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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
Randy BarkerCo-Head, Global Fixed Income
John CiolekEnergy
James McCummingsGlobal Communications
Timothy DevineFIG
Stephen SchillerClient Strategy
Hugo VerdegaalLatin America
Managing Directors
Nathan EldridgeMergers & Acquisitions
Jodi SchenkMergers & Acquisitions
Victor VoorheisFIG
Peter KappFIG
Directors
Rich HardingHealthcare
Daniel LeeGlobal Communications
Jas SinghEnergy
Keith AndersonLondon
Ramon GonzalezGlobal Communications
Susan ManuelleGlobal Industrial
Christa VolpicelliGlobal Industrial
Vice Presidents
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 GodleyGeneralist
Julius PeterGeneralist
Harsh SinghGeneralist
Associates
* Team Co-Captain1
2. Structure of an Investment Bank
What is an Investment Bank?
TraditionalInvestment Banking
ResearchSales & Trading
Capital raising
– Debt
– Equity
Strategic advisory services
– Mergers & acquisitions
– Restructuring
– Takeover defense
Analysis and recommendations of stocks and bonds
Includes company coverage and sector coverage
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
An “investment bank” typically consists of three distinct, but related businesses:
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Large /Global
Small / Regional
Who are the Leading Investment Banks in the United States?
3
Structure of an Investment Bank — Conduit to the Corporate Client
Client
Investment Banking Coverage Groups
Other Product Groups
M&A
Capital Markets
Bank Loans
Inv. Grade Debt
High Yield
Equity
“Ch
ine
se
Wa
ll”
Financial StrategiesDerivativesLiability ManagementPensions
Corporate Banking
Sales & Trading
Research
Private Side Public Side
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Products and Services
Balance Sheet Management
Hedging
Share and Debt Repurchases
Debt Exchanges
Consent Solicitations
Capital Raising Equity
Investment Grade Debt
High Yield Debt
Syndicated Loans
Bridge CommitmentsAdvisory M&A
Restructuring
Financial Strategy
An investment bank provides numerous corporate finance functions.
5
Industry Coverage Groups
Consumer
Energy, Power & Chemicals
Financial Entrepreneurs
Financial Institutions
Health Care
Industrials
Communications
Real Estate
Technology
6
3. Deal Teams and the Role of an Associate
Structure of a Typical Deal Team
Client
Investment BankingCoverage Officer
IBD Support
Accountants
Associate
Analysts
Capital Markets
Compliance/Legal
Attorneys
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.
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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
– Valuation
– Process management
– Structuring
– Fairness opinion– Purchase/Sale documentation– “Whatever else it takes”
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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
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Life of an M&A Transaction
The Pitch
Specific pitch ideas
Beauty contests
The Mandate:Deal is Live
AnnouncementClosing:
It’s Official!
Preparation
Solicitation of preliminary bids
Solicitation of binding bids
Negotiations
Contract Signing
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
Between announcement & closing
– SH vote
– HSR
– Other regulatory approvals
Closing
– Lucites
– Dinner
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Valuation: The Foundation of Every Deal
Primary Valuation Techniques
Discounted Cash Flow Analysis
Public Market Analysis (Comparable Companies)
Private Market Analysis (Precedent Transactions)
LBO Analysis
Secondary Valuation Techniques
Pro Forma Consequences Analysis
– Accretion/dilution
– Capital Structure
– EPS Growth Rates
Relative Contribution Analysis
Liquidation Analysis
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?
Does an acquisition make sense?
What is an appropriate price?
Is cash or stock a better choice?
What is appropriate leverage?
How would the market value the company in a public offering?
How long will a company take to pay back debt holders?
Do cash flows support an LBO?
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Valuation and the Associate
A single, quantitatively derived answer
A precise number
A static number
Lots of number crunching
More art than science
Heavily dependent on judgment
Valuation is NOT . . . Valuation is . . .
The associate is responsible to ensure numbers are accurate and assumptions are realistic.
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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
Pitching Pre-Filing Preparation
Marketing Post-deal follow-up
Pricing / Closing
The associate manages the flow of information and therefore must be organized and anticipate everything.
