-Failsafe Interviewing Techniques For Investment Bankers, The All Nighter

Continuing this week’s theme of “assessing strategic alternatives for your career,” or “how to survive and interview for other jobs, even in a bad market,” I wanted to cover one other question I’ve seen lately: how to find time to interview with 2 full-time jobs (welcome to the life of the investment banking analyst).

Even if you’re not in investment banking, but rather another professional field like accounting, consulting, or corporate law, finding time and making up the appropriate excuses will always be an issue.

While it’s easy (easier perhaps) to do phone interviews, you’ll never get an actual offer unless you do at least a few rounds of in-person interviews, and sometimes many more than that.

There are 2 approaches you can take when it comes to being out of the office interviewing for other jobs: deception and honesty.

Deception

The classic example here is the doctor appointment.  I’ve used this one before - probably too many times in fact.

Dentist is a little better, but still rather conventional.

“Family emergencies” can also work, but it’s even more unbelievable to have 5 family emergencies in one week than to have 5 doctor visits, so be careful with your usage there.

The main problem with using this strategy is that eventually you run out of excuses or you have 10 “doctor appointments” in one week, so it stops being believable.

And if you want to get a little more exotic, don’t even think about it.  Saying your pet giraffe needs to go to the vet is a sure sign you have multiple interviews coming up.  Variations on the ordinary are far better.

In general, though, I would recommend making up excuses in only 2 situations:

1. It’s very early into your time on the job - if you just started at an investment bank in the summer, think January or February - and you are even more on top of recruiting than the average person.  You don’t solicit meetings; the headhunters come to you.
2. You work at a firm/office where talk of recruiting is taboo and no one is open about it.  Or you’re in an industry where it’s not expected that people move on after a few years (surprisingly, there are other industries out there besides finance).

A lot of investment banking analysts think deception is always the best route, but I think this line of thinking is somewhat flawed.  If you just have 1 or 2 interviews, sure, it’s easy to write them off as dentist appointments, weddings or broken sinks.

But when you actually find a lead worth pursuing and you have multiple rounds of interviews, it’s pretty obvious to everyone what you’re doing.  And even if you don’t say anything directly, they’ll put the pieces together.

If you’re not in investment banking but are trying to break in from another field like accounting or consulting, you will probably have to use some made-up excuses to avoid raising red flags.

My recommendation: rotate among different excuses or come up with a series of events around one excuse.  If you go the family emergency route, you can always string together a more detailed account and relay the basics to anyone who asks.

If you’re not in New York or London and you actually drive to work, car accidents (real or imagined) can be another good source of multiple absences within a week or two.  You have to go to the hospital… go to the doctor for a follow-up exam… get your car fixed… find out it can’t be fixed… locate a new car.

It’s a gold mine.

Honesty

Honesty can be the best policy here - as long as your firm and office are reasonable.  I was upfront when I went to interview elsewhere and specifically told everyone on my team what I was doing (no, not where I was interviewing, just that I would be out for “private equity interviews“).

No one ever made an issue out of it.  The most I ever got was, “Ok, make sure someone else is covering your deals.”

(Forget about “good luck.”  This is finance.)

There are some offices where interviewing (or interviewing very frequently) is looked down upon; this actually happens more at boutiques and smaller firms than at bulge brackets, where most Analysts do in fact move on after 2 years.

Again, if you’re not an investment banking analyst, honesty may not in fact be the best policy.  Friends switching into private equity or banking from related fields like equity research or accounting have had to jump through some crazy hoops to get in their interviews without arousing suspicion.

Telling Co-Workers: Trust No One

If you are going the “deception” route, you need to be 100% committed to it.  You may think that telling fellow Analysts will be fine… that no one would leak what you’re actually doing.

But you would be wrong.

Somehow, it always gets out.  I remember once I had people from a completely different office asking me about my trip when I got back.  I had only told a few trusted co-workers so I was pretty surprised at first.

And then I realized that word about what you’re doing always leaks if even one person other than you knows.

So if you do have to be confidential for whatever reason, pretend it’s the mid-90’s and the X-Files is still the best show out there and trust no one.

