wall street irina zilbergleyt 2

Wall Street

Irina Zilbergleyt

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My Background

Graduated with a Finance Major December 2002

Merrill Lynch Investment Banking Analyst (Chicago)

Allied Capital Private Equity Associate Oct 2004 - Present (Chicago and New

York)

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Why Work in the World of Wall Street? Challenge / Responsibility

Be in a position to provide advice and guidance to people whom, if you worked in a corporate setting, you would probably have no exposure to

Compensation: 2006 Investment Banking Average First Year Compensation $60K salary + $70K bonus = $130K

Opportunities after Investment Banking Private Equity / Venture Capital Hedge Funds Corporate Finance Business School

Networking Direct Promotion to Associate

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Components of Wall Street

Sell-side FirmsAgents or Middle Man

Sell investment banking services: Acquisition Advisory Capital Markets (IPOs) Trading Services Stock Research

Morgan Stanley, Goldman Sachs, Merrill Lynch

Example : Merrill Lynch advised P&G on their acquisition of Gillette in 2005.

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Buy-side FirmsPrincipals

Those who buy the services that the sell-side is offering: money managers including Mutual Funds Private Equity Firms Hedge Funds

Fidelity, Putnam, KKR, Carlyle Group, Blackstone, Citadel

Example : Fidelity asking Merrill Lynch to sell their Microsoft Stock.

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CORPS:Abbott, GE

Sell-Side / Buy-Side

INVESTMENT BANKINGCAPITAL MARKETSSALES & TRADING

RESEARCH


RESEARCH

strategic advisoryunderwrite and place

securities

Sell-Side

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RESEARCH


RESEARCH

MUTUAL FUNDS(Buy-Side)


CORPS:Abbott, GE


securities

sell equity and debt securities, provide

research

invest directly

Sell-Side

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RESEARCH


RESEARCH

INDIVIDUAL INVESTORS


sell equity and debt securities, provide research, financial planning strategic advisory

underwrite and placesecurities

sell equity and debtsecurities, provide

research

invest directly



CORPS:Abbott, GE

Sell-Side

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RESEARCH


RESEARCH

CORPS:Abbott, GE

institutions


securities

invest indirectly by buying mutual funds, insurance policies, etc.

sell equity and debt securities, provide

research

invest directlyinves

t dire

ctly





sell equity and debt securities, provide research, financial planning

Sell-Side

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IndividualInvestors:

High Net Worth Individuals

InstitutionalInvestors:

•Insurance Companies •Pension Funds

•College Endowments

CashEquivalents

DebtSecurities

Stocks

Private EquityHedge Funds

RealEstate

Money Flow

Mutual Funds

Publicly Traded Investments

Privately Traded Investments

Buy-sideFirms:

InvestmentTypes:

PrivateAssets

Other:Metal, Oil

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Private Equity Fund

Private Equity Fund: is an investment company that provides equity capital in exchange for an ownership position in a private company (not traded on a public stock market post transaction). Venture Capital: invest in start-ups and early stage

deals (Technology) Leverage Buyout Funds: invest in buyouts, usually of

mature companies (Allied Capital) Leverage Buyout (LBO): is the process of acquiring a

company using a significant amount of debt, which helps increase the acquirer’s equity return.

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Leverage Buyout: ExampleHouse Leverage Buyout (LBO)

Pre Deal Research: Hire a Broker or look at listings, attend open houses.

Hire investment bankers who help find potential opportunities or do your own search. Visit companies, meet management.

Deal Related Work/ Investigation (Due Diligence):

Hire inspector, attorney, title company

Perform Financial, Legal, Accounting, and Insurance Due Diligence (Usually hire outside parties)

Payment: 1) Down payment

20% 25-40%

2) Borrow From Bank Mortgage Payment Interest Payment

Hold Period: Varies 3-7 years

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Leverage Buyout: Ultimate Goal Buy low, sell high! An equity investor expects that the Company will grow

in value. How does Private Equity Firm create value?

Cost cutting (outsource to Asia) Selecting operating executives and boards of

directors Industry consolidation or acquisition strategies

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Power of Leverage

Why borrow capital (debt) to fund buyout transaction?

Transaction Structure: Cash Purchase LBO

Purchase Price Today: $100 million $100 million

Equity $s Invested: $100 million $30 million (30%)

Selling Price (1 year

later): $125 million $125 million

Profit: $25 million $25 million

Simple Return Calc: $25 (profit) / $100 (invested amount) = 25%

$25 (profit) / $30 (invested amount) = 83%

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Private Equity Firm StructureGeneral Partners

Managing Directors (MD’s)

Principals

Vice Presidents

Sr. Associates

Associates

Back Office (Accounting, Treasury, etc.)

