Front Office Investment Banking Process

What is Front Office Investment Banking?

Front office investment banking speaks to the process and role of the senior banker, the one responsible for landing the engagements with clients and being a dealmaker. The front office investment banker spends their time building and maintaining relationships within their coverage area and for their specific financial product. Ultimately the senior banker explores strategic alternatives with their clients in order to win mandates to implement the strategic alternative and generate fees for the investment bank.

Front Office vs. Deal Support

The front office is referred to as ‘client-facing’ while deal support (analysts & associates) does the work to create the deliverables for the marketing materials and deal materials. If you want a long and successful career in investment banking, it makes sense to get front office investment banking experience even if it is in the lower middle market and middle market.

Front Office Investment Banking Methodology

In order to build a career in investment banking, it is essential to know and practice the Front Office Investment Banking Process. Whether one’s career track is in a bulge bracket investment bank, middle market M&A group, or as a lower middle market M&A advisor, it is crucial to know the primary process of the investment banker.

1) Coverage – Coverage gives us the basis for research and marketing material that we use in origination and other forms of marketing/analysis. The Coverage Process is the following:

a) Choosing Coverage

b) Vertical & Subvertical Coverage

c) Index Building

d) Metrics

e) Benchmarking

f) Marketing Material

2) Mandate/Target Matching – After building out one’s coverage, the investment banker can then begin matching the investment mandates of strategic & financial buyers to potential targets within their coverage. The Mandate/Target Matching Process is the following:

a) Identifying Strategic & Financial Buyers

b) Obtaining Investment Mandates

c) Structuring Buy Side Engagements

d) Identifying Targets

3) Origination – Once we have built out buy side relationships within our coverage area, we can then begin outreach to targets for our buy side partners. Origination is the primary work of the investment banker in order to keep the pipeline of deals full. The Origination Process is the following:

a) Identifying Decision Makers

b) The Cycle of Origination

c) Initial Outreach

d) Preparing for the Pitch

e) Pitching

4) Fee Structuring & Winning Mandate– In order to get paid, the investment banker has to land the engagement. Once the fee is agreed upon, the investment banker puts the fee structure in something called an engagement letter. The Fee Structuring & Winning the Mandate Process is the following:

a) Type of Fee

b) Size of Fee

c) Sell Side & Buy Side Representation?

d) M&A Engagement Letter

5) Underwriting – Underwriting aids us in understanding the intrinsic value of the target company and pricing the company under various scenarios & methodologies. The Underwriting Process in the following:

a) Gathering Historical Financials

b) Building the Financial Statement Model

c) Finding Adjusted EBITDA

d) Deriving Valuation from the Three Methodologies

e) Building the Valuation Football Field

f) Customizing the Financial Statement Model for Specific Transactions

6) Packaging – After underwriting the financial product (ex. M&A), we can move forward with packaging in the form of various marketing material including a teaser & Confidential Information Memorandum (CIM). The Packaging Process is the following:

a) Teaser Creation

b) Confidential Information Memorandum (CIM)

7) Buyer List – After landing the M&A engagement, the investment banker will need to build a buyer list and then begin outreach to the buyer list to generate interest. The Buyer List Process is the following:

a) Database Utilization

b) Strategic Buyers

c) Financial Buyers

d) Initial Outreach

8) Deal Structuring - After building & executing on a buyer list, it is up to the investment banker to work with the buyer and seller to structure a deal. This means negotiating the valuation range and deal terms. The Deal Structuring Process is as follows:

a) Valuation Range

b) Deal Terms

9) M&A Process

a) IOI From Buyer

b) Buyer Seller Meeting

c) Purchase Agreement Given to Seller

d) Signed Purchase Agreement with Different Terms

e) Enter Due Diligence

f) Complete Due Diligence

g) Closing & Flow of Funds