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Thank you very much for your recent application to the Texas-Pacific Group. Your resume and glowing recommendation from your MD were both somewhat impressive. We applaud your efforts to transition from Banking into Private Equity, it is definitely the right move right now. We were considering extending you an offer, actually, but upon review of the quiz you inadvertently submitted to for the New York Post, we regret to inform you that we will be unable to offer you a position at our firm.

Please note that you did score an 87%, which is nothing to be ashamed of. It turns out to a B+ with our generous scaling, and you know what they say—at least you won’t be lonely at the fat part of the bell curve. We only take A’s though. Have you considered a position at Hellman & Friedman?”

-Only 87% Tool, The Leveraged Sellout

Ah, private equity.  The promised land.  What you slave away for as a banker: the chance to become the next Steve Schwarzman.  But unless you have an inside connection with Steve himself, you’ll have to go through a few interviews to get to paradise.

The Format Of Private Equity Interviews

They tend to be very similar to investment banking interviews - generally a phone screen or initial in-person screening interview, followed by a “superday” where you meet with a good portion of the Associates, Principals and Partners at the firm.

The difference is that the interview process goes beyond that - you can have multiple interviews with the same people, and you usually have to do some sort of Case Study, either in advance or on the spot, which you then present to a group at the firm.

Beyond just the Case Study, you will also typically be tested on Leveraged Buyout modeling, either on the spot at your interview or as part of the Case Study.

You should also keep in mind that 99% of PE firms are smaller than investment banks and do not need nearly as many people.  Thus they can afford to be much more selective about new hires.  Banks, by contrast, will tend to be less disciplined with recruitment.

Private Equity Interview Questions

Private Equity Firms care about two points when interviewing you:

1. Your background and “fit” with the firm, group and industry.
2. Your deal experience.

In addition, there may also be some rudimentary technical questions in the “screening” round just to verify that you actually know enough to do the job.  If, for example, you can’t calculate Total Enterprise Value, then you should not be doing PE and that’s an easy “ding.”

Some firms, particularly the mega-funds, like to go in-depth on technical questions and ask all sorts of obscure things that never come up on a regular basis.

“Fit” Questions

In terms of the “fit” questions, you want to have a good “story” around how and why you ended up where you are (just as with banking interviews).  Avoid stating the typical “bad” reasons to do finance jobs: money and prestige (even though many people do indeed do finance jobs for these very reasons).  And, of course, models and bottles (even though you can afford them now).

Instead, you want to focus on your interest in investing and if you’re coming from a banking or sell-side background, why you are more interested in investing as opposed to selling.  Standard reasons: adding more value, acquiring more in-depth knowledge, and gaining more responsibility.

One note on fit questions: in my reasons NOT to do investment banking post, I recommended against saying, “entrepreneurial work environment” as a primary reason for wanting to do banking.

For PE positions, this is more acceptable as it is a more entrepreneurial environment and in some cases members of the firm go on to work at portfolio companies or start companies of their own.  If you are a senior, partner-track hire, you don’t want to give the impression you will leave and do this, but for pre-MBA hires it’s not quite as taboo.

Since private equity interviews tend to be quite informal and more conversational than banking interviews, establishing rapport with everyone is essential.  If you can’t do this, your chances of getting the job are about as slim as JPMorgan honoring Bear Stearns offers.

Picking Deals To Talk About

Private Equity firms generally want Analysts with good M&A and LBO deal experience.  They don’t really care about IPOs or anything capital markets-related; they acquire companies, and that’s what they care about.  Yes, to exit an investment they could take a portfolio company public, but the bankers and lawyers handle most of that process so in-depth knowledge is not as important.

The first step here is deciding which deals to speak to.  As I wrote in my post on Private Equity Resumes, it’s best to pick either transactions that were unusual in nature or ones where you contributed a lot (or both).  “Standard” sell-side M&A processes are not great; divestitures, distressed M&A, and LBO deals are much better.