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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
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Capital Raising: Marketing
Prepare memos for sales forces– Institutional sales memo– Retail Sales Memo
Coordinate dry-run (company presentation to sales force)
Denver 3 one-on-ones
Minneapolis 1 one-on-one
Milwaukee 2 one-on-ones
Chicago 1 one-on-one
Boston 7 one-on-ones 1 group mtg
New York 6 one-on-ones 1 group mtg
Philadelphia 6 one-on-ones
2 one-on-ones
Kansas City 1 group call
Europe
San Francisco
1 one-on-one 1 group call
4 one-on-ones 1 group mtg
San Diego
Toronto 5 one-on-ones 1 group mtg
Montreal 1 group mtg
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
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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
▲ Develop credibility early with team, especially analysts
▲ Leadership: Delegating authority
▲ Time management skills: Balance multiple projects
▲ Understand the transaction and communicate both up and down
▲ 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
Pitfalls
▼ Presenting materials with mistakes or typos
▼ Waiting to get involved
▼ Failure to anticipate
▼ Not leveraging firm’s resources appropriately
▼ 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
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4. Why Citigroup?
Citigroup is the #2 Global M&A Advisor YTD
Source: Securities Data Company, Inc.Note: Data as of September 30, 2006, based on rank date.
Global U.S. 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
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Deal Size Companies
$89 Billion
$71 Billion
$44 Billion
$41 Billion
$38 Billion
We Advised on 7 of the 10 Largest Deals YTD
Source: Securities Data Company, Inc.Data as of September 30, 2006, based on rank date.
Deal Size Companies
$32 Billion
$30 Billion
$28 Billion
$27 Billion
$26 Billion
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We Have Advised on Many Landmark, Cross-Border Deals
$629 $622 $609 $575$522
$474
GS C JPM MS DB ML
$106
$78 $74 $71 $68 $66
GS C JPM UBS MS CSSource: Securities Data Company, Inc.(1) Advising a non-U.S. or non-European client in a cross-border transaction. M&A deals rank-eligible 2004-YTD 2006 (as of August 31st).
Announced Cross-Border (2004–YTD 2006)Volume (US$bn)
International (1) Client Advisory (2004–YTD 2006)Volume (US$bn)
Completed
Advised on CNPC International’s acquisition of PetroKazahkstan
US$3,957 mmAugust 2005
Pending
Advised on Mittal Steel’s proposed offer to acquire Arcelor
US$43,632 mmJanuary 2006
Pending
Advised on Autostrade SpA’s merger of equals with Albertis
Infraestructuras
US$28,389 mmApril 2006
Pending
Advised on NYSE’s proposed merger with Euronext
US$10,203 mmMay 2006
Completed
Advised on Bavaria’s sale of a 71.8% stake owned by Santo
Domingo to SABMiller
US$5,227 mmJuly 2005
Completed
Advised on G-TECH Holdings sale to Lottomatica SpA
US$4,736 mmJanuary 2006
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Citigroup’s Dominance in Capital Raising
THIRD CHANGE INQUARTER MARKET SHARE
MARKET SECTOR NO 1 RANKED MANAGER MKT. SHARE FROM PREV Q
Global Debt, Equity & Equity-related Citigroup 9.3% 0.80U.S.Debt, Equity & Equity-related Citigroup 10.6 0.20
STOCKSGlobal Common Stock J .P. Morgan 11.3 3.60Global Convertibles Citigroup 19.2 3.30Global Common Stock- U.S. Issuers Goldman Sachs 16.0 -0.40Global Convertibles- U.S. Issuers Citigroup 31.6 17.00
BONDSU.S. Asset-backed Securities Citigroup 9.6 -0.60U.S. Investment Grade Corporate Debt Citigroup 17.1 2.20U.S. High Yield Corporate Debt Citigroup 17.8 1.30U.S.Mortgage-backed Securities Royal Bank of Scotland 10.8 0.30
SYNDICATED LOANSU.S. Syndicated Loans J .P. Morgan 28.1 -5.40
THE WALL STREET JOURNAL.
YEAR-END REVIEW OF MARKETS & FINANCE
Citigroup is a leading bookrunner in Global Capital Markets.
Who's No. 1?Leading stock and bond underwriters, by 2005 proceeds.
Global Stocks and BondsU.S. public, Rule 144a, domestic and international equity and euro-market issues, ranked by 2005 proceeds.
R10 TUESDAY, JANUARY, 3, 2006THE WALL STREET JOURNAL.
SCORECARD OF WALL STREET UNDERWRITING: FIRST NINE MONTHS
C12 MONDAY, OCTOBER, 1, 2006
Who's No. 1?Leading stock-and-bond underwriters, by volume, third-quarter 2006.
Global Stocks and BondsIn the U.S. public, Rule 144a, domestic and international equity and Euro markets, ranked by first nine months 2006 proceeds.
