Vault Career Guide to Middle Market%26Investment Banking

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VAULT CAREER GUIDE TO

MIDDLE MARKET INVESTMENT BANKING JOE BEL BRUNO AND THE STAFF OF VAULT


Copyright © 2009 by by Vault.com, Vault.com, Inc. All rights reserved.


All information in this book is subject to change without notice. Va Vault ult makes no claims as to the accuracy and reliability reliability of the information contained within and disclaims all warranties. warranties. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of Vault.com, Inc. Vault, the Vault logo, and “The Most Trusted Name in Career InformationTM” are trademarks of Vault.com, Inc. For information about permission to reproduce selections from this book, contact Vault.com, Inc., 75 Varick Street, 8th Floor, New York, NY 10013, (212) 366-4212. Library of Congress CIP Data is available. ISBN 13 : 978-1-58131-695-7 ISBN 10 : 1-58131-695-X Printed in the United States of America

Acknowledgments We are extremely grateful to Vault’s entire staff for all their help in the editorial, production and marketing processes. Vault also would like to acknowledge the support of our investors, clients, employees, family and friends. Thank you!



Table of Contents

Chapter One: The Middle Market Niche

5

The New Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 The Downturn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 The Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Chapter Two: Deals and Dealmakers

9

M&A Big and Small . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 A Family Affair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Ramping Up, Here and Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 In Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Chapter Three: Research Below the Radar

15

The Niche . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 The Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Chapter Four: Middle Market Models

19

Boutique Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 The New Crop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 ) m o c . l i a m g @ n i l n a y y m e r ( g n a w : r o f d e z i m o t s

More Flexibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Private Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Chapter Five: Education and Internships

29

Educational Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Internships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Vault Career Guide to Middle Market Investment Banking Table of Contents

Chapter Six: Preparing for the Search

33

Cover Letter and Resume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Sample Cover Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Sample Resume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Headhunters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Chapter Seven: Acing the Interview

41

Studying Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 The Interview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 Sample Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Expertise Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

Chapter Eight: Career Paths, Compensation and Lifestyle

53

The Jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Lifestyle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Uppers and Downers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59

Chapter Nine: Days in the Life

63

Analyst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Managing Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66 ) m o c . l i a m g @ n i l n a y y m e r ( g n a w : r o f d e z i m o t s

Allegiance Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 Alpha Omega Capital Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 Baird . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 BCC Capital Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83 Bengur Bryan & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85


Boenning & Scattergood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87 Breckenridge Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89 Brisbane Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91 Brookwood Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93 Brown Gibbons Lang & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 C.V. Lemmon & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Caymus Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99 Curtis Financial Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101 Dominion Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103 Edgeview Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Evercore Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107 FOCUS Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112 Fox-Pitt Kelton Cochran Caronia Waller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116 Gemini Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119 Growth Capital Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121 GulfStar Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123 GW Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125 Harpeth Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127 Harris Williams & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129 Headwaters MB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131 Heritage Capital Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133 Herrera Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .135 Hyde Park Capital Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .137 Ironwood Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139 Janes Capital Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .141 Jefferies & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143 JMP Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147 JPS Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151 ) m o c . l i a m g @ n i l n a y y m e r ( g n a w : r o f d e z i m o t s

Keefe, Bruyette & Woods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153 KPMG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .156 Ladenburg Thalmann & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .160 Lazard Middle Market (Goldsmith Agio Helms) . . . . . . . . . . . . . . . . . . . . . . . . .163 Leerink Swann . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165 Lighthouse Capital Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168 Lincoln International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .170 McColl Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .172 McGladrey Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .174 Morgan Joseph & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .178

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Mosaic Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .180 Newbury, Piret & Company, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .182 P&M Corporate Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .184 Penn Capital Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .186 Piper Jaffray . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .188 Prairie Capital Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .192 Provident Healthcare Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .194 Robertson & Foley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .196 Shoreline Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198 SPP Capital Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .200 St. Charles Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .203 The DAK Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .206 Trenwith Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .208 Triangle Capital Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .210 Vercor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .212 Verdant Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .214 Watermark Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .216 William Blair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .218

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .223


Introduction The idea of a high-powered investment banker’s lifestyle has been shaped by Hollywood for decades, extolling a culture of corporate raiders with a "greed is good" mentality. Those hunting for a job on Wall Street imagine a future guiding Fortune 500 companies through dramatic multibillion-dollar hostile takeovers. And history has done little to shake that image—until now.

Realigning Wall Street There has been a massive realignment in the U.S. banking system in the last year, one not seen since the Great Depression. Global financial turmoil due to the credit crisis and a massive dislocation of stock markets have caused the collapse of several storied investment houses. Bear Stearns and Merrill Lynch were forced into emergency sales, while Lehman Brothers filed for bankruptcy. Citigroup, the banking powerhouse cobbled together in 1999 as a financial supermarket, is now in the process of selling its Smith Barney division to Morgan Stanley as a way to stay alive. Together, three-fifths of the U.S. investment banking industry's biggest names virtually disappeared overnight—with only Goldman Sachs and Morgan Stanley remaining independent. That leaves a handful of small investment banks, including Lazard and Evercore Partners, to provide services like M&A advice to companies. The hundreds of smaller firms that specialize in middle market deals have gained prominence because they have run into less trouble during the downturn by avoiding betting on risky mortgage-backed securities that vanquished their larger peers.


Meanwhile, the government plans to pump more than $700 billion into the beleaguered banking system in 2009 to shore up bank balance sheets. But with that plan comes restrictions. President Obama has placed drastic restrictions on how much banks that take taxpayer money can pay in bonus compensation for their top bankers. That means the end of Wall Street’s freewheeling days, and the beginning of an exodus. A growing number of veteran bankers are leaving major firms to escape having their compensation scrutinized. Many of them are heading to middle market and boutique investment banks, which are largely private firms that aren’t subject to such restrictions. And these well-known bankers are expected to lift the prospects for smaller firms as they compete against the Wall Street establishment.

Growing in the middle From billionaire investor Carl Icahn's takeover of TWA in the 1980s to Exxon's $86 billion acquisition of rival Mobil two decades later, the lore of investment banking's greatest hits has become a cornerstone of business school textbooks. But what aspiring bankers might want to take into consideration is that there are more than 13 million companies operating in the United States, a broad swath of businesses spanning from the corner pet store to corporate titans like IBM and General Electric. Not every player in the merger and acquisition landscape fits into a neat category. A select number of deals done between members of the Standard & Poor's 500 index

Vault Career Guide to Middle Market Investment Banking Introduction

or Dow Jones industrials are certainly plastered across the front pages of leading financial newspapers. But, for each of those transactions, there are thousands more that never capture the media's attention. The increase in the number of smaller deals, known in the financial world as the middle market, has grown significantly in the past few years. Investment bankers specializing in these kind of transactions say it is a sign of the times. Those family owned businesses whose leadership has been handed down from father to son are now finding the latest generation unwilling to take the reins. In other cases, midsized companies can't compete against bigger rivals who have a more global reach. They comprise the backbone of American entrepreneurship, those companies that cram into business parks along major highways from Indiana to California to New Jersey. And they are ready to make deals.

Where the action is With all the talk about a global economic slowdown, the conventional wisdom holds that corporate buyouts would be sharply curtailed. But as organic growth stagnates, many companies turn to acquisitions as a way to expand. The buyout party certainly continued in 2008, with bankers perched in corner offices, securing more than $1 trillion worth of transactions. But that was a 27 percent decline from the same period the previous year, despite big global deals like Swiss drugmaker Novartis' recordsetting $39 billion stake in ophthalmology specialist Alcon. Middle market activity showed an increase. There were 3,417 middle market deals completed last year, up from only 2,403 in 2007, according to data provider Dealogic, which tracks investment activity. And the first quarter of 2009 showed that middle market deals remained on track. There were 500 transactions announced, which is slightly higher than the year ago period. "The middle market is really where all the action is right now," Andrew Apfelberg, a corporate M&A attorney and partner at Rutter Hobbs & Davidoff, told U.S. News & World Report . The rise in these kinds of transactions comes during a very bleak period for the investment banking industry. ) m o c . l i a m g @ n i l n a y y m e r ( g n a w : r o f d e z i m o t s

Looking beyond the big guys Industry analysts believe it could be months or even years before the winners and losers of this latest cycle emerge. But, the smaller firms that handle middle market companies have certainly become more appealing destinations for top workers in the industry. And they also are becoming more popular among big and small companies alike, especially since many of their founders are headed by industry veterans. For example, the former Smith Barney chief executive, Robert Greenhill started Greenhill & Co. in 1996; Lehman Brothers banker Roger Altman runs Evercore; and ex-UBS investment bank head Kenneth Moelis runs Moelis & Co. So, those looking to launch their career as an investment banker might be wise to cast a wider net than the textbooks dictate.