For the “complex” M&A deals, you generally have a lot of good qualitative issues to bring up in the interview (e.g., selling off parts of a company vs. the whole thing, figuring out standalone cost structure, dealing with subsidiaries and complex legal structures, closing before you run out of cash), while LBOs are good because you can talk about the numbers and why the deal worked from a financial perspective, as well as your knowledge of the process and debt-raising.

Oh, one last thing: you do NOT need closed deals or even announced deals.  Just make them anonymous if they’re not yet public.  You don’t want to end up in jail, or almost in jail, as a result of your interviewing efforts.

How To Talk About Deals

When you go through your deals, you want to start by giving a brief overview of the company, industry and major deal points:

You: “One deal I worked on was the $45B LBO of TXU by a KKR-led consortium of private equity firms.  The Company had around $10.9 billion of revenue and $5.6 billion of EBITDA and provided electricity to the Texas utility market.  The deal, struck at the height of the buyout boom, to a certain extent represented just how far private equity firms would go to find good deals, and also showed the cyclical attractiveness of the utilities sectors.  There were a whole host of major issues, from regulatory to environmental, associated with the deal.”

Interviewer: “Of course, that was all over the news in early 2007.  Let’s talk about the financial metrics of the deal, maybe you can walk me through the numbers here.”

At this point, you would go into the revenue and EBITDA multiples and industry-specific metrics you looked at.  Also go into the LBO analysis you did, the growth rates and margins you assumed, and the IRR your models predicted.

Interviewer: “I understand that, as part of the deal, the Company agreed to not build certain power plants.  Can you discuss that?”

Here you can go into the financial analysis you did to show the impact of not building those 8 coal plants they originally agreed to.  You really need to play up “unique” points like this where you did something out of the ordinary.  Explain the financial assumptions you made about each plant - required costs, projected power output and revenue generation, and then the effect eliminating them had on the LBO model.

You can also go into the regulatory and environmental considerations and all the deals that were struck with governments and environmentalists here, which are great to talk about.

Interviewer: “Great.  Let’s talk about the debt on the deal.  Can you walk me through what kind of package your bank(s) put together?”

Go over the basics - the total amount of debt raised, how many tranches and the kind of tranches - e.g., bank debt, high-yield, etc. - as well as the interest rates and covenants.  You can also go into different debt packages offered by various banks competing for the business and why one bank was chosen over the other.

Those are the major points to get across if you discuss an LBO with a private equity firm - basic overview, financial metrics and modeling, major issues and deal points, and the debt involved.  For regular M&A deals the discussion would be similar, but you’d be speaking about the accretion/dilution model rather than the LBO model and may not have to discuss debt at all.

Don’t go off on random tangents when going over deals.  Just remember, your hourly wage is just barely higher than a McDonald’s worker’s, whereas theirs is much higher.

But Wait, What If I Don’t Have Any Deal Experience?

If you come from a consulting or other non-investment-banking background, you may not have worked on any M&A deals.  If this is the case, you need to find close substitutes.  For consulting, these might be due diligence projects on deals or projects focused on operational improvement of a company.

If you’ve done equity research or some type of investment/asset management before, you want to discuss companies you initiated coverage on, invested in, or recommended investing in.

A dialogue similar to the one above should be your goal - you want to go through the basic overview, the numbers, and the “deal points” or main issues you confronted.  You also want to go over major risks and mitigating factors.  If we take the TXU example, investment risks might be all the regulatory issues and mitigating factors might be bribing all the environmentalist groups out there.

If you worked in corporate finance or corporate development before, you can speak about partnerships you worked on, integration work, or any other long-term project that consumed a lot of time and required significant analysis.

If you fall into none of these categories, why are you applying to private equity jobs again? :)  (You can get in from other backgrounds but it’s much harder.)

Case Studies

Another major point in most private equity interviews is the case study.  Typically, a private equity firm will give you an Offering Memorandum, filings, and other documents on a company and then you will make an investment decision one way or the other.

Usually you’ll create a PowerPoint or Word presentation and will submit some type of Excel model as well.

