WHAT IS INVESTMENT BANKING 2018 1
What is Investment Banking? 2
What Does an Investment Bank Look Like? 3
But Investment Banks Do Not All Look Alike Many commercial banks have expanded into Investment Banking 4
Definitions of Investment Banking Financial Advisory Advice on M&A Corporate Lending Loan Syndication Debt Capital Markets Origination Equity Capital Markets Origination Debt Capital Markets Sales & Trading Equity Capital Markets Sales & Trading Debt Capital Markets Research Equity Capital Markets Research How a bank defines Investment Banking reflects The personality of the bank The power groups or profit centres within the organisation 5
The Culture of an Investment Bank Understand how the bank was put together UBS: mergers with / acquisitions of SBC, Warburg, Phillips & Drew Citi: mergers with / acquisitions of Salomon, Schroder s, Citibank, Smith Barney Goldman Sachs: grown organically Is there one business area that drives the bank? Merrill Lynch: Sales/creating product to sell to institutions and individuals JP Morgan: Corporate Finance Societe Generale: Equity Derivatives 6
A Typical Investment Banking Deal A typical Investment Banking deal involves several areas of the bank The deal fans out to all the Investment Banking divisions It moves through each of those divisions from structuring to pricing to conclusion In the case of the market-oriented divisions (Debt, Equity and Loan Syndication) conclusion = Selling/Trading the asset The Relationship Manager remains the focal point with the client throughout In this example, M&A is the catalyst for a for a chain reaction of deals throughout the Investment Bank 7
Global Investment Banking Fees 2017 - Overview 8
Global Investment Banking Fees 2017 - Details 9
Global M&A 2017 - Overview 10
Global M&A 2017 - Details 11
Global Equity 2017 - Overview 12
Global Equity 2017 - Details 13
Global IPOs 2017 - Overview 14
Global IPOs 2017 - Details 15
Global Debt 2017 - Overview 16
Global Debt 2017 - Details 17
Global Debt Investment Grade 2017 - Overview 18
Global Debt Investment Grade 2017 - Details 19
Global Debt Non-Investment Grade 2017 - Overview 20
Global Debt Non-Investment Grade 2017 - Details 21
All Deals 1Q2018 - Overview 22
All Deals 1Q2018 Quarterly Trends by Product 23
All Deals 1Q2018 Industry Overview 24
Corporate Finance Financial Advisory Advice on M&A Private Equity Debt Capital Markets Origination Equity Capital Markets Origination 25
What does Corporate Finance Mean? Advisory Activity focused on changes of ownership and raising capital to finance those changes Mergers and Acquisitions, Equity Capital Markets, Debt Capital Markets are some of the main activities M&A team can represent the acquired / defending or the acquiring company Can refer to any Corporate Development including Management Buy Outs and Joint Ventures Also general financial advice to corporates 26
How is a Corporate Finance department structured? 27
M&A Deals 1Q2018 - Overview 28
M&A Deals 1Q2018 - Quarterly Trends by Product 29
M&A Deals 1Q2018 Industry Overview 30
The Rise of the Advisory Boutiques 31
M&A 2017 Take Aways A resilient M&A market notwithstanding substantial global geopolitical uncertainty Cross-border activity Accounted for 30% of overall volume, meaningfully lower than 36% in 2016 and roughly in line with 31% in 2015 Megadeals slow down The number of US$10+ bn deals was down 5% (35 deals in 2017 versus 37 deals in 2016), in part reflecting an uncertain regulatory environment Transformative and disruptive deals A number of highly strategic transactions occurred in 2017, as companies looked for opportunities to innovate core business models and mitigate technology disruption Material level of withdrawals The volume of withdrawn deals in 2017 was US$658bn, 23% lower than 2016 and 15% higher than 2015 volume, partly reflecting continued pressure from regulators U.S. tax reform 32
Mega Deals 33
Still Dancing 34
M&A Today: Comparison with Pre-Financial Crisis 35
Private Equity 36
What is Private Equity A Private Equity company raises a fund with external investors to make acquisitions (quoted or unquoted) on a leveraged basis Time horizon for holding the investment is 3-4 years Private Equity companies, therefore, compete for acquisitions with trade purchasers The funds can be huge Latest Blackstone fund is US$21.0bn Which division of a bank does it sit in? Asset Management (Morgan Stanley): External Investors Equities (Goldman Sachs): It s the purchase of the shares of a company Separate entity (JP Morgan): It competes with the bank s clients 37
