Tuesday, November 16, 2010

The Sell Side

So it has been a while since I have written a post. It is good to be back and add another update to the blog. Today I want to write about the 'Buy Side'. During many investment banking interviews, especially as a college junior looking for a summer internship, expect to be asked if you want to work on the 'buy side' or the 'sell side'. This is considered a very basic question and one that if you get wrong will demolish your chances of getting an internship. It will show that you are not prepared and do not understand the fundamentals of what an investment bankers spend a 100+ hours a week doing. The answer to the question is you want to work on the 'sell side'!

Let's take a look at why investment banking is considered to be on the sell side. The job of an investment banker can easily be compared to that of a real estate agent with a major difference in one aspect being that investment bankers are brokering the buying and selling of businesses and real estate agents are brokering the buying and selling of homes. Businesses and companies around the world are constantly looking to buy and sell other businesses and want a market 'expert(s)' to help them know how much to pay for the company, if they are buying, or how much they should sell for if they are selling.

Just as home owners need a list of potential buyers to come 'walk through' the home and place bids on the property, so do companies need potential buyers to 'tour' their business. Investment bankers help to bring both parties together. To be as effective and efficient as possible, bankers specialize in many different areas. Thus bankers with a big book of contacts that specialize in different areas are constantly being recruited by other banks and are regularly on the move from bank to bank over the course of their career.

The bulge bracket investment banks typically specialize in many different industries, regions, and products. The following information is taken from Morgan Stanley's website (http://www.morganstanley.com/institutional/invest_bank/index.html)

Industry Coverage
  • Basic Materials
  • Consumer Goods
  • Communications
  • Energy
  • Financial Institutions
  • Financial Sponsors
  • Healthcare
  • Industrials
  • Power and Utilities
  • Real Estate
  • Retail
  • Technology
  • Transportation
  • Mergers and Acquisitions (Includes acquisitions, divestitures, mergers, joint ventures, corporate restructurings, recapitalizations, spin-offs, exchange offers, leveraged buyouts and takeover defenses as well as shareholder relations)
  • Global Capital Markets (Includes IPOs, debt offering, leveraged buyout; originate, structure and execute public and private placement of a variety of securities: equities, investment-grade and non-investment-grade debt and related products)
  • Securitized Products Group (Includes structuring, underwriting, and trading collateralized securities across the globe)
Regional Coverage
  • The Americas
  • Asia Pacific
  • Europe
  • Africa
As you can see by the many different industries, products, and regions, it is very easy for investment banking teams to begin to specialize in any number of specific areas. As an incoming analyst you will not be expected to know what you want to do in life, but you should have areas of interest. For example, you should know and have a reason for being more interested in healthcare versus power and utilities or if you are more interested in M&A versus leveraged buyouts. This could be because your dad or grandpa was a surgeon and your grew up around healthcare or you have always been interested in science and physics and find utilities to be fascinating.

Here is a link to a pdf of four case studies on RBC Bank's website (The link works when you copy and paste it in a new window): www.rbcbankusa.com/corporate/file-156518.pdf

These case studies should give you a good idea of how an investment bank tries to sell their services to potential CEOs and management teams. A key to note here is that even though investment banking is considered to be the 'buy side' from a high level, within the buy side bankers represent both buyers and sellers, thus creating buy side and sell side relationships depending on their client's objectives. Don't let this confuse you.

Hopefully this post provides a high level of understanding and perspective about what investment bankers do. If you have additional questions please send me an email at info@ibdprep.com.


Anonymous said...

I just wanted to let you know that the link to the pdf on the rbcbankusa.com website is broken. It appears that the word "blogger" appears before the web address to the pdf document.

David Bonnemort said...

Thanks for the comment. I am having problems with the RBC link as well, although it does work if it is copy and paste in a new window. Cheers!

cv said...

The RBC link seems to be down! anyways thanks for all the efforts put in to make this a valuable post!

Bank CV

Anonymous said...

Try copy the link and paste it into browser, the link worked for me!

Anonymous said...

I just wanted to let you know that the link to the pdf on the www.deals365.us website is broken.

rager4me said...

Many Investment Banking firms offer professionals whose perspective on any engagement is limited to their background and experience primarily as bankers - a financial perspective singularly focused on a specific transaction.

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sell side said...

It's so difficult to weed out the good sell-side analysts from the bad ones. Some of these co called "professionals" seem like they have no idea what's going on

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