Case studies are a broad topic and I couldn’t do everything justice here, but here are a few of the major points:

• Make sure you actually make a decision one way or the other.  This may sound elementary, but you’d be surprised how many people complete case studies and don’t say, “yes” or “no.”
• Provide a summary page/slide in the beginning with your investment decision and back it up with 3-5 key points.  Also make sure you go over major risks and mitigating factors on this page, and give an estimate of returns as well.
• Keep this brief and to the point.  You simply don’t have time for anything else.
• Each page/slide should cover a separate point - industry, management team, financial performance, company’s products/services, major risks and mitigating factors, areas for further diligence, the output of your financial model, and how you would structure the investment/buyout.
• Don’t worry too much about formatting, just make sure it’s readable.  This may come as a shock if you are from an investment banking background.

At some firms, you will have to do this on the spot and you’ll have very limited time; at other places you will have a few days to a week or more time to craft this.  In any case, don’t go crazy and spend 100 hours doing this or anything - they understand you have limited time, so focus on what’s important and don’t go overboard with the rest.

And DON’T have your graphics department format your presentation.  That would be bad if your MD happened to walk by and see…

LBO Modeling

As I’ve alluded to throughout this post, some private equity firms will give you modeling tests and expect you to build an LBO model in real-time at interviews.

As with case studies, I would suggest keeping your models simple.  Go with the bare minimum that’s required because you don’t have time to get fancy.

In practical terms, this means do the following:

1. Basic sources and uses - don’t try to get fancy here with equity rollovers, PIK, 10 tranches of debt or anything.  Go with a simple view that has the purchase price and debt/equity used.  Maybe do 1-2 tranches of debt but keep things simple.  You need to get across that you understand the basic concepts behind an LBO model, not the super-advanced stuff.
2. Basic income statement - just do basic projections here, with revenue growth, SG&A or whatever expenses you have as a % of revenue and go down to EBITDA.  You can make a few basic assumptions to get to net income as well for the cash flow statement, but again don’t go overboard.
3. Basic balance sheet - Have the basics, like Cash, Accounts Receivable, Accounts Payable, PP&E and Debt, and use easy assumptions for these.  You should include acquisition effects like the new debt and any cash used as well as goodwill, but I would keep this as simple as you can while still making it, um, balance.
4. Basic cash flow statement - Net income, add back D&A and the change in working capital and subtract CapEx to get to your cash flow available for debt repayment.
5. Basic debt structure - just do the bare minimum in terms of Excel functions here and assume you can use all Free Cash Flow for interest/principal repayment each year.  Should just be a couple MIN functions.
6. IRR calculation at the end and maybe a few sensitivity tables on purchase price, exit multiples, and growth rates/margins.

This is a very high-level overview of how I’d build a “simple” LBO model - you can look forward to a more in-depth guide and working Excel model soon (I hope).

Simplicity is very important because you’ll only have 1-2 hours, at most, for this exercise.

Selling vs. Buying

Beyond just understanding the format of interviews, interview questions and practicing case studies/LBO modeling, it’s important to keep in mind something else with private equity interviews:

Do an equal amount of “selling” and “buying.”

This was actually advice given to me by a well-known headhunter and may be the only good advice I’ve received from a headhunter.

While you definitely want to push your own case and “sell” yourself as much as possible in interviews, you also want to pretend you’re a buyer and do some diligence on the firm.  If it turns out there’s a big cultural misfit, for example, you want to bail out early on.  Or if there’s a lot of cold-calling involved and you hate that, you similarly want to forget about the firm.

Since PE hires are much more long-term than banking ones, you really want to do your diligence; it probably won’t be some 2-year job that you can forget about afterward.

People often overlook this and just take the first opportunity available to them, but this is a serious mistake with private equity recruiting.

Differences Between Private Equity And Hedge Fund (And Other) Interviews

Although I’ve described private equity interviews above, hedge fund interviews are similar and will also tend to involve case studies and/or investment recommendations.  They will be less focused on deal experience and more focused on fit and knowledge/interest in the public markets, and it’s probably not necessary to practice LBO modeling with a hedge fund unless it’s a PE-like one.

Venture capital interviews will be even more focused on fit and personality and less on finance/deal experience.  They will also want to see good market knowledge since startups are so dependent on the relevant market(s).

