M&A – Come check out the wares

Project “Sell the Dream” was off to a decent start. No bake-off/beauty contest was needed as the CEO of the company was a close, personal friend of one of the senior bankers. Couple that with the fact that our bank’s proprietary investment arm had taken a stake in the company and we were in business as shoe-ins for sell-side advisory work. (NB: bake-off/beauty contest in bankerspeak is the process in which a seller/buyer gets proposals from competing investment banks for business. It’s often no more than ‘bullshit bullshit bullshit’ in which bankers give preliminary valuations, subject to change and market conditions of coursed, based on some hardcoded numbers provided by seller/buyer. Basically, the bankers picked are often the ones with the prettiest powerpoint and most attractive team…just kidding. sometimes).

As my direct group was more interested in providing the sell-side financing, we were working with our M&A counterparts quite closely to make sure everyone was on the same page on the numbers. My team had been assembled: Douchebag Associate was taking point on this, with Wasp MD doing some overseeing. The M&A team had their one senior banker, one VP who did nothing, an associate who did everything, and another first year analyst who became a good friend. At this point, Mr. Burrito had dropped a bomb on us, telling everyone that he was moving back to the west coast for that coveted job in private equity. At about the same time, we learned that Outcast was also leaving, for a hedgefund, the Mormon was leaving to get married and move back west, and finally, that our group was receiving summer interns. Between all the personnel changes, I was the only analyst left from my team, and the lone analyst tasked with the aforemetioned project with no help. Douchebag Associate was trying to climb the corporate ladder, and given his background in law, he was sent to London and Nigeria with a few senior bankers to take on some high-level meetings. He would of course have his blackberry and laptop, and would “review” my work on the road.

M&A bankers, above all, try to turn lead into gold. They attempt to “hit” the market just at the right time, finding some buyer who is so desperate to do a deal in which they grotesquely overpay, or they didn’t do enough diligence to really understand the risks. It’s very much a “buyer beware” mentality (but that’s why as buyer, you hire an investment bank to advise you..right?). Everyone needs to wear their big boy/girl pants and do their own diligence. M&A bankers are basically putting lipstick on a pig. The reason why M&A bankers are paid so well is that they are excellent at what they do. Each banker has his/her own style, but ultimately, his/her ability to get a potential buyer to drink the kool-aid is what gets them paid. In my few years of finance, I’ve seen many different approaches – kiss ass / bendover backwards for the client, being an asshole and blunt and telling it like it is, sterile but good work and smart, slimey but providing good intel on competition, etc. They attempt to create real rapports with their clients to instill trust. At the end of it though, there’s very limited loyalty as there are always bigger fish to fry. I learned that first hand as a private equity client.

Project Sell-the-Dream was no different. Without real tangible assets, the company was looking to sell a pipeline of projects that theoretically could turn into something real, assuming the buyer wanted to put some capital to work (i.e. spend money). Even as a naive, 1st year banking analyst, I knew that the company had nothing. I seriously began to hate my life when we started to draft the Confidential Information Memorandum, or CIM for short. This is basically a research report that gives an overview of the company, investment highlights, market/industry facts, and instructions on bidding.  For the first time in my short career, I was working in M&A, and I hated it. Countless hours of status update meetings with the management team (at least the client cookies are good), changing “moreover” to “in addition to” in text, adjusting the colors on graphs, creating graphs, formatting, turning comments from senior bankers, etc. – all of these things sucked the life out of me. The CFO of the company, along with his trusty sidekick (aka their business development associate), felt that adding value to the process was moving around a bunch of periods and commas, and continuously mentioning the “secret sauce ” that their company possessed. In my opinion, there was no sauce, and it certainly wasn’t a secret. The only things keeping me somewhat sane were that I had my counterpart analyst in M&A, and I had the illusion that the high visibility nature of what I was doing was going to get me a top bucket bonus come late June.  On the former, misery loves company. On the latter, Douchebag Associate had told me that given our firm’s personal investment with this company, all of the big executive committee guys would know the team by process’ end. of course, he failed to mention that the glory would only come if we were successful. Oops.

Did I mention that it was the summer of 2008?