THE

SCOOP Vault Career Guide to Middle Market Investment Banking

The Middle Market Niche Deals and Dealmakers Research below the Radar Middle Market Models



The Middle Market Niche Chapter 1

The lure of Wall Street Most people looking to break into the world of high finance have long sought out jobs at some of Wall Street's most venerable investment banks. For generations, these firms have done everything from finance the nation's industrial revolution to ponying up the cash to launch the latest high-technology company. The big investment banks handle a variety of tasks for corporate America. Chief among their roles has been to buy and sell companies, but that's not where it ends. Companies also turn to investment banks to raise capital, either through massive loans, bond offerings, or even going public on a major stock exchange. They are the counselor to every member of the Standard & Poor’s 500 index, and the privately held companies that form the backbone of American business. Everyone's heard of Wall Street's biggest investment banking names like Goldman Sachs or Morgan Stanley. And, a massive consolidation craze in the late-1990s forced some key firms into the arms of even bigger retail banks, such as Smith Barney having been folded into Citigroup. But, there has never been more change in the industry than what occurred in 2008 -- a year that will be remembered as the start of the biggest financial crisis to hit the world since the Great Depression. America's biggest investment banks took some huge gambles in the securities market, and lost. This caused the oldest and most revered names to vanish almost overnight. Lehman Brothers, a securities firm that got its start in 1844 as a dry goods store in Montgomery, Alabama, filed for Chapter 11, which instantly became the biggest bankruptcy in the nation's history. Bear Stearns was sold at a fire-sale price to retail banking giant JPMorgan Chase & Co. And, Merrill Lynch & Co.—the world's biggest brokerage—agreed to sell itself to Bank of America to avoid a collapse.


These names are what the industry calls the "bulge bracket firms." But, the biggest changes on Wall Street since the 1930s have left it with a stark new landscape. While thousands of investment bankers have found themselves working for a new firm or looking for work, there's an important niche in the investment banking world that continues to thrive. Enter the middle market, those smaller firms are scattered across the country and do everything their bigger rivals can—just on a smaller scale. Middle market firms like Keefe Bruyette & Woods in New York, Oppenheimer in Toronto, Canada, and Thomas Weisel Partners in San Francisco are all smaller-sized securities firms that are making some big money, despite the deepening malaise. Thomas Weisel, who started his firm in 1998 after a previous middle market investment bank he launched was bought by Bank of America, sees opportunity amid the industry's chaos. And his company has steadily been hiring throughout the downturn. "With the demise of several large Wall Street firms and the redirection of [the] business models of others, opportunities in investment banking have never been

Vault Career Guide to Middle Market Investment Banking The Middle Market Niche

greater," he told analysts recently. "On the brokerage side, based on U.S. trading, we estimate that the average middle market firm could see brokerage revenue grow incrementally by up to 20 percent. This presents opportunities to gain market share in both investment banking and brokerage, and we expect to capture these opportunities." Weisel’s firm and other middle market players offer pretty much what the giant Wall Street firms do. On the investment banking side, they offer advice to midsized companies looking to buy a rival or sell out. They’ll offer the companies they advise services like raising capital, either through underwriting loans or issuing debt. And some of their clients might even be on the path to going public on a regional or major stock exchange. There are middle market firms that often invest in their clients’ businesses in the hopes of cashing out at a premium down the road. And full-service middle market investment banks even act as research houses and offer stock advice on small publicly traded companies that aren’t on the radar of bigger competitors.

Major Wall Street firms tend to have their best quarters during the big growth spurts in the U.S. economy. That’s when their army of bankers, who negotiate deals and lead big capital-raising campaigns, collect those eye-popping paychecks. But when the economy cools off, so do the deals. Lenders in the past year have grown wary of approving transactions on concerns these companies might go belly up and not be able to pay them back. But, middle market deals—which typically range from $500 million to $1 billion—have kept rolling along.


These deals aren't going to be bragged about on television stations like Fox Business or CNBC, nor will they make the front pages of The Wall Street Journal or the Financial Times . The stock market's record Bull Run pushed corporate valuations to sky-high levels by the time 2007 rolled around, making merger and acquisition deals much more expensive to complete. But, the financial crisis has, in a sense, let the air out of the market and brought prices back down to earth. That's opened up opportunities for middle market deals, which some believe remains fairly insulated from economic ups and downs. With valuations returning to normal, midsized public and private companies are a bit more willing to put themselves out there. "Despite what's going on with the market and the economy, a lot of the businesses that we look at are still very good businesses. There will be opportunities, certainly, in a distressed world, and recessions don't last forever," said Sean Traynor, a partner at private equity firm Welsh, Carson, Anderson & Stowe in New York, speaking at a conference at the Wharton School of Business.


Holding steady According to Dealogic, megadeals slowed nearly to a stop in 2008. Deals in the middle market continued, though at a slower pace. Separate surveys from Ernst & Young and Thomson Reuters found the same pattern. While overall volume remained down, middle market deals continue to be relatively strong in relation to the broader market downturn.

The world's biggest investment banks have suffered losses so steep that they are balking at making loans or backing M&A deals. And, those blockbuster M&A agreements that once stunned the financial world because of the prices paid are falling apart. The biggest example in 2008 was the collapse of mining behemoth BHP Billiton's $188 billion acquisition of rival Rio Tinto. That added to a startling statistic during the fourth quarter of the year that the value of busted mergers during the period was nearly equal to the value of the deals that went through. According to Thomson Reuters’ data, there have been $322 billion of withdrawn M&A deals in the fourth quarter of 2008 as the credit crisis worsened, compared with $362 billion of announced deals. For every 100 mergers or acquisitions announced in the fourth quarter, seven were called off. That means the big investment banks on these deals will lose out on the coveted merger fees that once propelled their earnings. But, the dead deals might also give bankers some piece of mind these days. A combination like BHP Billiton and Rio Tinto would have meant the 16 or so banks involved would have had to underwrite tens of billions of dollars of loans for which there are few buyers as credit has dried up on Wall Street.

Regional advantage


Middle market transactions don't really have this problem. While the firms in this industry still collect the same high fees for advising on a deal, they often obtain financing through regional and community banks that haven't racked up the kind of massive losses that the nation's biggest financial institutions have during the crisis. These smaller banks, in many cases, are still willing to lend, though, they are doing so with a much more cautious tone. These deals are also being struck for entirely different reasons than those megadeals that are falling apart these days.

All in the family Acquisitions are most often sought out for economic reasons. As an example, Bell Canada has been struggling financially and finally agreed to be acquired by a number of private equity firms for about $42 billion. That deal is among those that likely won't go through because it is so difficult for the acquirers to raise the financing for it. On the contrary, middle market companies tend to be quite solvent and are being put on Visit Vault at www.vault.com for insider company profiles, expert advice,


the auction block for other considerations. In many cases, these are family owned businesses that choose to sell for reasons such as succession or estate planning.

We are the world Another big push for midsized companies has been globalization. Smaller companies have felt the need to grow overseas to compete with bigger rivals, and that's kept investment banks with a middle market bent quite busy. Booming economies like China and India represent opportunities for American companies. These countries might be perceived as only exporting goods and services to the more developed world, but they also need equipment and expertise. That's where partners in the U.S. come in. Even midsized U.S. manufacturers, so frequently written off as dinosaurs, can continue to compete by teaming up with partners from abroad.


Deals and Dealmakers Chapter 2

The main role for middle market firms around the country is to serve the needs of businesses looking for merger and acquisition advice. They put buyers and sellers together, helping companies grow geographically or just unload a business entirely. In some cases, middle market firms will even invest their own money into an acquisition in the hopes of cashing out at a bigger profit later. In a sense, these firms act similar to the large private equity companies that have dominated M&A for the past three years. Private equity shops tend to buy a company, own it for about five years, and then cash in with a splashy initial public offering later down the line. Most of the companies middle market firms invest in tend to be too small to garner any attention in a public flotation, so bankers will instead try to sell them to other companies once valuations climb higher. There are a number of reasons why the chief executive of a midsized firm might want to get a deal done. The main motivation has always been growth, a way companies can expand both product lines and geographic footprint. The past few years have seen the emergence of other factors, such as tax reasons, accounting standards, social reasons, structural issues and the need to raise more capital to keep the business going. Turning to a middle market firm might be not just the best solution for companies looking to for some M&A advice, but in many cases their only solution. The big Wall Street investment banks, while they have field offices around the world, might not have the same specializations on Main Street as their smaller brethren. Middle market firms often specialize in specific regions of the country, industries or types of deals. They also provide a level of attention and detail that the big investment banks cannot offer to midsized companies. That, in itself, is the biggest reason why middle market firms are thriving despite the intense competition in the investment banking industry.


Interviews with the heads of middle market investment banks have turned up one main reason why midsized companies are looking to do deals. Many midsized companies these days are family owned operations that might be reluctant to seek out investment advice from an investment bank thousands of miles away. Take a look in any town in the United States and you’re bound to find businesses that have been handed down from one generation to the next. They might be auto parts makers in Ohio or Michigan that feed products to Detroit’s big automakers. They could be oil services companies in Texas and along the Gulf Coast states. They are agriculturalbased companies in America’s farm belt. These companies exist in every city, county and state that once dominated the nation’s backbone during a time when industrial companies ruled the business landscape. And, as the U.S. began to shift to a more services-oriented business culture, these companies began to diminish. Today, only

Vault Career Guide to Middle Market Investment Banking Deals and Dealmakers

the strong survive. And, the owners are finding that they need help if they want to stay in operation. These companies turn to middle market investment banks to make a sale. “As middle market interest grows, private equity and strategic buyers will do well to focus their sights on what makes these deals unique if they want to increase their success in bidding for and completing them,” said Mitchell S. Ames, an M&A partner in the New York office of law firm Pepper Hamilton LLP. “It’s important to match the financial expertise of the investor with the operating expertise of the owneroperator with sensitivity, whether it involves the introduction of a new finance officer, the addition of debt to the target’s balance sheet or the creation of incentive-based compensation plans where there were none.” The need for “sensitivity” comes into play because many of these companies are used to wheeling-and-dealing on their own. Here’s a typical case study: Bill Kirk, president and CEO of Virginia-based Associated Asphalt, wanted to raise some capital by attracting a private equity investor. The company has been in existence since 1948, and is one of the biggest asphalt suppliers in the Southeast. But, when it came time to infuse the company with new capital, Kirk was uneasy. “I was initially reluctant to hire an investment bank because I had been approached by various strategic purchasers. I felt that I knew what the value of our company was in the marketplace,” he said. He turned to middle market firm ICG Capital Partners in Charlotte, North Carolina, for a recapitalization. The firm quickly found a match with private equity firm Thayer Hidden Creek Capital Investors in a multimillion-dollar deal.