2005 MKT CHANGE FROMMARKET SECTOR NO 1 RANKED MANAGER SHARE 2004 (pct. Pts.)
Global Debt, Stock & Stock-Related Citigroup 8.7% -0.70U.S.Debt, Stock & Stock-Related Citigroup 10.1 -0.90
STOCKSGlobal Common Stock Citigroup 9.5 -1.10Global Convertible Offerings J .P. Morgan 14.6 5.00Global Common Stock- U.S. Issuers Morgan Stanley 12.1 -3.30Global Conv. Offerings- U.S. Issuers Goldman Sachs 15.7 4.90
BONDSU.S. Asset-backed Securities Citigroup 8.6 -1.10U.S. Investment Grade Corporate Debt Citigroup 16.5 -3.90U.S. High Yield Corporate Debt J .P. Morgan 13.0 1.60U.S.Mortgage-backed Securities Bear Sterms 10.7 -1.70
SYNDICATED LOANSU.S. Syndicated Loans J .P. Morgan 28.1 -4.00
2005 2004PROCEEDS NO. OF MARKET PROCEEDS
MANAGER (billions) ISSUES SHARE (billions) RANK
Citigroup $564.7 1,856 8.7% $539.9 1Lehman Brothers 420.8 1,249 6.5 377.2 5Deutsche Bank AG 418.1 1,398 6.4 343.4 7J .P. Morgan 414.6 1,553 6.4 395.6 3Morgan Stanley 383.5 1,238 5.9 416.3 2Merill Lynch 343.2 1,450 5.3 385.7 4Credit Suisse First Boston 337.3 1,138 5.2 366.5 6UBS 323.5 1,188 5.0 303.6 8Goldman Sachs 310.2 819 4.8 291.1 9Barclays Capital 269.7 853 4.1 191.8 12TOP 10 TOTALS $3,785.6 12,742 58.3% $3,611.2INDUSTRY TOTAL $6,511.3 20,118 100.0% $5,767.0
FIRST NINE MONTHS 2006 FIRST NINE MONTHS 2005PROCEEDS MARKET NO. OF PROCEEDS MARKET
(billions) SHARE ISSUES (billions) SHARE RANK
Citigroup $490.0 9.0% 1,384 $431.5 8.8% 1J .P. Morgan 382.6 7.0 1,270 322.6 6.5 4Deutsche Bank AG 340.5 6.2 1,072 331.2 6.7 2Lehman Brothers 330.9 6.1 955 326.1 6.6 3Morgan Stanley 319.3 5.8 968 299.2 6.1 5Merill Lynch 300.9 5.5 1,097 259.9 5.3 6Goldman Sachs 276.6 5.1 643 246.8 5.0 9Credit Suisse 262.9 4.8 834 256.4 5.2 8Barclays Capital 241.3 4.4 757 194.2 3.9 12UBS 232.2 4.3 870 256.5 5.2 7TOP 10 TOTALS $3,177.1 58.2% 9,850 $2,924.3 59.3%INDUSTRY TOTAL $5,463.5 100.0 15,264 $4,933.9 100.0
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So What Does This Mean For You?
Acquisition of American Household Inc.
Buy-Side AdvisorAcquisition Finance
$890,000,000January 2005
$1,310,000,000June 2006
Acquisition of Vincor International
Advisor to Constellation
Acquisition by Constellation Brands Inc.
Advisor to Mondavi
$1,355,000,0000December 2004
$4,400,000,000September 2004
New Credit Facility in Connection with Acquisition of Grey Goose
Joint Book-Runner
Acquisition by GTCRBuy-Side Advisor
$240,000,000January 2004
€1,850,000,000February 2006
Financing of Acquisition by Blackstone and Lion Capital
Joint Book-Runner
European Beverages
7.250% Senior Notes due 2016Joint Book-Runner
$700,000,000July 2006
¥18,200,000,000July 2006
Sale of Tohato, Inc. to Yamazaki Baking Co, Ltd.Advisor to Unison Capital
Partners
$555,000,000 April 2004
Acquisition by GTCRBuy-Side Advisor
$400,000,000May 2006
Senior NotesSole Bookrunning Manager
$190,000,000May 2006
Convertible Senior Subordinated Notes
Sole Bookrunning Manager
$600,000,000January 2006
Senior Subordinated NotesJoint Bookrunning Manager
$1,600,000,000Pending
Acquisition of FileNet Corporation
Advisor to IBM
$300,000,000July 2004
Senior NotesJoint Bookrunning Manager
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