citigroup?


1. Citigroup’s Investment Banking Michigan Team


Citigroup’s Investment Banking Michigan Team
Managing Directors
Randy Barker
Co-Head, Global Fixed
Income

John Ciolek
Energy

James McCummings
Global Communications

Timothy Devine
FIG

Stephen Schiller
Client Strategy

Hugo Verdegaal
Latin America

Directors
Nathan Eldridge
Mergers & Acquisitions

Jodi Schenk
Mergers & Acquisitions

Victor Voorheis
FIG

Peter Kapp
FIG

Vice Presidents
Rich Harding
Healthcare

Daniel Lee
Global
Communications

Jas Singh
Energy

Keith Anderson
London

Ramon Gonzalez
Global
Communications

Susan Manuelle
Global Industrial

Christa Volpicelli
Global Industrial

Associates
Ben Riback (A4)*
Global Consumer

Arun Prasad (A3)
Health Care

Owen Bittinger (A3)
Palo Alto

Benjamin Carpenter
(A3)
Los Angeles

Paul Croci (A3)

Pablo Pallas (A3)
London

Martin Valdes (A3)*
Latin America

Sarah Ransdell Bayer
(A2)
Palo Alto

Patty Yang (A2)
Hong Kong

Jason Godley
Generalist

Julius Peter
Generalist

Harsh Singh
Generalist

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* Team Co-Captain


2. Structure of an Investment Bank


What is an Investment Bank?
An “investment bank” typically consists of three distinct, but related businesses:

Traditional
Investment Banking

 Capital raising
– Debt
– Equity
 Strategic advisory
services
– Mergers &
acquisitions
– Restructuring
– Takeover defense

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Sales & Trading
 Distribution and execution arm of
the investment bank
 Sells and trades stocks and bonds
 Manages the firm’s risk and
makes markets for the securities
underwritten by the investment
bank

Research

 Analysis and
recommendations of
stocks and bonds
 Includes company

coverage and sector
coverage


Who are the Leading Investment Banks in the United States?
Large /
Global

3

Small /
Regional


Structure of an Investment Bank — Conduit to the Corporate Client
Private Side

Public Side
Client

Capital Markets

Other Product
Groups




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Financial Strategies
Derivatives
Liability Management
Pensions

 Bank Loans
 Inv. Grade
Debt

M&A

 High
Yield
 Equity

“Chinese Wall”

Investment Banking
Coverage Groups

Corporate
Banking

Sales &
Trading

Research


Products and Services

An investment bank provides numerous corporate finance functions.

Balance Sheet
Management

Hedging

Capital Raising

Equity

Share and Debt
Repurchases

Investment Grade
Debt

Debt Exchanges

High Yield Debt

Consent Solicitations

Syndicated Loans

Bridge Commitments
Advisory

M&A

Restructuring

Financial Strategy
5


Industry Coverage Groups

6

Consumer

Financial
Institutions

Communications

Energy, Power
& Chemicals

Health Care

Real Estate

Financial
Entrepreneurs

Industrials

Technology

3. Deal Teams and the Role of an Associate


Structure of a Typical Deal Team
The Coverage Officer has primary client responsibility and the Associate ensures that all members of the
working party, both internal and external, are informed and working together.

Client

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Accountants

Investment Banking
Coverage Officer

Capital Markets

Associate

IBD Support

Analysts

Attorneys

Compliance/
Legal

Strategic Advisory
 A good investment banker is a trusted advisor to their client – a CEO’s first call
for strategic advice
 Investment bankers are most valuable when they can provide unique insight
regarding a company’s operations or strategic direction
 As part of a normal client dialogue, investment bankers will show clients strategic
ideas that may or may not be obvious to their client
 CEOs often use their bankers to approach potential counterparties on an informal
basis
 Investment bankers typically handle negotiations and most other aspects of the
M&A process, allowing management to focus on running their business
– Fairness opinion
– Valuation
– Purchase/Sale documentation
– Process management
– “Whatever else it takes”
– Structuring

8


Strategic Advisory – M&A

 Purchasing other companies
– Friendly Mergers
– Hostile Takeovers
– Leveraged Buyouts
 Selling companies

– Selling entire companies
– Spin-off of subsidiaries
 Defending Company Buyouts
– Poison Pill

9


Life of an M&A Transaction

The Pitch

The Mandate:
Deal is Live

 Specific pitch ideas

 Preparation

 Beauty contests

 Solicitation of
preliminary bids
 Solicitation of
binding bids
 Negotiations
 Contract Signing

Announcement

 Preparation for
announcement
– Press release
– Q&A script
 Week of
announcement
– Market reaction
– Roadshow?
 Banker’s work is
largely done once the
deal is made public

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Closing:
It’s Official!

 Between
announcement &
closing
– SH vote
– HSR
– Other regulatory
approvals
 Closing
– Lucites
– Dinner


Valuation: The Foundation of Every Deal

Primary Valuation Techniques
 Discounted Cash Flow Analysis
 Public Market Analysis (Comparable
Companies)

 How is my client trading relative to peers?
– WHY is it trading this way?
 Growth? Margins?
 “Hot” market versus fundamentals

– HOW can the company improve its
valuation?