Increasingly sophisticated


Making an acquisition a decade ago might have been as simple as having an attorney draw up papers, and sitting down with a loan officer at a local bank to put the financing together. But, today’s midsized company faces furious demands and a whole new level of competition. The deals have also become much more sophisticated. That local factory that needed to expand might have simply bought a competitor a few counties away to take care of growing capacity needs. Now, it might be looking to cement a deal in not only different states, but abroad. Those looking for a job that entails scouting out businesses and putting deals together for a middle market firm might want to make sure their passports are up to date. There’s a growing indication that the next wave of investment banking deals might be coming from overseas, where local currencies dwarf the U.S. dollar and make American companies look cheap. Meanwhile, the tightening of the credit markets, and the resulting sharp decline in highly leveraged megadeals, has shifted much of the M&A activity toward smaller, easier-to-finance deals.

Leland J. Lewis, a managing partner at Greenwich, Conn.-based Key Principal Partners, expects the boom in middle market deals will only ramp up in the coming years. He also agrees, with firsthand knowledge that the trend for overseas


transactions will only pick up speed in the years and months ahead. Going out on the road and meeting with many owners, Lewis said he expects this will be a growing part of the business. “Manufacturing companies in particular have been feeling pressure from their customers to be global. Many older owners are intimidated by the idea of trying to implement such a strategy, and this may be the tipping point for them to decide to sell the company. Sometimes they may have kids in the business but they still sell because they don’t want to put this burden on their kids either and think that cash today may be a better thing to pass on. “

Pennsylvania to China The vast majority of M&A transactions that Lewis puts together are still domestic. But there was one recent deal that not only might represent the future for middle market investment banking, but sounds almost like the screenplay of a Hollywood movie. His firm held a controlling interest in a small company located in Ridgeway, Pennsylvania, that made metal components used in small engines such as lawnmowers or transmissions. Ridgeway is a small, somewhat isolated town with about 4,000 residents located in the Northwest part of the state. It’s a part of the country in which you wouldn’t exactly expect a company to be thinking globally. But, that’s exactly what this metals components maker did when the owners wanted to start up a plant—7,200 miles away in Yizheng, China. The company scouted out plants in the Chinese city to help grow its business, install its technology and train workers there how to use it. That created quite a culture clash, Lewis said, when it came time to dispatch workers from Ridgeway clear across the world to meet their new colleagues from the East: “Two of the folks sent over there not only did not have passports prior to the trip, but actually had never flown before. One of the workers was a mountain of a man with a tattoo, beard and a penchant for wearing cutoff sleeve sweatshirts and black construction boots. He requested the assignment. It was pretty entertaining watching him interacting in Yizheng, China.”


In 2008, there were 2,398 announced China M&A deals involving middle market companies, an 11.8 percent increased compared to a year earlier, according to a study by investment bank Robert W. Baird & Co. Dollar volume in 2008 totaled $117.5 billion, up 42.3 percent from the prior-year period. That shows the intensity of transactions in China, especially with a backdrop of declining deals throughout the rest of the world.

On the domestic front Domestically, companies are also faced with a number of regulatory, accounting and governmental issues that might spur them into selling or buying a company. Financial advisory firm PricewaterhouseCoopers’ transaction services group issued a report in 2008 outlining a number of factors that may drive a further increase in middle market deals—and possibly all deals—in the months ahead. Among them: Visit Vault at www.vault.com for insider company profiles, expert advice,


• The possible increase in the capital gains tax under President Barack bama, a move that will end the breaks that business owners have received in deciding to cash out. More importantly, if passed by Congress, hiking capital gains could prompt private equity firms to sell off some of their holdings and might even discourage some midsized business owners from selling their businesses. A large part of private equity earnings come from carried interest, in which a fund's manager claims a percentage of the total profits earned of the fund when an investment is sold. Management fees are taxed as high as 35 percent, the carried interest is regarded as capital gains in the U.S. tax code. Instead of the average capital gains tax of 15 percent, private equity fund managers could see their carried interest taxed up to 35 percent. The opposition to the current tax treatment argues that managing a fund is a service and should be taxed in the same way as other service providers like, say, teachers or mechanics. • There’s also a host of new accounting rules that went into effect in 2009 that has left the M&A community spinning. Midsized companies will turn increasingly to investment banks to gain expertise in how to pursue acquisitions while navigating through a number of new rules, known in the industry as Financial Accounting Standards. Among them is FAS 141R, a rule on business combinations that requires more up-front reporting about the nature of business deals, and the fair value of the assets and liabilities that are changing hands. Business owners also must grapple with FAS 157, which goes over the dos and don’ts of measuring how the fair value of a company is calculated.


• The U.S. Treasury Department’s $700 billion bailout of the nation’s banking industry allows financial institutions to tap the fund with the requirement that the new capital be used for lending. With the extraordinary turmoil that has been experienced in the nation’s capital markets and in the investment banking sector, commercial banks have become more important than ever to the U.S. economy. Since middle market deals rarely depend on using the bond or stock markets to raise money for an acquisition, that’s put even more significance on bank lending. Midsized companies rely on commercial banks of all sizes to extend loans as a way to finance deals, and that slowed in 2008 due to the credit crunch. The early stages of the government’s TARP program has indicated banks are still hesitant to loan out money, even after obtaining capital from the government. This must change if middle market deals are to flourish, and there are some indications that bank chiefs realize this. “As a strong regional bank with a major focus on financing small and middle market businesses, we are pleased to have this additional capital to better serve the lending needs of customers throughout the Western United States,” said Zions Bancorp Chairman and CEO Harris Simmons after his company received $1.4 billion under the government program late last year. “We expect to deploy this new capital in the form of prudent lending in the markets we serve.”


There was a time when those looking to join the investment banking field’s ranks would have settled for nothing less than a top-notch Wall Street firm. All that changed with the great tumult of 2008, and instead recruiters are placing candidates at boutique and middle market investment firms that offer more job stability. The deals you’ll work on will certainly be smaller in size, but the experience is similar in nature to what you’d find at the bigger firms that carry more cachet in the investment banking world. Many first-time bankers are being advised to ride out the bear market at middle market firms, where they can build an impressive resume with the ultimate goal of landing that perfect job on Wall Street. Peter Kies, head of the investment bank recruiting committee at Baird told The Wall Street Journal that there has been a 50 percent increase in interest from MBA graduates over 2008. He said the firm is appealing to students on a national level rather than just at business schools from the Midwest and East Coast. "We're sort of like kids in a candy store right now in terms of tracking high-quality folks," he told the newspaper. That also means that middle market firms can be much more discerning about who they bring on board. Big Wall Street banks, during the high-rolling bull market days, would hire a thousand new recruits a year from America’s business schools. Their collapse has certainly left a big void in the industry. But the good news is that there are hundreds of middle market investment banks around the country, with the number of employees varying from a few dozen to hundreds. These firms are hiring as more attention trends toward middle market deals, the CEOs of these firms told Vault. The kind of jobs out there vary, but still closely mirror the functions that you’d find at a premier name like Goldman Sachs. Here are some career paths in the middle market niche:


The bread-and-butter of any middle market firm, those working in this area advise clients, value transactions and hammer out deals. Your duties could involve analyzing deals. So, expect to begin running lots of valuation models on spreadsheets and gradually get more client focus as you progress. You might also be asked to recommend to the management team whether or not they should participate in a deal the firm is working on. Many middle market firms take investments in the companies they advise, an area known in the business as merchant banking. One subset of an investment bank’s M&A business is the advisory services business. Positions on this team might provide areas like risk management to clients. Other times, analysts on the team will be asked to determine a client’s value, options for creating value or tracking conditions in the client’s industry.



Positions in this group work to help companies raise the capital they need, whether it be to finance new projects or operations. They look to identify the amount and structure of the funds needed for the client, and that could take the form of loans, equity investments or securing more sophisticated forms of debt like bridge financings. Starting analysts in corporate finance work might be asked to prepare the necessary paperwork for the capital financing, and even be asked to attend the “road shows” used to pitch investors. Some of the biggest middle market firms might just be a notch down in size from the big Wall Street banks, and could be involved in businesses such as sales and trading. After the investment banking side lands a deal that involves underwriting equities or bonds that finance the transaction, their traders are asked to sell them. Trading is one of the toughest jobs on Wall Street where one must have a thorough knowledge of the markets, financial instruments and an almost sixth sense about how to buy and sell. The bottom line is that any job on a trading desk demands the ability to convince other traders why they should purchase your stock. Some of the bigger middle market outfits that deal with small publicly traded companies might also have an institutional sales business. Those hired for these jobs would be responsible for pitching securities to institutional investors, like portfolio managers at mutual funds or pension funds.