Corporate development job interviews will be somewhere in between VC and PE interviews; they won’t be as focused on modeling and LBO modeling is unlikely to come up, but they will want to hear about your deal experience and analytical skills.

Timeframe For Interview Decisions

Going back to the theme of private equity firms being far more selective than banks when it comes to recruiting, the interview timeframe is generally much longer.

There are some exceptions - for example, at KKR, Bain, Blackstone and other mega-funds, they make decisions quickly and move in weeks rather than months.  This is simply because they compete for mostly the same people and therefore start interviews early.

Middle-market and growth equity firms will take much longer to make decisions and often shove you through multiple rounds, dinners and breakfasts and all sorts of hoopla to reach a “yes” decision.

They treat you as an investment opportunity and have to do very thorough due diligence before making a “yes”decision.

This is logical, as Private Equity firms make much longer-term hires than investment banks do, and therefore approach you as more of an “investment” rather than a number-crunching monkey as banks would.

Final Words: How To Prepare With Limited Time/Resources

So how do you prepare for private equity interviews if you’re an investment banking analyst with limited time at your disposal?  I would suggest the following:

1. Make a list of all the deals you’ve worked on and decide which are the best 3-4 to speak about in interviews.  Make sure these are also the ones on your resume.  Your bias should be toward complex M&A deals and LBOs.
2. Refresh yourself on the details of these deals, including background information, financial metrics, debt packages/covenants and what you personally contributed.
3. Practice constructing simple LBO models.  Get it down to where you can create a basic model from nothing in half an hour.

Amazingly, even though this post is already lengthy I’ve only scratched the surface of buyside interviewing here.  There are lots of other topics I plan to explore and upcoming guides, so stay tuned.

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The investment banking internship recruiting season continued in full force in February 2008, and many readers asked questions on how to decide on summer internship offers and also how to get them in the first place.

I covered a good amount of investment banking lifestyle material as well, as including the perennial question of just how high investment banking salaries are.

Getting An Investment Banking Job / Getting A Private Equity Job

For those seeking investment banking jobs or summer internships, I wrote the most detailed, freely available guide to superday interviews out there. Why bother with an over-priced Vault guide when you have this? (Well, assuming Vault guide isn’t free for you anyway).

And for those struggling to get investment banking interviews in the first place, either because they are from non-target schools or are trying to break in from other industries, I wrote a guide on using networking to get into investment banking.

Beyond just investment banking summer recruiting, private equity recruiting for the summer of 2009 is also starting up. For those looking to break into the industry, I wrote a guide on how to write the ideal private equity resume and how to write about your investment banking and deal experience.

Finally, beyond just the usual resume advice, I also launched a resume review service at the start of this month for those who are looking to improve their resumes. Those who have used the service so far have been very pleased with the results and I’ll add some testimonials to the page eventually.

Deciding On Investment Banking Summer Internships

I also received many questions on how to decide on summer internship offers this month, so decided to run 2 reader Q&A columns.

One was focused on how to choose an investment banking summer internship, while the other focused on breaking into investment banking with a Ph.D. background, whether to choose a boutique or bulge bracket summer internship, and how to handle informational interviews.

I hope these have answered many of your questions in these Q&A features, but as always, contact me if anything else comes up.

Investment Banking Lifestyle And Investment Banking Salaries

I did not focus on lifestyle questions as much this month, but did manage to cover the worst time to be an investment banker: Friday at 4 PM. That’s when everything bad happens and when the investment banking analyst gets his weekend work. And if you’ve ever wondered why attention to detail is so important as one of the qualities a banker needs, I covered that as well.

I also settled a longstanding question over whether or not investment bankers or McDonald’s employees earned a higher salary. It turns out, contrary to popular belief and a widely circulated email several years ago, investment banking salaries are indeed higher than what you could earn at McDonald’s, even on an hourly basis.

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I continue to receive many questions on breaking into banking from other industries, so I feature one recent question on that topic here as well.

Breaking Into Investment Banking With A Ph.D.