 Private Market Analysis (Precedent
Transactions)

 Does an acquisition make sense?

 LBO Analysis

 What is an appropriate price?
 Is cash or stock a better choice?

Secondary Valuation Techniques

 What is appropriate leverage?

 Pro Forma Consequences Analysis

 How would the market value the company

in a public offering?

– Accretion/dilution
– Capital Structure
– EPS Growth Rates
 Relative Contribution Analysis
 Liquidation Analysis

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 How long will a company take to pay back
debt holders?
 Do cash flows support an LBO?


Valuation and the Associate
The associate is responsible to ensure numbers are accurate and assumptions are realistic.

Valuation is NOT . . .
 A single, quantitatively derived answer
 A precise number
 A static number

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Valuation is . . .
 Lots of number crunching
 More art than science
 Heavily dependent on judgment

Raise Capital for Clients
 One of the most common functions of investment bankers is to assist companies
in raising capital
 Investment banks are the intermediaries between users of capital and providers
of capital
 Equity
– IPO
– Secondary Offering
– Preferred Stock
 Debt
– Investment Grade
– High Yield Debt
– Structured & New Product Financing

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Capital Raising Assignment
The associate manages the flow of information and therefore must be organized and anticipate everything.

Pitching

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Pre-Filing
Preparation

Marketing

Pricing /
Closing

Post-deal
follow-up


Capital Raising: Pre-Filing
 Screen the Deal Internally
– Put together all internal memos and coordinate meetings
 Commitment Committee
 Investor Issues Committee

 Organizational Meeting
– Establish agenda, timetable, information request list and working group list
 Due Diligence Meetings
 Drafting of Registration Statement
– Development of business section and positioning
– Participation in drafting sessions
– Work with underwriters’ counsel on underwriting agreement
 Marketing Preparation
– Prepare roadshow presentation with company
– Coordinate for reds to be delivered as necessary

15


Capital Raising: Marketing
 Prepare memos for sales forces
– Institutional sales memo

– Retail Sales Memo
 Coordinate dry-run (company presentation to sales force)
 Roadshow:
– Responsible that ALL logistics run
smoothly
– Accompany company to investor
meetings—keep meetings on time
– Feedback to Capital Markets desk:
know how the book is building
– ANTICIPATE everything

Denver
3 one-on-ones





Minneapolis
1 one-on-one



Milwaukee
2 one-on-ones



Chicago
1 one-on-one

Toronto
5 one-on-ones
 1 group mtg




Montreal
1 group mtg
Boston
7 one-on-ones
 1 group mtg





New York
6 one-on-ones
1 group mtg



Philadelphia
6 one-on-ones



Europe

1 group call

San Francisco
4 one-on-ones
1 group mtg




San Diego
 1 one-on-one
 1 group call

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Kansas City
 2 one-on-ones


Capital Raising: Pricing/Closing
 Pricing: Handled by ECM
– Coordinate bring down due diligence call prior to pricing
 Finalize registration statement
– Meet with lawyers and printers to add in final pricing information
 Closing: Help coordinate wiring of funds to company
– How much? Where? When? Wire instructions via memo to syndicate
 Post-deal client relationship
– Create post-mortem book
– Organize closing dinner
– Design Lucite

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Keys to Success as an Associate
Goals

Pitfalls

▲ Develop credibility early with team, especially analysts

▼ Presenting materials with mistakes or typos

▲ Leadership: Delegating authority

▼ Waiting to get involved

▲ Time management skills: Balance multiple projects

▼ Failure to anticipate

▲ Understand the transaction and communicate both up
and down

▼ Not leveraging firm’s resources appropriately

▲ Develop a rapport with the analysts and communicate
the big picture
▲ Manage expectations and define responsibilities
▲ Get your hands dirty

▲ Don’t be afraid to ask questions
▲ Proactive client interaction
▲ Educate senior bankers and exceed expectations

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▼ Getting lost in the detail and missing the big picture
▼ Insubstantial interaction with clients
▼ Does not properly delegate work
▼ Losing confidence under pressure
▼ Lack of attention to detail
▼ Lack of follow through
▼ Lack of involvement in recruiting and training
activities


4. Why Citigroup?


Citigroup is the #2 Global M&A Advisor YTD
Global

Europe

Volume
($B)

Rank

Volume

($B)

Rank

Volume
($B)

Rank

769.5

1

437.9

1

326.1

5

714.7

2

315.1

3

440.9

1

664.3

3

315.3

2

384.9

2

592.2

4

260.4

5

371.0

3

524.2

5

185.0

7

344.8

4

472.9

6

166.5

8

279.6

8

452.8

7

297.6

4

175.3

13

Source: Securities Data Company, Inc.
Note: Data as of September 30, 2006, based on rank date.

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U.S.