Research Below the Radar Chapter 3

The history of stock advice For as long as stocks have traded on an exchange, investors have relied on the advice of others to tell them what to buy and what to sell. The roots of The Wall Street Journal , America’s leading publication covering all things business, stretch back to 1882 under the masthead Customers’ Afternoon Letter. That publication helped investors obtain investment advice in the days when the New York Stock Exchange first set up shop at the corner of Wall Street and Broad Street in lower Manhattan. A few years later, reporters Charles Dow, Edward Jones and Charles Bergstresser converted the letter into its current incarnation. They also added as a regular feature the Dow Jones Industrial Average, the first of several indexes that tracks the biggest U.S. companies. For more than a century, investors have been relying on anything written about stocks to guide them in their investment decisions. In the Internet Age, finding this kind of stock advice is just a click away. Investors with online brokerage accounts can tap into resources from the biggest U.S. investment banks just as easily as a wealthy investor leaning on the knowledge of his high-profile broker. While the face of investment banking might be changing radically around the world, the one constant will continue to be solid investment advice.

Driving the business This has been one of the most lucrative businesses for Wall Street’s elite banks. Stock analysts, some making millions of dollars a year, are paid to pore over the balance sheets of major companies and find out what is really driving revenue. They earn a living trying to discover which companies might become the next Enron, shifting around assets to hide the fact they are losing money. They try to identify the next big company to become the darling of Wall Street, like a Google or an Apple. Most of the big research houses track America’s biggest companies, those that fall under the Dow’s 30 members or the Standard & Poor’s 500. But, that begs the question: What about the other 10,000 companies that list some form of security on American stock exchanges? ) m o c . l i a m g @ n i l n a y y m e r ( g n a w : r o f d e z i m o t s

Listing shares Many U.S. companies don’t even trade on a major exchange, instead listing their shares elsewhere. Until acquired by the New York Stock Exchange in 2008, the once mighty American Stock Exchange was home to about 600 public companies. Hundreds of others, labeled as “small-cap,” traded on regional exchanges in Chicago, Boston, Philadelphia, Miami and dozens of long-defunct ones in cities like New Orleans and Los Angeles. Then there are those tiny companies that don’t even trade on an exchange, and instead rely on electronic quotation systems that display real-time quotes and information for many “over-the-counter” (or OTC) securities. For instance, the “Pink Sheets” is an alternative exchange that got its start in 1913.

Vault Career Guide to Middle Market Investment Banking Research Below the Radar

Pink OTC Markets to this day facilitates the exchange of securities electronically between brokers for securities that don’t trade on any brick-and-mortar exchange.

Research matters There is a reason why major investment banks and brokerages don’t push their research departments to cover midsized, publicly traded companies. It is all about demand. When putting merger and acquisition deals together, investment banks typically cater to larger companies that can afford high-priced fees. They collect more money advising a member of the Dow Jones Industrial Average rather than a smaller company grouped into smaller indexes. So, when it comes to providing research to clients, the big investment banks usually stick to companies that they might do business with. And, with a limited number of analysts, these firms also want to cover the most actively traded stocks. Their retail brokerage customers will most likely want to buy shares of a big conglomerate like General Electric rather than a small up-and-coming company that isn’t widely known. But, that doesn’t mean covering midsized companies is not a lucrative field. In fact, it is very much in demand.


Middle market investment banks have research departments specializing in companies that aren’t covered by their bigger rivals. From covering small retail chains to upstart biotechnology firms, the middle market investment banks have carved out a very important niche. Stock pickers are coveted throughout the entire financial industry, but even more so for those companies that fly under the radar. And they are winning accolades for it, one example being Piper Jaffray, a Minneapolis-based middle market investment bank and securities firm that was recently given top honors in The Wall Street Journal ’s 2008 Best on the Street analysts survey. A number of its analysts were recognized with awards, resulting in a 14th place ranking overall in 2008. The newspaper chose 220 award winners in 45 industry groups from more than 1,700 eligible analysts. Joel Denney, head of investment research at Piper Jaffray, said the awards were “a great example of how our investment research team is fully dedicated to continually providing clients with proprietary and unique research, as well as high-quality stock analysis across various industries.”

Providing that high-quality analysis of midsized public companies is a hot commodity on Wall Street these days. Not only are middle market firms hiring analysts, but there are a number of privately run trading operations, such as hedge funds or private equity firms, willing to pay top dollar for analysts that can focus on smaller companies. This means that big investment houses like Morgan Stanley or JPMorgan or Citigroup’s Smith Barney aren’t the only places to send your resume. There are dozens of middle market firms – like Piper Jaffray – that are on the hunt for analysts


who can break down a Dow component as well as a member of the broader Wilshire 2000 index of smaller companies.

The small-cap universe Investors are constantly in search of good stock picks for smaller companies. In fact, indexes like the Wilshire 2000 are often the first group of stocks to move higher when a bear market begins to wane. While these stocks might be a bit more volatile, they often provide bigger gains for investors. That’s why a simple search of the internet will turn up hundreds of different websites catering to investors who crave information about small-cap stocks that are ready to take off. Reading some of these sites might be a good way to familiarize yourself with what the industry calls the “small-cap universe.” Smallcapinvestor.com or smallcapcenter.com are two places to start. You’ll quickly see why analysts covering these companies are in high demand. To become a securities analyst at a middle market shop, you have to gain specific knowledge about an industry or a region. This means not just the large companies, or “big-cap” stocks, that are covered by the major research firms. Instead, middle market investment banks tend to specialize in small-caps. But, don’t let the labels fool you. The growth of stock valuations over the years, despite the recent bear market, has elevated small-cap stocks into some pretty big companies. Market capitalization is calculated by multiplying the price of a stock by the number of shares outstanding. This represents the market’s value of a stock, without taking into account assets, how much cash the company might have or the value of any publicly traded bonds. And, these days, small-caps carry the same kind of value that the big S&P 500 companies did just a few decades ago.

Big-cap vs. small-cap


The definition of big-cap and small-cap might differ between various investment banks, though the differences are mostly minor. Big-cap generally refers to major companies like General Electric or IBM, which are also called “blue chip” stocks in market lingo. They are considered to carry less risk during market downturns, but also have the least upside potential during a bull market. However, these represent a minority of publicly traded stocks. Small-cap stocks are generally considered to be more risky because of their size, but offer the most upside potential. They also attract a distinct group of investors. While many people hold blue chips for years, those sinking money into small-caps are often considered momentum investors. They pick stocks of companies whose earnings are growing rapidly, and whose stock-price charts indicate strong upward momentum. These investors rely on good research to find stocks where they can ride the momentum for a short period of time, then cash out at the first sign of trouble. Stocks like Allscripts Healthcare Solutions, which offers hardware and software for the medical community, or personal products company Smith & Wesson, have been cited as just a few small-cap names that are being closely followed. Both trade on the NASDAQ Stock Market’s small company exchange, and are followed mostly by middle market analysts. Visit Vault at www.vault.com for insider company profiles, expert advice,


While stocks that fall below blue chip size might not attract the attention of analysts at big research houses, there’s still a real need to cover smaller companies. The classifications between different classes of stocks are important because mutual funds use these rankings to determine which stocks to buy. Here’s a rough definition of the various stock rankings: Big-cap—Market cap of $10 billion and greater Mid-cap—$2 billion to $10 billion Small-cap—$300 million to $2 billion Micro-cap—$50 million to $300 million Nano-cap—Under $50 million

Many job seekers applying to major research houses might start off as a junior analyst, and get a limited amount of hands-on experience in how to cover stocks. At a middle market firm, which doesn’t have the staffing levels of bigger firms, be prepared to hit the ground running. They are looking for analysts that are already well versed in specific industries and sectors, and can immediately get on the telephone and begin contacting institutional investors. Middle market shops also aren’t just looking for recent MBAs or undergrads. Experience in the industry can be a big plus. For instance, someone in the restaurant field might be able to use that as a springboard to becoming a restaurant industry analyst. Knowing an industry inside and out, and the ability to spot trends and provide accurate forecasts, is key to the job. Analysts are often referred to as either quants or fundamentalists. Fundamentalists make recommendations based on what's going on at a company – how's the CEO, what are the earnings, etc. Quants look at computer programs that identify undervalued securities, markets or even whole countries. There are fewer quant jobs, but they often pay more because the required skills are greater.


A bachelor’s degree is essential for analysts, who might also benefit from a specialty in business administration, accounting, finance or statistics. In addition, an understanding of administration and accounting are strongly suggested. Additional recommendations include courses on bond valuation, risk management and options pricing. Beyond trying to join an investment bank, those looking to become analysts also have another option. One way to break into the business is to start as a ratings agency analyst. The pay is relatively low and advancement opportunities aren't great, and the investment banks know it and use the agencies as hunting grounds for new analysts. Moody's Investors Service rates $5 trillion worth of securities and has 560 analysts. Standard & Poor’s rates $2 trillion worth of securities and has 800 analysts. These agencies are highly profitable and grade the credit quality of companies accessing the markets. They collect most of their revenue from issuer fees. "We are not auditors and we don't use lie detectors, so it's up to our analysts to be smart enough to ask the right questions," Edward Emmer, executive managing director and head of S&P's corporate ratings department, said in a recent interview.

Middle Market Models Chapter 4 The bulge bracket model that dominated Wall Street for generations has collapsed in on itself. This has led to a total reshaping of the industry, and given rise to middle market firms trying to solidify a niche in the world of investment banking. Some have just a few departments being run by a dozen or so employees. Others count hundreds on their payrolls. But this unexpected and sudden power shift brings opportunity. For potential bankers, it opens up an entirely new segment that’s looking to hire. And, for the owners of these middle market firms, it is a golden opportunity to forge an investment bank that serves the needs that beleaguered Wall Street banks no longer can. Want to get a job in this expanding sector? Better get to know their business models. There are firms that focus only on mergers and acquisitions for a variety of industries, and some of them offer research. Others combine M&A with private equity. Still others toss in brokerage capabilities to their offerings. But there are also niche models that focus on a specific sector in a move to “own” the industry they track, known in the industry as boutique investment banks. Others not only put together M&A deals for a specific sector, but also actively invest their own money through private equity plays.