Private Equity vs Strategic Buyers Leverage The banks were prepared to lend up to 5 times the Private Equity investment Huge return on investment Private Equity companies are paid back before the banks Leaves the private equity funds free to play again What would happen if the debt markets dried up? Quality of Management Operating in the Private Sector Not driven by short-term earnings performance Private Equity companies can attract top quality management And they can remunerate management They are major clients of the Investment Banks M&A advisory on both purchases and sales Equity Debt Syndicated loans Financing and re-financing 38
How is a Private Equity Company Structured? 39
The Largest Private Equity Groups - 2017 1 The Blackstone Group New York City $58,319.58 2 Kohlberg Kravis Roberts New York City $41,623.40 3 The Carlyle Group Washington D.C. $40,732.73 4 TPG Capital San Francisco $36,051.64 5 Warburg Pincus New York City $30,812.05 6 Advent International Boston $26,951.37 7 Apollo Global Management New York City $23,998.35 8 EnCap Investments Houston $21,220.08 9 Neuberger Berman New York City $20,398.43 10 CVC Capital Partners London $19,896.65 11 Bain Capital Boston, MA $18,165.47 12 Thoma Bravo Chicago $17,208.87 13 Vista Equity Partners San Francisco $17,199.00 14 Apax Partners London $17,024.00 15 Clayton Dubilier & Rice New York City $16,690.16 40
Largest Private Equity Funds Till 2016 41
Largest Private Equity Funds Closed 2017 42
Blackstone Group 43
Fixed Income, Currency, Commodities Sales & Trading Research 44
What is FICC FICC refers to the Fixed Income, Currency and Commodites products within Sales Trading Structuring Research The feeder of the business is the origination of fixed income securities issued by governments or corporates, which is called DCM or Debt Capital Markets 45
How is the FICC division structured? Power Resverse Dual Currency 46
Bond Deals 1Q2018 - Overview 47
Bond Deals 1Q2018 - Quarterly Trends by Product 48
Bond Deals 1Q2018 Industry Overview 49
Loan Deals 1Q2018 - Overview 50
Loan Deals 1Q2018 - Quarterly Trends by Product 51
Loan Deals 1Q2018 Industry Overview 52
Equities Sales & Trading Research 53
What is an Equities Division? Deals in shares, but also convertibles which are treated as Equity, not Debt Secondary Offerings to replace debt to restructure stretched balance sheet to finance acquisitions Initial Public Offerings 54
How is an Equities division structured? 55
Product Types Structured Flow Equity linked EMTNs Complex Equity Derivatives (eg. Reverse convertibles) Single stock Block trades Single Stock options Index options ETFs Convertible bonds 56
Equity Deals 1Q2018 - Overview 57
Equity Deals 1Q2018 - Quarterly Trends by Product 58
Equity Deals 1Q2018 Industry Overview 59
Bookrunning syndicates on European IPOs at record high The average number of bookrunners hired by European companies for their initial public offerings so far this year is 2.50 This compares to 2.20 in 2016 and marks the all-time highest annual average in the region The maximum number of bookrunners hired for any European IPO so far during 2017 is nine, appointed by Italian tyre maker Pirelli The European record of fifteen bookrunners was set by UK financial information provider Markit in 2014 In 2000, 90% of European initial public offerings involved a sole bookrunner This dropped to 75% in 2007 In 2017 just 43% of European IPOs involved a single bookrunner 60
Bookrunning syndicates on European IPOs at record high (cont d) 61
Bookrunning syndicates on European IPOs at record high (cont d) 62
2017 Average bookrunner syndicate size highest in the Americas 63
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Support Functions Finance Compliance Risk (Market,Credit, Operational) Audit Operations 65
How are the Support Functions structured? 66
Challenges in Investment Banking 67
Ways to Play Investment Banking 68
Ways to Play Investment Banking (cont d) Barbell players Combination business playing at each end of the asset complexity scale At the low end, cost leadership through high straight-through processing (STP) scale, universal connectivity, and efficiency At the top end, building on low-end flow engine to deliver complex structuring with deep expertise in specific higher-margin solutions Asset specialists Deep expertise in specific complex products, nonstandard exchanges/platforms Engage in higher-margin activity for returns May be market maker in chosen asset classes Universal players Global reach and extensive asset and solution suite Require in-house scale for cost leadership on flow However, also need ability to attract talent to provide specialist solutions Local specialists Deep capability in individual markets or regions Strong local knowledge, networks, and connectivity 69
Ways to Play Investment Banking (cont d) 70
Contact Christian Schopper Private: christian.schopper@aon.at Business: christian.schopper@corpfince.com 71