Because of its reputation as the glamour side of investment banking, mergers & acquisitions (M&A) is one of the most competitive sectors to break into. 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. 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, so must make themselves available whenever the client needs them. Junior bankers work long hours and can expect to work late at night if need be. “M&A is heavily quantitative – so while you don’t need to be an economics or maths major, you do need to be a strong quantitative thinker,” says K. Don Cornwell, managing director, investment banking division at Morgan Stanley.
The big US investment banks dominate the 2010 advisor rankings. The highest-ranked European player was Credit Suisse.
Roles and career paths
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 and managing director, although the job titles may vary. 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 include working on these client service presentations, largely for M&A deals, but occasionally for initial public offerings. 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 more responsibility for the transactions and projects. You’ll be assigned more tasks, so expect your workload to multiply.
Pay and bonuses
Many banks have mitigated regulatory pressure on bonuses by increasing base salaries, as well as altering the structure of variable pay to include deferrals and a larger proportion paid in stock. This is reflected in the numbers below, as well as pay figures related to other areas of investment banking covered elsewhere in this guide.
Given that you’ll be working on complex financial models for valuing companies, and piecing together presentations to clients, numerical and analytical skills are essential. Second languages are valued for working with overseas clients, as are stamina and attention to detail.
“While it is not necessary to have a finance or mathematics degree, you are expected to have first-rate analytical and numerical skills, which are required for valuation exercises and financial modelling that could form the basis of a client pitch,” says Jasper van Balen, global banking analyst programme manager at Royal Bank of Scotland in London. Many of an analyst’s duties are focused around financial modelling but, as you get more senior, these technical skills need to be combined with softer qualities.
“As well as having strong technical and financial skills, the best M&A bankers are also part-lawyer and part-psychoanalyst,” says Jason Morris, executive director, head of southeast Asia M&A, Nomura. “This combination marries a strong knowledge of the local regulations in each market with an ability tactically to develop an overall deal strategy based on the dynamics, motivations and cultural considerations of all stakeholders. It also brings to the table smart negotiation skills to secure the best outcome for your client.”
“Client focus, impeccable ethics and team orientation are vital. Having teams made up of individuals with diverse experiences and backgrounds helps us to serve clients better,” adds Celine Desaedeleer, executive director, investment banking division at Goldman Sachs.
You also need to be a self-starter, and to try to be ahead of the curve in anticipating the next appropriate step, because you will not always get day-to-day guidance on what you’re supposed to be doing, adds Morgan Stanley’s Cornwell. “We’re often asked to do analyses with limited information or inputs, so being creative during the financial modelling process is important,” he says.