Despite the economic downturn, one thing has remained a constant for Wall Street’s investment banking business: Boutique firms. These are small banks specializing in mergers and acquisitions for a specific field, and they are often the first place the industry turns to for advice. They’ve also carved out a very important niche over the years, and, in many cases, the owners have sold their shops to bigger investment banks and then have gone on to form new firms.


A decade ago, the financial world was abuzz about firms that zeroed in on the technology industry – and there’s some evidence that there is about to be a major resurgence in this field. Companies these days are discovering that smaller firms that focus all of their attention on one field often help make the best merger matches, are able to time the market right for an IPO and have the kind of institutional knowledge to help provide better advice.

The tech sector The most well-known boutique firms have come from the technology sector. And the best way to show their influence on the industry might be through a little history lesson. In the late 1990s emerged what bankers called “the Four Horsemen” firms: Robertson Stephens, Hambrecht & Quist, Montgomery Securities and Alex. Brown. They focused primarily on technology companies during the go-go internet days when a small, unknown startup would routinely explode into a global player almost

Vault Career Guide to Middle Market Investment Banking Middle Market Models

overnight. None of them exist as independent firms today, with all four swallowed up by bigger banks as the technology boom began to wane. However, they illustrate how much influence boutique firms have over the entire industry. And they also indicate how this sector sometimes rises from its own ashes, much like mythology’s phoenix.

How it works The best example might come from Sandy Robertson and Thomas Weisel. Both men have been among the fiercest rivals in Silicon Valley investment banking circles, and their moves have been among the industry’s most tracked. Robertson, along with Robert Coleman and Ken Siebel (who later went on to found Siebel Systems) formed Robertson, Coleman & Siebel in 1969. That firm focused on middle market investment banking, and in 1971 Weisel joined the firm, rebranded with his name in its title. Seven years later, Weisel pulled off what was described later as a “mutiny,” ousting Robertson and Coleman, and renaming the firm Montgomery Securities. Robertson went on to form a new firm that was later named Robertson Stephens. The two duked it out through the 1980s and 1990s, dispensing M&A advice to early technology companies. Middle market and boutique investment banks have always operated under the careful eye of Wall Street’s bulge bracket firms. Eventually, both Robertson and Weisel found their firms swallowed by larger rivals. NationsBank acquired Montgomery Securities and Bank of America snapped up Robertson Stephens. And after NationsBank and BofA combined, Robertson Stephens was sold yet again. After changing owners a few more times, the firm was eventually liquidated, and Montgomery Securities was later rebranded Banc of America Securities. Their founders didn’t just vanish. Weisel opened up Weisel Partners, which remains one of the middle market’s biggest firms. Robertson helped form private equity shop Francisco Partners, which owns technology companies like AdvancedMD and API Software.


The tale of these two storied firms demonstrates that the middle market and boutique M&A business plays a crucial role on Wall Street. And though some firms ultimately don’t remain independent, their leaders often go on to launch other financial companies. This means that getting a job with a niche firm could lead to an entrance into a bigger firm down the line. And, there is evidence that boutique firms are in the midst of a reawakening.

There’s a new breed of boutique investment banks making significant inroads these days, and, ironically enough, in the technology industry. Sure, the tech-heavy NASDAQ Stock Market finished 2008 down about 43 percent in 2008—and has slipped another 16 percent in the first quarter of 2009. But with the American economy still ruled by companies like IBM, Apple and Google, technology continues


to be one of the nation’s biggest economic drivers. This industry also remains in consolidation mode as it matures, and middle market investment banks have not lost sight of this. Companies like Robertson Stephens and the other major boutique firms focused in the 1990s on research, stock sales and initial public offerings in addition to M&A. This new crop of boutique firms are focusing more narrowly on M&A advice, and are also actively engaged in raising private equity money into the most lucrative deals.

Addressing the IPO draught Sticking with the example of technology companies and the firms that focus on them, Silicon Valley produced just one initial public stock offering in 2008, the skimpiest number in more than two decades and down from an average of 28 IPOs a year since 1985. Boutique firms once were able to bring companies public in splashy IPOs that created legends on Wall Street. They did that with Netscape in 1995, Google in 2004 and VMware in 2007. ArcSight, a relatively obscure systems security firm, was the only Silicon Valley IPO of 2008. In the first quarter of 2009, the IPO market remainef frozen with only one major deal coming to market. That’s decimated the world of venture capital firms, which identifies fledgling companies and invests seed money in them. The VC firms bank on the fact that, eventually, the companies they invest in will go public in multimillion-dollar IPOs. That’s when the VC firms cash out and distribute the proceeds to their own investors. The new wave of boutiques has become a welcome presence at a time when the IPO drought has made it tough for anybody to make money. Getting the attention of the big Wall Street firms for IPOs and other major deals has become almost impossible, industry analysts say. "We can't get our companies out, and one reason is we can't get the attention of the investment bankers," says Mark Heesen, president of the National Venture Capital Association.


That’s opened the door to boutique firms that can arrange private equity dollars or targeted M&A deals. "We're not trying to be everything to everybody," Brian Roberts, a senior managing director at Evercore Partners, told BusinessWeek . His New Yorkbased firm is one of those offering M&A advice along with a $1.2 billion investment fund that sinks private equity cash into companies. "We would much rather have a dialogue with the CEO about what keeps him up at night." That might be why Yahoo! Inc., one of the world’s leading search engines, hired boutique middle market firm Moelis & Co. to provide advice to defend itself against a hostile advance by Microsoft Corp. The firm was formed in 2007 by former UBS investment banking head Ken Moelis. Emboldening the case for middle market boutique banks was the man Google hired—Frank Quattrone another M&A luminary who worked at Morgan Stanley, Deutsche Bank and Credit Suisse before forming his own firm. He participated in some of the biggest deals in Silicon Valley, including the initial public offerings of Netscape, Cisco and Amazon.com.



Boutiques use longstanding industry relationships and small teams that assign senior staff to deals. They offer flexibility to dart in and out of smaller buyouts to win business. They're gaining prominence as some of the top banks have cut or reassigned bankers due to the credit crisis. Take a look at Allen & Co. Long known for its media expertise, the firm is making a name for itself as a matchmaker between Silicon Valley web companies and East Coast sources of capital. The New York-based company advised CNET Networks on its $1.8 billion sale to CBS, and advised social networking website Bebo on its $850 million sale. Allen is also tied to brokering other high-profile tech industry financings, helping widget software company Slide secure $50 million. Evercore Partners is another firm that has also carved a niche in Silicon Valley. (?) The firm advised Electronic Data Systems on how to structure its $13.9 billion sale to Hewlett-Packard. Evercore has been among the top-25 banks based on M&A transaction value for the past four years, after ranking 104th in 2003. Here are a handful of others that are recognized in the industry for providing niche services: • The company specializes in the health care field by offering institutional sales, research, corporate finance and asset management services. • The firm is a full service investment bank headquartered in Del Mar, Calif., that focuses on technology, health care, consumer and energy companies. • The boutique investment bank specializes in the financial services sector.


JMP was founded in 2000 by ex-Montgomery Securities (now part of Bank of America) managers to fill a void left by acquired smaller, research-driven investment banks.

Picking up volume To be sure, the major investment banks are still the most powerful deal brokers on Wall Street when it comes to acquisitions and investments, and the credit crisis and recession in 2008 has certainly cut into business. A slowdown in M&A activity has also put dents in some prominent boutiques. Companies worldwide completed 2,000 M&A deals in 2008, 11 percent fewer than 2007, according to Thomson Reuters.


But, M&A lawyers say volume could pick up again, particularly in the internet sector, as the slower U.S. economy forces Web 2.0 startups to sell, and “angel” investors look to liquidate their portfolios. Boutique banks have been able to thrive by competing for the largest deals, while having the flexibility to reach down and scoop up business on smaller deals sometimes bypassed by larger firms. But the little guys are able to charge rates comparable to those of their larger competitors. "Their premise is not that the fees are lower, it's that the service is better," says a law firm partner who has advised tech companies on dozens of M&A deals. "This used to be the guy who ran tech M&A at Goldman Sachs, Credit Suisse or Morgan Stanley, and now they're focused on you."

The boom in mergers and acquisition helped more than just investment banks flourish during the past few years. Private equity was a big contributor to the buyout frenzy. These firms raise money through investors, which is known as a “fund” in the industry. These funds vary in size from just a few hundred million to $10 billion or more. Middle market firms, some that specialize only in private equity, have been an active participant in this business. Bigger private equity firms used their funds to buy distressed public companies, then take them private with the goal of turning them around. They then bring them public in an average of five years later, hoping to reap a big return in the process. Middle market firms invest in privately held midsized companies. Consider that leading buyout firms like The Blackstone Group and Kohlberg Kravis Roberts & Co. have spent the past decade snapping up publicly traded companies, aiming to quickly sell them at higher prices. Middle market private equity firms have done just the opposite. Instead, these firms tend to look for growing private businesses that need capital for further expansion. And, unlike the bigger private equity firms, middle market buyout shops also tend to buy companies within their area of expertise. For instance, one that specializes in health care companies won’t go outside the box and sink money into an auto supplies manufacturer. ) m o c . l i a m g @ n i l n a y y m e r ( g n a w : r o f d e z i m o t s

The fortunes of this more modest segment of the private equity business are also not entirely dependent on the credit markets. Certainly, free-flowing credit that financed the M&A boom a few years ago has dried up. Both big and small private equity firms are having more difficulty raising money to make investments. Major banks, for the most part, have pulled back from lending the billions of dollars that firms like KKR and Blackstone need to buy a company. But these lenders are much more open to bankrolling less-expensive middle market transactions. In some cases, some midsized companies are being acquired mostly or entirely without any debt at all.