Operating Partners

Former CEOs, COO’s, CFO’s, and management consultants

Recent MBA’s often with related experience

Undergrads with 2-3 years experience as: •Investment Bankers •Management Consultants •Big Four Accountants

General partners (GPs) The private equity firm employees that manage the firm’s investing activities

• Receive a 2% management fee and 20% of profit

Limited partners (LPs) The pension funds, college endowments, etc. that provide capital to the private equity firms but do not actively manage the investments

• Receive their initial investment and 80% of profit

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Development

Meineke hired investment bankers to help them sell the Company

Investment Bankers put together a book describing the business (Offering Memorandum) and submitted it to Allied and other interested parties

Allied performed financial analysis to determine the value of the Company and submitted it to Meineke through Investment Bankers

Allied met Meineke management

Investment Bankers compared all the offers and decided that Allied’s offer was the best

Deal Execution

Work with Lawyers to prepare acquisition documents, debt documents, management employment agreements

Finally work with Allied’s treasury department to make sure that the money wires go to the right recipients

Celebrate

Allied Internal Process

Financial Analysis of Historical information

Determine the appropriate Capital Structure (How much debt should the company hold)

Hire Third Party providers to perform additional investigations:

•Accounting

•Tax

•Insurance

•Legal

•Industry (Customer Calls)

•Background Checks of Management

Present the deal to Allied’s internal Investment Committee for approval

Deal Process: Allied acquisition of Meineke

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Insurance Diligence

Allied hired Marsh (risk management consulting firm) to perform Insurance Due Diligence: Review existing policies and provide recommendation to

Allied concerning uninsured and underinsured risks Project estimate of annual cost of Meineke insurance

program going forward Insurance policies reviewed: Product Liability, Pollution

Liability, Auto liability, Property, Directors and Officers Liability, Workers’ Compensation, & Franchisor Liability

Marsh’s issued a 30 page report summarizing their findings. They recommended additional insurance that would increase the current annual premium by 85%.

Marsh is an insurance broker and gets commission for any additional insurance that the Company buys from them.

Allied’s and Meineke’s role is to figure out what additional Insurance is truly necessary.

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Risk Management

M & A Insurance solves deal specific liability concerns Tax liability

• To protect against changes of tax treatment of the transaction

Environmental Liability• To protect against pollution liabilities arising post

transaction close Litigation

• To insure against a lawsuit or threat of litigation

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Exit 3-7Years

The Private Equity Summary

Insurance Companies

College Endowments

Pension Funds

Wealthy Individuals

Private Equity Firms:

25% Returns

Work with:• Investment Bankers• Lawyers• Accountants• Insurance

Consultants

Debt Providers

Portfolio Companies

$

$

$

$Equity30%

Debt70%

Value Creation:Strategic DirectionCut ExpensesAcquisition StrategyManaging Oversight

LBO Structure:

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My Job: the Good and the Bad Good:

Interesting and challenging work• Enjoy learning about different businesses and

every deal has different issues• Interaction with upper management both at Allied

and at portfolio companies• Good compensation

Bad Work long hours and difficulty making plans Spend many hours doing work that might not

go anywhere

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Overview of Investment Banking Jobs

Investment banks provide financial advice for corporations, trade and sell stocks and other securities, and develop research and opinions on all financial markets and economies.

They hire college graduates each year into two- to three-year analyst programs. Entry level positions on Wall Street that have active recruiting programs are as follows:

Investment Banking

Debt and Equity Capital MarketsEquity ResearchSales and Trading

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Investment Banking Analyst Typically organized into Industry (Consumer Products, Healthcare, Energy and

Power, etc.). However, role of the analyst doesn’t change much across groups.

Marketing

• Preparing presentations (“Pitch Books”)

• Industry research

• Financial modeling (Projecting the Company’s Financials in Excel)

Live Deals

• Valuation work (Determining the value of a Company)

• Writing offering documents (SEC Documents)

Expect to work 90+ hour weeks This means 13 hours every day of the week…

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Debt and Equity Capital Markets Analyst

Overall work is a little less technical than in investment banking and the hours are generally better. However, expect to start work early in the morning.

Trading floor environment - need to be able to focus despite innumerable distractions

Gather market intelligence; talk to traders

Keep market transaction database

Work with Investment Bankers to prepare presentations and pitches

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Equity Research Analyst

Work will typically include a lot of writing and less technical than investment banking. The hours are better than banking, but very busy around earnings releases.

The role of the equity research analyst is to assist the senior analyst to conduct research on a particular industry segment, such as the “Healthcare Industry.” Research analysts usually work with only one or two supervisors. Conducting industry and company research (talking with companies,

suppliers, customers, and other industry experts) Writing research reports Developing models to project the future financial performance of specific

companies Listen to Company earnings calls Keep Sales and Trading informed on industry developments

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Sales and Trading Analyst

Typically work around market hours (no weekends) and expect to be on your computer and phone every minute the stock market is open.

As a sales analyst you will be supporting the work of senior sales people as they provide investment recommendations for their clients. The main responsibilities of this job are:

Work with research to collect information and tips on investment opportunities for your group’s clients

Record and process “buy” and “sell” orders from clients

Talk with the Trading group to execute sales on behalf of clients

The trading group is in charge of executing all trades on behalf of the bank’s clients. If a client wants to sell a particular stock at a certain price, the trader must find someone interested in buying the stock at that price.

Booking and processing all transactions that you or your senior trading associates execute in a day

Receiving orders from sales people or directly from clients who need to execute trades

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How Do You Get There?

High GPA Relevant / Challenging Classes

Preferred majors: Finance and Accounting Good Internships Extracurricular Activities

Leadership Roles Meeting Recruiters Early

Read Wall Street Journal Network with Alumni / Faculty

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Have a Great Break!