The Bloodbath

Coming back from a mini-reunion with my classmates at the Ivy was rejuvenating. Everything felt comfortable, like we hadn’t all been working in soul sucking jobs (finance, consulting, corp dev) for half a year already. It was a perfect weekend spent in an alcohol-induced hazed.

When I came back on that Monday, I noticed a few more empty chairs than normal. Mr. Burrito grabbed me before I could settle in. “Coffee. Let’s go.” As any banking analyst will tell you, Starbucks (Starfucks, Fourbucks) is the central depository for all things gossip-related. It’s where analysts go to bitch about their superiors, associates/VPs go to bitch about their analysts, and MDs go to discuss their compensation. The trip is quick enough that it doesn’t raise any eyebrows, it’s usually outside of the building, and you can walk, talk and mainline caffeine all at the same time.

“Evil Incarnate got the axe.” Mr. Burrito breathed. He was a little too happy; I  didn’t blame him.

“What?!” I was genuinely surprised. She was terrible but it appeared to an inexperienced outsider that she was pretty decent at managing the politics of the banking world. How wrong I was.

“Yep. And that’s not all. She spent the WHOLE DAY on the floor, saying her good-byes. Who does that?” It was odd indeed. Generally, when employees at investment banks are let go, they are usually escorted from the building quickly so as 1) not to cause a ruckus, and 2) so they don’t steal anything. “Plus, you should have seen the look she gave Apathetic Associate when she left. He went to say good-bye, and she literally avoided eye contact, turned on her heels, and walked away.” Nice to know that having lunch with someone every day for two years gets you that kind of treatment. “That’s not all…” he waited for my reaction. “Smelly homeless kid got relocated to another group. No more air fresheners!” How the tables had turned. I had known for some time that the Evil Incarnate and SHK had been in cahoots, but thankfully, they were on the wrong side of layoffs line.

“Wait. Am I getting fired?” I stopped reveling for a quick second. They couldn’t get to me on Friday because I wasn’t there. Mr. Burrito shook his head and mentioned casually that he thought/knew layoffs for our group were done. We walked back with a little more bounce in our step. As we returned to our desks, we settled in to finally do some work that started to creep up.

Sometime in the afternoon, I felt a tap on my shoulder. “Hi FF. Can I talk to you for a minute?” Wasp MD stood there, with a small smile on his face. He had a cheery disposition and was always friendly. I was too busy searching for any sign that he was hiding a proverbial axe under his bespoke suit. We headed into an empty office on the floor; I was certain that the end was near. “So..you may have heard that SHK was relocated…and I wanted to assure you that you’re going to stay in this group. The head of our division had asked me to choose so I chose you. I just wanted to let you know so you didn’t freak out.” I could have hugged him. He turned out to  be a great mentor and friend through the last few years, but it was nice to see someone “going to bat” for me during my early tenure as a junior analyst.

Over the next few weeks, I watched as my friends bled out slowly. Many analysts were let go with decent severance packages and partial bonuses as we were paid on the year ending 6/30. Either way, my group now consisted of: Wasp MD, Hot VP, Allied Associate (said family friend from earlier), Apathetic Associate, Douchebag Associate, Mr. Burrito, me, and two other analysts (the Mormon, a 1st year, and Outcast, a 2nd year analyst).

At this point, my work had picked up greatly and I was staffed with Douchebag Associate on “Project Sell-the-Dream”, a renewable energy development company with a lot of ideas but little substance. For some reason, we had been pulled into the M&A aspect of the transaction. After that experience, I knew that I never ever wanted to do M&A banking ever again.

Project California

Nothing, and I mean nothing, can prepare you for the first deal you’ve ever worked on. Especially not when you’ve been sitting around, playing online games, trying to go to sites that are inevitably blocked by the firm and chatting with your cube mates.

As I wandered down the hall to the office Apathetic Associate shared with the Evil Incarnate, I passed the corner office of the Hot VP. I gave a little wave and donned that award winning smile I’ve been known to give. His eyes, full of intensity, glanced up from the massive document he was reading and gave me a slight nod and smile. Wandering into the office, I tripped over a bright red mini Hermes Birkin which belonged to none other than Evil Incarnate. Note that at this point in time, this fresh-faced and naive first year thought that we could actually be friends. I was in shock. If the Evil Incarnate could afford a Birkin ($10,000 starting price) on her previous year’s bonus, this gig wasn’t too bad.