A recent deal And one recent deal highlights that investors are still willing to put money into private equity funds. Babson Capital Management LLC, an investment management firm based in Boston, Mass., announced late in 2008 that it closed a $1.58 billion mezzanine and private equity fund. Investors include domestic and international corporate and public pension plans, insurance companies, banks, high-net-worth individuals and families, and funds of funds. The fund will invest in companies in the small end of the middle market, or companies with enterprise values of less than $200 million. "We are pleased that the fund is now fully committed and able to take advantage of the growing investment opportunities in this niche area of the market," said Mike Hermsen, managing director of Babson Capital.

Targeted expertise Once the M&A market begins to regain strength, analysts believe much of the business might be thrown to smaller firms like Babson with more expertise in a particular field. Their experience might help put smarter deals together, and that will also bring middle market investment banks with private equity businesses to the forefront. These firms have been able to keep investing throughout the downturn, though at a slower pace, while the big investment banks have been pretty much sidelined. The portfolio of companies that middle market private equity shops hold are also less likely to contain companies acquired by excessive prices and debt.

Limited cash flow


Researcher GF Data Resources tracks 104 middle market firms throughout the U.S., and found that deals in 2008 were on par with the prior year. The firm reported that merger and acquisition deals worth $10 million to $250 million were holding up at 2007's levels until the last two months, but plunged once the stock market began sliding in September. Meanwhile, deal financing loans are getting scarcer, but are still available for smaller deals. "Cash flow lending is almost impossible to come by" from major banks, while regional and community banks are stepping up to fill in part of the gap, said co-owner Andrew T. Greenberg. Attractive deals for strong companies are still getting done, and sale prices haven't yet fallen, but marginal deals with weaker companies are getting "pulled back," and those banks still lending are charging more. Transactions that pass the $5 billion mark sharply declined in 2008. There were 13 in the first half of 2007 and two in the second half, according to Thomson Reuters data. However, there were none in 2008. This shows that middle market firms may suffer less than their larger rivals from losses on the acquisitions they made during the boom period. The big private equity firms bought public companies whose stock


prices soared during the last bull market, while middle market shops specialized in more reasonably price buyouts.

Opportunities remain Meanwhile, the latest twice-yearly survey of middle market merger professionals by the Association for Corporate Growth and Thomson Reuters revealed that there are opportunities for private equity that will come despite the downtrend. The sectors that will experience the most M&A activity in the next six months, dealmakers are most bullish on: financial services, health care/life sciences, energy, manufacturing and distribution. “The results of this year’s M&A survey were quite sobering with our local ACG members (corporate and capital providers alike) not being exempt from these difficult times,” said Sonny Williams, ACG Raleigh Durham Chapter president and managing partner of High Rock Partners, Inc. “All are diligently reviewing business models [that] evolved during the hyperactive M&A market preceding this downturn. However, astute firms and business leaders are refusing to get caught up in the malaise – aggressively seeking ways and ideas to adjust their businesses to capture opportunities allowing them to exit this difficult period stronger than when they went in.” He said there are opportunities to improve the capital structure of companies in the coming months. While more challenging, there are also transaction opportunities for the healthier firms.



GETTING

HIRED

Vault Career Guide to Middle Market Investment Banking

Education and Internships Preparing for the Search Acing the Interview



Education and Internships Chapter 5 It used to be that an Ivy League education at a prestigious business school was enough to land a well-paying job at one of the world’s illustrious financial institutions. That first banking job was transformative, giving new hires the fat salary, four-week vacation and big year-end bonus for which Wall Street is known. Banks like Morgan Stanley and Goldman Sachs would literally hire hundreds of junior bankers each year during the Bull Run, expanding not just in the U.S. but abroad. As one investment banker put it, the last four years or so was the “age of wine and roses.” But, the financial crisis has essentially put a cork in that bottle and left more thorns than petals on the flower. Getting in the door these days means candidates must not only be aggressive, but also demonstrate they have the ability to master all facets of the industry. While middle market firms are hiring, not all candidates are right for the job. Some Harvard graduates who spent years in school learning how to prepare sophisticated business models for opaque investment strategies probably won’t fare that well in the interviewing process. But, a well-rounded candidate – no matter the education – is going to catch the eye of any middle market player. These firms operate with leaner staffs, where bankers must be able to juggle a variety of tasks. So, you can forget about getting a personal assistant to fetch the coffee or a clerk to handle your photocopying. Jobs at middle market firms require you to know all facets of the business, from analyzing potential takeover targets to working on financing plans to hammering out a deal in boardroom negotiations. The CEOs of middle market firms say they are looking for candidates that are still willing to learn no matter how many graduate degrees they have. That’s a big positive for anybody who doesn’t have a high finance background, yet instead possesses a “can-do” attitude and an ability to pick up new things fast.


Just like major investment banks, those in the middle market require that bankers and analysts have a college degree. That’s pretty much a standard for the industry, with very few exceptions. Candidates armed with a bachelor’s degree, usually linked to finance, can get an entry-level job at an investment bank. Those that extend their education with an MBA also have entry-level opportunities, though at a higher level than recent college graduates.

Undergraduates Most middle market investment banks are looking for some kind of an undergraduate business or economics degree. That doesn’t mean other bright candidates will be turned down flat if they possess something outside the box. For instance, a middle market firm that specializes in doing business with retail companies might find use

Vault Career Guide to Middle Market Investment Banking Education and Internships

for an applicant with a related background. And, those that have a finance-oriented background also should be sure to sprinkle their transcript with some liberal arts classes to widen their appeal. So much of the investment banking world is based on building relationships, and a candidate that spent four years of college just looking at numbers might appear a bit wonkish. That said, recruiters will also be on the hunt for applicants with a flush background outside of the classroom. A resume that includes internships, extracurricular activities and any other evidence of selfmotivation will help out immensely. Service-oriented activities and philanthropic projects can also be important. Not having an MBA means you might start a bit farther down the ladder than for those that hold an advanced degree. Having an MBA certainly won’t hurt in snagging the attention of a potential employer. But, it might not be that much of an issue when applying at middle market firms. Bigger investment banks tend to have multiple layers of bureaucracy and a rigorous path for advancement. Middle market players, being smaller, are a bit more willing to bring people onboard with the expectation that they’ll be given intensive training and on-the-job exposure. And that’s where having a diverse amount of experience, solid course work, a strong GPA and a compelling cover letter comes into play.

MBA graduates Think of going to graduate school like enrolling in the ROTC—when it comes time to join the military, you get to bypass those that enlisted and become an officer. Certainly, you’re not likely to get a vice president’s job with your MBA. You will, however, be able to jump to a higher entry-level job. Candidates with an advanced degree on their resume will also get more attention from recruiters, and that can’t hurt during a period when the entire investment banking industry is contracting. Many recent college graduates have even opted to pursue an MBA as a way to wait out the financial crisis and then enter Wall Street when times are better.


Having an MBA will also help you capture a bigger salary, and a recent study by Forbes magazine showed that more than pays for the degree. Those going to Bschool at Stanford will pay about $225,000 in tuition plus the salary you would have made during the two years in school. Meanwhile, a state resident of Iowa who goes to the local university’s business school will be out about $90,000. The survey of 85 schools concluded that the extra education paid back quite nicely for the class of 1998, a group that worked through the boom and bust period of Wall Street since graduation. MBA grads tripled the salary they would have made without their degree within just five years out of school (annual income growth during that time in the U.S. was about 2.5 percent, while MBA graduates averaged 11 percent.) The growth also varies depending on from which school the MBA is obtained. Top-ranked programs include Northwestern, Stanford University of Chicago, University of Pennsylvania and UCLA’s Anderson School of Business, among others.


Further education Though not needed for entry-level jobs, those aspiring bankers that continue to climb the ladder at an investment bank might need to secure licenses from the National Association of Securities Dealers (NASD). The most typical include Series 7, 24 and 63 licenses, which, for the most part, allow investment bank associates to evaluate and analyze the financial performances of businesses. These licenses also permit associates to build models of deal structures and prepare presentations for clients. Most investment banks guide you through what licenses are needed, and often help prepare you for the exams.

“I opened the doors for you … showed you how the system works … the value of information … and how to get it! Fulham Oil, Brant Resources, Geodynamics. And this is how you pay me back, you COCKROACH!” – Gordon Gekko, Wall Street (1987)

Having someone like fictional Wall Street tycoon Gordon Gekko help you get into the business would certainly open lots of doors. But after a few investigations by the Securities and Exchange Commission, it probably won’t pay off. Those looking to break into investment banking better find other avenues. Internships offer aspiring bankers an opportunity to get real-time experience and meet industry executives. Many middle market firms already have an internship program in place, but don’t be discouraged if they don’t. Some of the smaller middle market firms might just need some convincing for an internship candidate who is hungry for experience. The general rule is that you’re either in school or have graduated but are not yet working full time. Some firms will even consider internship applicants from people with other backgrounds, such as those making a career switch from another field.


