For full text article got o : https://www.educorporatebridge.com/investment-banking/qa-investment-banking-topics/ This article on "Q&A on Investment Banking topics" lists down most important frequently asked questions on Investment Banking. Topics include M&A, Valuations, Pitch Book etc.

1. Question and Answers on
Investment Banking Topics
~ By edu CBA

2. Topic- Merger & Acquisitions
Briefly explain “Accretion”
and “Dilution” analysis
• In order to gauge the impact of an acquisition to the
acquirer’s Earnings per share (EPS) and also compare it
with the company’s EPS if acquisition would have not
been executed, accretion and dilution analysis is
undertaken.
• In simple words we could say that in the scenario of the
new EPS being higher, the transaction will be called
“accretive” while the opposite would be called “dilutive.”

3. What are synergies
and its types?
Synergies are where the buyer gets more value than out of an acquisition than
what the financials would predict. There are basically two types of synergies:
• Revenue synergy: the combined company can cross sell products to new
customers or up sell new products to existing customers. Because of the deal it
could be possible to expand in new geographies.
•
Cost synergies: the combined company could amalgamate buildings and
administrative staff and can lay off redundant employees. It could also be in a
position to close down redundant stores or locations.

4. Topic- Valuation
Which are the situations in which we
do not use a DCF in the valuation?
• We would not use a DCF in the valuation if the company has an
unstable or unpredictable cash flow or when debt and working capital
serve a fundamentally different role.
• For example financial institutions like banks do not re-invest debt
and working capital forms a major part of their balance sheets- so
here we do not use a DCF for such companies.

5. Explain PEG ratio
• This stands for Price/earnings to growth ratio and takes
the P/E ratio and then accounts for how fast the EPS for
the company will grow.
• A stock which is growing rapidly will have a higher PEG
ratio.
• A stock that is fine priced will have the same P/E ratio and
PEG ratio.

6. Topic- IPO
Briefly describe what would you do if you are
working on an IPO for a client
• Meet the client and gather all the necessary information such as their financial
details, customers and learn about the sector they belong to.
• Meet other bankers and lawyers for the registration statement which would
describe the company’s business and market to its investors.
• Receive comments from the SEC and keep revising the document until it is
acceptable.
• Spend the coming weeks in organizing road shows and present the company to the
institutional clients and also convince them to invest in them.
•
After raising capital the company would start trading on the exchange.

7. Topic- Miscellaneous
What is in a Pitch book?
Pitch book depends on the kind of deal the company is
pitching for but the common structure would include:
• Bank credentials to prove their expertise in completing similar
deals before.
• Summary of company’s options
• Appropriate financial models and valuation
• Potential acquisition targets or potential buyers
• Summary and key recommendations

8. When buying a company why do
private equity firms use leverage?
• The private equity firm reduces the amount of equity
to the deal by using significant amounts of leverage
(debt) to help finance the purchase price.
• By doing this it will increase the private equity firm’s
rate of return substantially when exiting the
investment.

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