“Oops, my b!” She smiled and pulled the bag away from the walk way. “How’s it going? You kids settling in alright?”

“Yes. Just came by to see Apathetic Associate.” At the mention of his name, AA plucked out an earbud from his ipod and began gathering up some things.

“Right, Project California. We’re putting together a stapled financing package for the acquisition of this asset for Poorly-Named-PE shop. The coverage team did the M&A work, representing the Seller of the asset. Poorly-Named-PE shop was the high bidder at $406 million. The syndicate desk likes this deal because it’s stable.” As he began to explain what we would be doing, my eyes glazed over and my mind began to wander. I noticed the little ear hairs he had starting to sprout out at the ripe young age of 26. His posture was one of a defeated man as he eased back into the $1,000 Herman Miller chairs which the Investment-Bank-that-No-Longer-Exists insisted on getting for everyone.

“I think it’d make sense if you went through the Confidential Information Memo (“CIM”) that the coverage guys put together. Should give you a good sense of what the asset is like.”

“Sure.” Gathering the papers up, I walked out of the office, confident and smiling. First deal staffing and it really wasn’t so painful. Forgetting that it was Friday afternoon at 4, I sat down to begin digging through the crux of what was going on in this deal. The Seller was not a private entity and was unloading the asset as a result of low capital and low liquidity. In short, the Seller needed money, fast. Additionally, the asset would be better harvested by a private group rather than a public one. From all standards in my particular industry, the asset was considered a very good one, generating stable cash flows from its 3, 10 to 15 year contracts with offtakers of the services the asset provided. Should be a “slam dunk” as bankers would refer to a deal that was so easily executed and closed.

Then, at 5 pm on the nose, it felt like the floor had been abandoned. Smelly Homeless Kid (“SHK”) got up with his duffel bag. “Time to hit the gym. I’ll be back for some Seamless action.”
(Sidenote: The ‘action’ that SHK was referring to is the online food ordering system known as Seamless Web. My sources tell me that before this nifty system, bankers who worked past a certain time would receive a per diem for dinner and could subsequently leave the confines of the office to breathe in a few lungfuls of that pollution filled city air. They would round up a few of their friends and have a nice meal before returning back to the office. However, once the Seamless Web system came into fruition, all bets were off. No one could leave for a nightly meal and instead were relegated to “team dinners” in the conference rooms (assuming people liked each other enough to order together). The rules with ordering Seamless Web were quite simple. Begin ordering at 6pm ONLY if you left after 8pm. Like everything in life, when you leave a bunch of bankers who spend their every waking moment trying to pitch you shitty products and unnecessary services, you’ll find people who game the system. Thus, the now defunct Investment Bank started making people not only swipe in through the entrance, but they had to swipe out as well. That way, they could track whether or not you were actually staying past 8pm to order the meal.)

As SHK wandered out with a walk that can only be characterized as a duck with a stick up its ass, the Evil Incarnate rapidly walked past my cube with Apathetic Associate in tow. Naturally, they both had all their things and were headed out. She quickly waived and disappeared around the corner. Not 3 minutes later, I received an e-mail.

From: Apathetic Associate
To: Fashion Financier(e)
Sent: Fri Oct 26 17:11:34 2007
Subject: Model

Hey. Hot VP wants to put together a debt sizing for Monday. M&A model is on the drive. Could you please put one together? I will review on Sunday. Thanks.

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What. the. fuck. I hadn’t opened Excel thusfar unless you counted getting high scores on all the games imbedded in Excel. I didn’t have a clue in hell as to how to even begin. It was clear from the beginning that my cube mates, while good for chatting and causing trouble, were not going to be helpful in any work sense. They worked on completely different products. I put my snooping skills to good use as I waded through the folders on our deal drive HOPING to find some resemblance of the model that I was put together. Luckily for me, this type of model was the only type we put together. No discounted cash flow models, no comps, no valuations of any sort.

I finally started a new sheet which I so creatively entitled “Project California Debt Sizingv1.xls” and got to work.