“I am a Ph.D. scientist actively exploring a different career path. Do you think getting a CFA degree would help me break into investment banking? Also, you recommend going to a bulge bracket on your site, but would such firms even consider hiring me? I’ve gotten consulting interviews but have had trouble with finance interviews. Should I focus on smaller banks?”

Inquisitor:

A CFA may be helpful for you, but I think there are probably better ways you can spend your time to get an investment banking job. A CFA requires lots of studying, time, and preparation and your time would be better spent reading up on stocks, learning financial modeling, speaking to people in the industry and networking, etc.

I would strongly recommend going for boutique and middle-market banks with your background. It is very difficult to get into bulge brackets with an unusual history, and with the current market environment it’s even tougher, especially without an internship.

Smaller banks, by contrast, still hire even during downturns, and will be more accepting of someone like you.

In terms of other ways to stand out, some friends have worked at “finance-related” firms that are not necessarily banks - companies that provide valuation services, industry research or buyside research, for example.

These firms may be good stepping stones into investment banking.

Boutique vs. Bulge Bracket Summer Internship

“I have 2 investment banking summer internship offers - one from a top boutique in their M&A group and one at a bulge bracket that is not group-specific. I like the people at both equally and am very concerned over exit opportunities. Which one do you think is better for me?”

Inquisitor:

I don’t think you can go wrong with either choice, as both will have very good exit opportunities and prestige. For a summer internship especially, the specific bank you’re at doesn’t matter too much. Having a banking internship at all puts you at an extreme advantage in full-time recruiting.

I would consider the deal flow and banking culture at both when making your decision. Getting to work on good deals is critical to good exit opportunities, as deals are the centerpiece of your private equity resume and will be crucial in buyside interviews.

Personally I would lean toward the M&A-focused boutique. Since it has not relied as much on its lending capabilities to win M&A deals, the boutique will have good deal flow even in the face of the credit crunch.

[Note: "Top boutique" here refers to the likes of Evercore, Greenhill, Lazard, etc. which are basically comparable to bulge brackets in prestige. The bulge bracket in question suffered a lot of writedowns in the credit crunch.]

Investment Banking Informational Interviews

“I have an informational interview with a Managing Director coming up. Other than his career, is there anything else that I should ask him? Obviously, things about the firm - but what really makes MD’s like candidates and what do they like to see in candidates?”

Inquisitor:

Besides the typical career questions, I would talk to him about your school, activities, campus happenings, and classes and see if you have anything in common. Alumni connections can be very powerful so you should definitely take advantage of them.

MDs like to make personal connections with candidates and will focus on fit questions rather than going into details on accounting and finance. Make sure you have a really good story about why you want to do investment banking and M&A specifically.

I would also try to come up with a few insightful questions - more than just career goals and background. Maybe ask him how the business has personally affected him, what he learned over the years that he did not expect going into it, and anything else tailored specifically to his own background.

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-Sun Tzu

With every investment bank out there well into summer recruiting season, I’ve been getting questions not only on how to judge offers but also on how to prepare for superday interviews and what to expect when going to interview for investment banking summer internship positions.

Since every bank is different, it’s quite difficult to generalize here and say exactly what to expect in every situation. So I assume no liability if anything you read here does not hold true for your particular interviews.

That said, there are a few general guidelines and tips I can give on what to expect. Most of these apply equally to full-time and summer analyst superday interviews, though in general the summer analyst ones tend to be easier (as always, exceptions apply here).

How Many People And How Long The Day Will Be

This varies greatly by the particular bank in question, but at the minimum you will speak with at least 1 banker at every level - Analyst, Associate, VP, and MD.

That is the absolute minimum - often you can go much higher than that and Superday can really last all day, from 8 AM to 6 PM, with 20 or so interviews.

Bulge brackets tend to conduct more interviews on Superday vs. boutiques (not sure how UBS LA stacks up here).

In general, though, the number of interviews tends to be at the lower end of the spectrum and Superdays usually last half a day rather than a full day. It’s just as difficult for banks to conduct 20 interviews per candidate as it is for you to interview with 20 bankers, so it usually doesn’t work that way.

A quick search on WallStreetOasis reveals that others have had similar superday interview experiences.