The best way to land an internship is through on-campus recruiters or by calling up the human resources department at a middle market investment bank. Just like finding a job, those seeking internships should also search the internet for middle market firms located near them. For those just starting out, recruiters advise them not be too picky about the assignment. An aspiring banker looking to wheel and deal might be wise to work as an intern for an analyst, and an analyst might want to get a taste of how deals are put together. Just like getting a full-time position, finding the right internship requires a solid resume, school records and interviewing skills. The internship programs vary from firm to firm. For instance, bigger middle market investment banks might have highly structured programs where interns spend most of their time in classroom-like settings or going from department to department. And, during the end of the 12-week course, interns typically will work directly with a banker or a team. Smaller middle market firms might skip the course work and have interns work almost like an assistant for some real hands-on experience.



The biggest advantage to accepting an internship is that employers will take note of successful interns, and often offer them jobs later down the line. Regardless, it becomes an invaluable notch in your resume and makes getting an entry-level position much easier. The experience gives undergrads a ground-level view of the industry. And, this kind of exposure gives interns a key experience in whether they want to go into investment banking.

Researching opportunities Perhaps the biggest hurdle to finding a middle market job is just finding opportunities. Up until a year ago, most applicants would target the Big Five investment banks, send their resumes to them and meet recruiters. With Goldman Sachs and Morgan Stanley as the last two Wall Street names standing, the application process has become not only more narrow but much more difficult. Those seeking a job in the industry are expected to increasingly turn to the middle market to get a position and gain experience, but there are hundreds of these firms spread out across the nation, meaning they aren’t all located in major financial centers like New York, Los Angeles or Charlotte. Boenning & Scattergood, one of Pennsylvania’s oldest regional investment banks, calls the Philadelphia suburb of West Conshohocken home. Or take Heritage Financial Capital Group in Jacksonville, Florida, or Dominion Partners in Glen Allen, Virginia. All of these firms have carved out a niche in the industry, serving not just the regions where they are located but the industries that thrive there. That means job seekers need to do a bit of research to determine which middle market players to target, and – more importantly – what they are looking for.


Preparing for the Search Chapter 6

The next and most crucial step to a career in middle market investment banking is putting together a winning resume that will catch the attention of recruiters. The old adage that first impressions last certainly applies here. Investment banks big and small are inundated with resumes every year. So keeping yours tightly written and professional could mean the difference between nailing an interview and ending up in some dusty file cabinet for “consideration at a later time.”

15 seconds to make an impression At bigger firms, analysts and associates will sift through the resumes that come in and forward the stronger candidates to someone above a vice president level. Smaller firms might use a human resources person to weed out the good resumes from the bad ones. And don’t expect these folks to spend hours reading over your experience and pondering exactly how good of a fit you might be. The average amount of time their eyes hit your resume is anywhere from 15 to 30 seconds. So your pitch better be spot on. The first thing candidates need to do is highlight any business or finance experience they might have, even if they worked as a bank teller one summer or answered phones at a local brokerage office. If you have no practical experience, then play up high any college studies done that relate to finance. This is especially important if you’ve attended any of the nation’s major business schools. Investment banks are looking for any candidates that have any kind of financial background, and those are the resumes that typically make it past that 30-second glance.


Investment bankers are looking for resumes that pop—something that catches their attention quickly. Of course, that doesn’t mean you should sabotage your chances by printing your resume on yellow paper or lead off by highlighting your experience as a short-order cook at a fast-food joint. Be tactical. The first 10 lines or so of your resume needs to show that you have the education, training or work experience to do the job. That doesn’t mean the rest of the resume can be filled with flowery prose and superfluous words. Recruiters want to see these resumes tightly written, never more than two pages (though some on Wall Street believe one page is better). The rest of the resume needs to be packed with details that show you are motivated, which means including experience in things like charity work, public service or serving as a campus leader.

Cover letter caveats Your cover letter should never be more than three paragraphs, and serves as an introduction to your resume. Many times these letters aren’t even read, as recruiters scan resumes first. But, the cover letter is still a way to summarize who you are and what you are looking for. Think about why you want a job in middle market investment banking, and how your skills will apply to such work. Since many of these

Vault Career Guide to Middle Market Investment Banking Preparing for the Search

firms are regional or track a specific industry, it is a good idea to play up any pertinent experience. For instance, highlight the fact that you grew up in Massachusetts and are, therefore, familiar with the area’s biotechnology industry if applying to a Bostonbased firm that specializes in that industry. Remember that potential employers are looking for teamwork and an entrepreneurial drive. If you’re attending a job fair on campus, you might not necessarily have to present a cover letter – but it’s good to have one just in case.

Identifying your target Before sending your package out, there’s one last thing to remember. Try not to send it blindly. Starting off your cover letter with “Dear Human Resources Department” is a surefire way to get tossed into the “don’t hire” bin. It demonstrates that you don’t do your homework and lack motivation. Jump on the internet, find the company’s website and identify who the right person is that handles recruiting. If you can’t find anything, pick up the phone. And, as a last resort, address your resume to the chief executive or managing partner.



Mr. Herbert Hoover Vice President of Recruiting Eichacker & Smith LLC 100 Skyscraper Road, Suite 300 Indianapolis, IN 46201 Dear Mr. Hoover: I am writing to apply for a position as a junior analyst at Eichacker & Smith, and believe I have the qualifications and motivation you’re looking for in a strong candidate. The reason I want to join your team is, above everything else, to learn everything I can about the middle market business. I’ve worked hard at my academic career, but believe there is more to me than just the degree on my wall and my GPA. I want to point out my 12-week internship at Gemini Partners, leadership on Cal State Economics Society, and obtaining a junior management position at Macy’s while working my way through school. But I’m most proud of my work as a volunteer at the local Big Brothers Big Sisters program. I know this doesn’t count as high finance, but it certainly demonstrates dedication in the things that I believe in. Volunteering has not only given me a strong sense of self, but developed interpersonal skills and drive to help get a job done. As a junior analyst, I want to direct that same kind of discipline and dedication to serving clients. I’ve been successful in my internship, work in retail, volunteering, and education. Now I want to be successful working for Eichacker & Smith. Thanks for your time and consideration. I look forward to your reply. Sincerely, Hayden Berg ) m o c . l i a m g @ n i l n a y y m e r ( g n a w : r o f d e z i m o t s



Hayden Berg 23 Revere Drive • Los Angeles, CA 92714 213-555-1212 • [email protected]

To gain an analyst-level position, with the opportunity for advancement and growth at an investment banking firm.

California Sate University, Los Angeles, CA Bachelor of Arts in economics, with a minor in accounting, May 2007 Current GPA: 3.2 Major GPA: 3.7

Intern, Gemini Partners, Los Angeles, May to August 2008

• Learned the inner workings of a private equity firm during a 12-week internship. • Assisted analysts and associates in creating research and meeting materials for clients. • Researched areas including real estate investment trusts, real estate tax law, fixed-income instruments and equities. Member, California State Economics Society, September 2006 to present

• Helped put together a quarterly journal of popular economics, which reports on developments in the subject to a broad audience. • Managed all club meetings and activities, along with the club’s relationship with the Chancellor’s office. Assistant Manager, Macy’s, South Coast Plaza, Costa Mesa, CA., Summer 2006 and 2007


• Served as the No. 2 manager in the men’s department of one of the biggest Macy’s stores in the West. • Managed employees, schedules and day-to-day operations of the department and assisted with budgeting and purchasing. • Handled customer inquiries and complaints. Mentor, Big Brothers Big Sisters program, Irvine, CA, 2004 to present

• Served as a big sister to three teens from broken homes, helping with homework and providing a positive role model. • Marketed the program to the greater Orange County and Los Angeles areas. • Aided in creating the program budget over the last two fiscal years.

Proficient in all Microsoft Office products and most major financial database software. Fluent in Spanish, and can speak French acceptably.


Unlike cover letters for some other jobs, don’t say you’re going to call the employer to follow up. Ask your recruiter about it, but frankly, if you’re good enough, they’ll call you; never fear. They have enough going on without you ringing the phone constantly. The recruiter will serve as a fine contact for that sort of thing

Many investment banks hire recruiting firms to help identify candidates. These firms have flourished in years past because jobs in the financial services field tend to be higher paying. And recruiters collect their job finding fees based on the compensation package of the person who they get hired. So, in addition to sending your resume and cover letter to investment banks, you might want to identify recruiters willing to consider you as a potential candidate for future jobs. Here’s a list of headhunters around the country that specialize in finding banking and finance jobs: www.amgi.com www.genevafinancial.com www.nbfsearch.com www.sterlingstaffing.net


csa-search.com www.opexecutivesearch.com www.ctnet.com theemacgroup.com finrecruiters.com



www.ramergroup.com www.allenandassociates.com www.analyticrecruiting.com www.employmentatlanta.com www.bancforce.com www.bflassociates.com www.brokerageconsultants.com www.capitalsearchgroup.com www.coffou.com www.dmstone.com www.drum2000.com www.granitesolutionsgroupe.com


www.hfcsearch.com www.kuninassociates.com www.michelangelo.co.uk www.boston-mri.com www.pcasearch.com


www.rainier-inc.com www.tpgsearch.com www.edgewatergroup.com www.wallstreetservices.com www.harrisandassociates.com



Acing the Interview Chapter 7 The cover letter’s been written. The resume has been polished and sent out to dozens of middle market firms looking for a bright, young star. Now you play the waiting game. Don’t bother picking up the phone to make sure you have a dial tone in case a call was missed. And checking your e-mail for some kind of reply every few minutes isn’t going to help either. Like applying for any new job, it is a game of patience and persistence. Sure, you should follow up your application within a week or so to make sure they got it. But after that, it is up to the recruiters or human resource departments to put your resume into the right hands. Unless you know someone on the inside of the firm that’s willing to talk you up, just wait for them to reach out. Even in a bad economy, a sharp resume and well-written cover letter will get you the all-important invitation for an interview.

