Investment Banking Case Studies – Job Application

What are Investment Banking Case Studies

Candidates will normally encounter case studies at the final stage of the application process, likely during an assessment or final-stage interview. Investment banking roles are highly competitive, and candidates must be properly prepared.

Investment banking case studies are commonly used to assess how a job candidate would perform in a real situation by presenting them with a theoretical scenario similar to those encountered on the job.

Most investment banking case study questions center on acquisitions, raising capital, or company expansion. The case may be given to you ‘blind’ on the day of your assessment with only a short amount of time provided for preparation. If the case is likely to involve deep analysis, financial modeling, or a company valuation, you will likely be given the case in advance to give you more time to work on it before the assessment day.

What are the Types of Investment Banking Case Studies?

In general, there are two types of case studies during an investment banking assessment, the decision-making case, and the financial modeling case.

Decision-Making Investment Banking Case Studies

Decision-making case studies appear more frequently than modeling case studies. In this type of case study, the candidate must make decisions for their client and provide advice. The client case studies could be based on finding funding sources, or whether a proposed merger should proceed and why or why not.

You should expect these questions to be given to you at the interview. Therefore, you must analyze and present the case within a given time frame. Throughout, you will have 45-60 minutes of preparation time and a 10-minute presentation, followed by a round of Q&A.

These case studies do not involve in-depth analysis of the case, given the short amount of time available.

Decision-Making Case Study Example

One of your clients is a global corporation that manufactures and distributes a wide range of perfumes. They are contemplating ways to expand their business. They may either introduce a new range of fragrances with their current distribution channels or start a completely new company with different stores.

You need to determine which solution is better for the business. To do so, you need to compare the return on investment and decide on a solution. Be ready to support your reasoning.

Modeling Investment Banking Case Studies

Modeling case studies are usually take-home assignments where you must do financial modeling and a simple valuation. Thus, it is more of a modeling test than a case study. The Investment Banker provides an introduction to building models, developing multiple techniques for a comprehensive and practical understanding of the topic.

The modeling case study will either employ a free cash flow to the firm (FCFF) valuation on a company or require a simple merger or leveraged buyout model. You would be expected to analyze the corporations’ valuation multiples to determine whether they are undervalued or overvalued.

Generally, you will be given a few days to complete your analysis. Then, you need to spend 30-45 minutes on the day of the interview presenting your case to the bankers. The analysis will go much deeper than a client case study because you will have more time to work on it.

Modeling Investment Banking Case Study Example

A pharmaceutical company wishes to make an acquisition. It has identified the target company and approached you to determine how much they should pay. You will be provided with the necessary financial information, metrics, and multiples, as well as the buyer and seller company profiles.

To complete the case study, you need to determine if the acquisition is feasible. Second, what would be the structure and synergies of the deal if the buyer has access to capital? You need to use multiples and valuation metrics to determine the price range for the transaction.

Access the three-statement case study example to practice a modeling case study.

How to Prepare for Investment Banking Case Studies

Regardless of which type of case study a candidate is presented, the thought process and deliverables are the same. The best way to prepare is to:

1. Ensure that key business concepts are well understood and that you can use the associated terminology comfortably in a conversation.
2. Learn about various valuation techniques, how to employ them, and how to interpret them. Prepare for case studies by mastering valuation for investment banking with the online investment banker course. Learn how and when to utilize key valuation methodologies and the supporting calculations
3. Make sure you read business news regularly and focus on discussing the details of banking transactions in the news.
4. Read as many case studies as possible so you get the knack of understanding business scenarios and analyzing Especially for modeling and valuation-based case studies, you must be prepared to format your work using PowerPoint and Excel.
5. Check company websites to see if sample case studies are available for reference. Investment banks do not tend to publish case study questions for practice. However, it is possible to formulate your own questions by looking at business scenarios involving possible mergers, valuations, or capital raises.
6. Candidates must practice streamlining their thought process so judgments can be made under time pressure.
7. Read through the scenario carefully before beginning to form an opinion on how the problem should be tackled. This will ensure that no intricacies are missed, and your response addresses all facets of the case.
8. Learn how to stand out from the crowd in your interview with the investment banker interview skills course, designed to prepare you for your interviews and enable you to make a great impression.
9. Investment Banking Case Study Example

1.     Scenario

A magazine publisher is evaluating whether it should sell, continue to grow organically, or make small “tuck-in” acquisitions to maximize shareholder value. It is selecting an investment bank to advise on its options and has requested a presentation from your bank.

2.     Task

Review the company’s financial and market information and create a 30-minute presentation analyzing its options. Recommend a specific course of action – selling the company, continuing to grow organically, or making smaller acquisitions.

3.     Solution

The answer to this case study is rather subjective. You should take a stand and support it with well thought out reasons. Here’s how you should approach it:

• First, read through everything and get a sense of the industry, where it’s heading, and how much this company might be worth based on comparables. If they don’t give you much information on comparable public companies or precedent transactions, you’ll have to do your own research.
• Complete a brief valuation using public comps, precedent transactions, and a DCF.
• Weigh the numbers the valuation gives you, the company’s organic growth prospects, and whether there are any good companies to acquire.
• Make a decision-it’s usually best to say “sell” unless the industry is growing quickly (over 10% per year), the company is extremely undervalued, or there are acquisition targets that would boost revenue or profit by at least 20-30%.
• Keep this simple and straightforward-the numbers should back up your reasoning, not take over the entire presentation.
• You could get much fancier with the analysis and look at the company’s valuation now, 5 years from now, and if it acquires 1 or 2 companies, but that isn’t necessary and it may just make your presentation more confusing.

4.     Sample Answer

If you decide to sell, you can write:

Slide 1: Recommendation to sell and the three key reasons why.

Slide 2: Industry overview – Is it growing?  Shrinking?  Stagnant?

Slide 3: Company’s position in the industry – Leader?  Tier 2 player?  Where is it strong / weak?

Slide 4: What organic growth would look like 5 or 10 years in the future – how much bigger / more highly-valued would the company be?

Slide 5: Potential tuck-in acquisition candidates.

Slide 6: Why neither organic growth nor acquisitions are the answer.

Slide 7: Why selling now produces the greatest shareholder value.

Slide 8: Valuation – Show public comps and precedent transactions.

Slide 9: Valuation – Show DCF output and sensitivity table.

Slide 10: Conclusion – Reiterate that selling now is the best option and that neither organic growth nor acquiring smaller companies will result in a higher valuation 5-10 years from now.

If you come to a different conclusion – for example, that acquisitions are the best strategy, you would reverse the order and list the solutions you’re not recommending first, concluding with the one you are suggesting.

Conclusion

Investment banking case studies are an important element in the interview process, it is an opportunity to showcase your skills and talent to investment bankers. In general, there are two types of case studies, the decision-making case study and the financial modeling case study. Candidates will need to be confident in their valuation skills. They will also need to display a good level of commercial awareness. Presentation skills are also critical.