Fit Questions

I know some will disagree with this, but in my experience the fit questions are more important than the technical questions, for 2 reasons:

1. Unless you’ve had a previous investment banking summer internship, you will not have significant technical knowledge that can be assessed.
2. Generally the more senior bankers who interview you will be focused on fit questions and they are the ones who decide if you get the job or not.

I covered a lot of fit questions in my guide to getting investment banking jobs, but just to recap a bit, your “story” is the most important part and consists of you giving a 3-5 minute pitch on your background, how you got interested in banking, and why you want the job. And if you come from another field like engineering or corporate law, your “story” should show why you want to break into investment banking now.

You should come across as being interested in business/finance, eager to learn, and willing to work hard, but don’t be fake or act like you know exactly what you want to do with the rest of your life.

When you get asked the usual, “Are you a team player?” “Can you work hard non-stop and get results?” “Are you really interested in this job?” questions, make sure you have specific examples to back up everything you’re saying.

The biggest problem I see when I ask fit questions is lack`of enthusiasm. Some people memorize all the answers they read in the Vault guide, but don’t seem to say anything with conviction or have original thoughts.

While it’s fine to give “standard answers” try to inject some of your own personal flavor into your responses. Just don’t go overboard and seem like you just escaped the asylum.

Technical Questions

As mentioned above, I think people tend to focus too much on technical questions in interviews and prepare for every single accounting and valuation question they might get asked, when they should be more focused on fit and enthusiasm.

Broadly speaking, there are 3 types of technical questions you may be asked: 1) Valuation/Modeling Questions 2) Accounting Questions 3) Brain Teasers.

On the first two questions here, you should refer to IBankingFAQ’s excellent section on technical interview questions. Andrew has already done a great job of summarizing the major questions you’re likely to get.

Valuation

In terms of valuation, the three main methodologies are 1) comparable company analysis - looking at publicly traded companies and the multiples they trade at, then applying those to the company in question, 2) precedent transaction analysis - looking at what buyers paid for sellers in similar industries and with similar financial profiles and applying the multiples to your own company, and the 3) DCF - using a company’s projected cash flows, discounting them for the time-value of money and cost of capital and summing those to find the company’s present value.

Know those and the various tradeoffs among them.

Modeling Questions

If you get modeling questions, they are likely to be on merger models - looking at what happens when a company acquires another company - or Leveraged Buyout (LBO) Models - figuring out the return a private equity firm can get by buying a company with a combination of cash (equity) and debt.

The most important aspect of a merger model is the accretion/dilution - will a company have a higher or lower earnings per share (EPS) after acquiring another company? The way I think about the merger model is that it is an analysis of the tradeoffs between using cash, stock, or debt to finance an acquisition. Using any of these or any combination of these will result in a different EPS, and you have to take into account how much debt the acquirer can actually afford, how much stock can really be issued, and how much cash they have.

A lot of other factors, such as tax rates, synergies, the companies’ projections, the companies’ balance sheets and tangible/intangible assets, etc. also come into play but the above points are the most important to get across when explaining a merger model.

With an LBO model, you’re trying to figure out the private equity firm’s return on investment (IRR). I think of it like buying a house with a mortgage - you have a down payment (the equity in an LBO) and the mortgage (the debt used to finance an LBO). The LBO model is a measure of how much the company’s value grows and how much debt is paid off. The most important drivers are purchase price, exit price, amount of debt used, and the company’s growth rate and profitability.

Accounting Questions

For accounting questions, just make sure you know how the income statement, balance sheet and cash flow statements link together and be able to walk through how simple changes like adding 10 to depreciation will affect everything else. IBankingFAQ has a good overview of this. I would not expect too much beyond these types of questions, though if you’ve had some accounting/finance classes you may get asked about revenue recognition, EBITDA vs. Cash Flow and other topics.

Brain Teasers

I’m not even going to try to cover this one. Most importantly, maintain your calm during the interview and resist the urge to panic. It’s not the end of the world if you don’t get one right, but generally it’s a bad sign if they ask you brain teasers at all - it means your interviewer is either annoying or doesn’t like you or both. Check out the IBankingFAQ brain teaser section for more.