Your phone personality When that phone call (or email) finally does come in, your first exposure to the middle market firm will likely be quite informal. Consider the old saying that “time is money” because your first contact will likely consist of a brief telephone interview. As part of the process of hiring, they want to connect a voice to the resume before them. They want to know if your personality over the phone – especially in an industry where there’s lots of legwork done on the telephone – is worth setting up a face-to-face meeting. These will typically be more softball questions as the firm tries to determine your experience. Be prepared to quickly give them a rundown of what you’re looking for. Offer a brief synopsis of your skills and track record.


And, above anything, try to sound motivated for a job in the middle market. Saying “I’m only applying at this firm until I can bide my time and go work for Goldman Sachs,” probably isn’t a good way to start things off. Yes, they know you want to work in the big leagues, just like everyone else. Remember that these firms were started by entrepreneurial bankers who found incredible earnings potential in focusing on midsized companies instead of cobbling together deals for Fortune 500 members. You want to explain that this is a niche that you would not only thrive in, but exceed. The last bit of advice for these telephone interviews is to not gush too much about yourself. Nobody wants to listen to a 10-minute answer that could have been summed up in much less time. But don’t be so brief that you’re giving two word answers. There’s a delicate balance between too much and not enough and it is your job to find that happy medium. Your mission is to intrigue them enough with your background to make them want to meet you in person. Keep these four things in mind about what these firms are trying to glean out of the conversation: • • • •

Can the candidate get the job done? Will the candidate make sound decisions? Does the candidate know the demands of the firm and job? Is this someone who the already existing team will get along with on a personal level?

Vault Career Guide to Middle Market Investment Banking Acing the Interview

After these telephone interviews, the person in charge of setting up meetings will sift through all the resumes to determine who gets an invitation to come into the office. If that’s you, congratulations – you made it through the preliminary round of a very long process. It might take up to six months to get a job offer if you’re applying for a junior analyst position, and that’s pretty standard across the entire industry. Middle market firms, which have fewer layers of bureaucracy, might be a bit faster than the bigger firms. The interviewing process for a 12-month junior analyst slot typically begins in February, with an offer coming by the summer. If hired, the job won’t start until September and will last through the same month a year later. If you’re gunning for an associate spot, the start date won’t be as rigid. And the timeframe for all other positions will simply depend on when the firm needs someone onboard.

Don’t expect your first face-to-face interview to end with a job offer and application for an American Express corporate card. You’ll likely have about three rounds of meetings, working your way from a senior analyst all the way up to the middle market firm’s chief executive or managing director. This means that preparing for your interview is crucial. Just because you have a fancy business degree in economics or some other high finance curriculum doesn’t put you in the pole position for a job. You need to be ready to discuss the industry at length, and back up your answers with real industry examples and supporting data. The same kind of industry knowledge is demanded whether you are applying for a job as a research analyst or are on an investment banking track.


That means you have to study up before an interview. And that doesn’t mean going over your curriculum from the last semester you took that focused on investment banking. Middle market firms are a very unique breed on Wall Street. They demand you to be thoroughly familiar with a particular region or industry, but also have a broader grasp on the entire spectrum of companies that fuels commerce. Major business newspapers often describe the market as a living, breathing entity. You’ll often see phrases like “the market feels” when the Dow Jones industrial average jumps or plunges 200 points. Corporations and industries interact much like the environment. Global warming might heat up a lake, kill off the algae, which cuts off the bottom part of the food chain for fish, which hurts the fishing industry, which makes salmon harder to find at your local market, etc. In the corporate world, a recession causes less demand for automobiles, which in turn means the Big Three Detroit carmakers cut back expenses, which results in hard times for everyone from auto parts makers to the car insurance industry. It’s all relative, and the ability to have a broad knowledge base about all different kind of industries will make you an even more valuable hire. Hard times for an auto parts maker might create an industry ripe for consolidation, and that kind of insight during an interview is crucial.


Certainly, no potential employer expects you to have a photographic memory of all things business. But, that shouldn’t prevent you from being as well versed in the current business climate as possible. Here’s what you need to know to stay on top of things: • The Wall Street Journal. That’s the nation’s business bible, and you should read it – or, at the very least, skim through it for stories of interest – on a daily basis. Pay specific attention to the “Heard On The Street” column that is run every day, which is a Wall Street standard. And, while online, preuse the WSJ’s various blogs like “Marketbeat” and “Deal Journal.” www.wsj.com • The Financial Times is a London-based paper that covers U.S. business quite intensively. Given that today’s business environment is becoming increasingly global, this is a good publication to get a more international glimpse into finance. Pay attention to the “Lex Column,” which is well read by the investment banking community. www.ft.com • Yahoo! Finance is a good way to get a real-time view of business on not just a daily basis, but by the hour. This site, which aggregates news stories from a variety of media outlets, is well used by traders and bankers alike. finance.yahoo.com • The Daily Deal is a trade publication followed closely by Wall Street. It covers M&A, private equity, venture capital financings, bankruptcies and other topics of interest. It was launched in 1999 and bankrolled by Bruce Wasserstein, a major force in the investment banking world whose name anchored such M&A powerhouses as Wasserstein, Perella & Co. and Dresdner Kleinwort Wasserstein. www.thedeal.com


• There are also dozens of news outlets that will give you a regional glimpse of business if you’re applying at a middle market firm. Each major city has a business journal to record the comings and goings of finance in those areas. A quick search of the internet should find the one you want. If not, check out popular sites like American City Business Journals (www.bizjournals.com) or Crain’s Business (www.crains.com). • More news about investment banking can be found on the blogosphere or from business-oriented websites. An internet search might find you the site that will apply for a specific job you’re interested in. Others are more general. For example, one popular Wall Street blog is Deal Breaker (www.dealbreaker.com). • If the middle market firm you are applying for specializes in a specific industry, poke around for blogs or other websites that cater to those sectors. For instance, if you’re interviewing at a technology-based firm, check out sites like C-Net (www.cnet.com) or Red Herring (www.redherring.com). Every sector has some little corner of the internet where business turns for information and viewpoints.



As they say, information is power, and you want to have as much in your arsenal when you sit across a desk from someone that might be in the position to offer that allimportant job. You certainly don’t need to memorize every deal that’s come through the pipeline in the past year, but being able to cite some fresh examples of the industry will go a long way demonstrating to any potential employer that you’re ready for the job. After all, the vice president leading the group you want to be hired into is counting on his staff to be his eyes and ears for the latest industry trends or sectors ripe for takeovers.

Studying up before your first and future interviews is an important first step. Being well prepared is a key. You’ll also need to be relaxed and get a good night’s sleep before the big day. But, there are some other ways you can prepare for the interview. Anticipating some of the questions and formulating your own to ask the interviewer are two ways to stay a step ahead. Certainly don’t expect your interview to transpire exactly verbatim to what is written here. There’s a certain framework that will be true for all initial interviews, no matter what kind of job you’re pursuing. Bankers want details, starting with everything and anything about their candidates that might help them make a smart decision. The objective is to be as concise and to the point with your answers as you can without leaving any gaps.

The breakdown Here are some of the basics:


1.Provide your GPA, and be prepared to go through your course history and what classes interested you the most. 2. Some firms will require that you’ve taken a Graduate Management Admission Test (GMAT) before they will formally consider you as a hire. Be prepared to provide your scores. 3. Many interviewers will want you to defend why you chose to follow your academic course. So if you have a minor in art history, think about how you want to frame your answer. 4. Be ready to explain any of your college-related activities, such as clubs or organizations you belonged to.


1. You’ll be asked to walk the interviewer through your resume. Make sure to accentuate the parts that matter most. 2. The interviewer might want you to explain some of your choices. That summer job at the fast-food restaurant might not seem like high finance, but turn it into an asset and explain how it showed you the value of hard work. 3. Be prepared to explain any gaps.

1. Any middle market firm will want to know why this style of investment banking fits into your goals? 2. Are you committed to sticking with this industry, and how would you grow into the job and within the firm? 3. Show your knowledge of the industry.

1. You’ll be asked exactly why you’ve targeted this firm for a job. 2. The firm will also want you to provide knowledge of some of the recent business they’ve done, and an overview of what you know about them. c) Get ready to answer how you’ll be a good fit. That might relate to the geography the firm covers, or perhaps its specialization, etc.


1. What are your strengths? This gives you a chance to go back and explain a point in your resume that might be seen as an asset. 2. What are your weaknesses? Don’t be afraid of this question. Nobody’s perfect. Use this as an opportunity to reveal a mistake (make sure it’s not too much of a doozey) and explain how you learned from it. 3. They’ll want you to talk about teamwork and your leadership abilities. 4. Then there are questions about who you are as a person, how outgoing you are, and perhaps even what your hobbies are. Certainly, show that you are moneyoriented but not a complete stiff. Remember that investment banking, at all levels, is personality-driven.

1. Research questions 2. Investment banking questions


Vault Career Guide to Middle Market%26Investment Banking

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