Superday Dinners

Make no mistake: everything that transpires on Superday is part of the interview, even if they try to position a dinner as a “time to relax” and “get to know others.” Never let down your guard, and DO NOT GET DRUNK. And don’t even think about models and bottles. Focus, thank you very much.

That said, also try not to ask too many nerdy finance questions or too much about investment bankers’ own jobs. No one likes the kid who starts talking about WACC during dinner.

Talk about your own interests and try to come across as an interesting and ambitious person who can also have some fun, but don’t go overboard and use your judgment at all times. If you say something stupid or do something stupid during the dinner, that could easily be the end of your investment banking offer.

Judgment is an extremely important part of your job as an investment banking analyst, and the Superday Dinner is a quick way to evaluate whether or not you have good judgment.

How Many Get Offers

This one is really tough to generalize because it varies so much by the individual investment bank and the particular group you’re interviewing with, how many analysts they need, what location you’re at, etc. I covered some of this in my guide to how we hand out offers after superday interviews, but generally 1-2 out of 10 superday interviewees will receive immediate offers. Most of the rest will be put “on hold” and we’ll start giving them offers if others back out or accept investment banking summer internships elsewhere.

So the odds aren’t great, but if you follow the advice I give in my investment banking jobs guide and my investment banking interview selection guide, you’ll be at a big advantage compared to the competition. Also check out how to close your investment banking offers if you’re having trouble landing anything.

When You’ll Hear Back

It is a VERY good sign if you hear back immediately. Generally if you’re going to get an offer you will hear back the day of the interview or early the next day, because the bank will be eager to get you to accept.

It isn’t necessarily the end of the world if you don’t hear back immediately. Sometimes people will end up getting a “yes” response a few days to a few weeks afterward, but usually it’s because they were put “on hold” and others in front of them did not accept offers. So there’s an element of luck involved.

If you don’t hear back quickly, it definitely pays to follow-up and contact the bank every so often to show your continued interest and enthusiasm in the position. Just don’t be annoying about it and call them every day.

What NOT To Worry About

The two most common things people worry about that don’t matter much are the questions you ask the interviewers at the end and following up with thank you notes after the interview.

Generally I form an impression and make a decision about a candidate within 5-10 minutes of the interview starting. While it’s nice to ask some thoughtful questions at the end, they aren’t going to make or break your offer status.

Similarly, following up generally has almost no effect in terms of getting an offer vs. not getting an offer. By the time I receive your email, everyone has already gathered up and made decisions on all the candidates.

Sure, it’s a nice gesture but if you’ve interviewed with 20 investment bankers in one day, don’t worry about sending personalized thank-you notes to everyone.

Reader Feedback

How do everyone else’s superday experiences compare to what I’ve written here? Let me know if you think anything should be changed - I did this a few years ago already so some of this may have changed by now.

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January was the second full month of operation for Mergers & Inquisitions, and I’m proud to say that visitors and pageviews more than doubled over December levels! I hope you’re continuing to find the site useful. Some of you have sent emails and resume review requests and I will get back to you, it just takes awhile to respond based on my schedule and how much else is going on at the time.

In terms of content, I focused on tips for resumes, internships and getting those investment banking jobs you’ve been after.

Investment Banking Resumes

I wrote 2 articles on resumes - one covering common mistakes in investment banking resumes, and one on how investment bankers read resumes and decide who gets interviews and who doesn’t.

If you want to send me your resume, please make sure to read those 2 articles first as many of your questions will be answered already. If your resume suffers from problems mentioned in those it may take me longer to respond to you as well.

Investment Banking Summer Internship Tips

With recruiting season in full swing, everyone was also very focused on getting investment banking summer internships. To address reader questions, I wrote articles on how the investment banking interview selection process works and on how to improve your offer success rate.

These were both in addition to my already existing guide to getting an investment banking job, published back in November. If you haven’t already read it and want to break into investment banking, be sure to check it out!

Some readers have also asked me about how to do well in their summer internships and improve their chances of getting full-time offers, so I wrote another article about that - How To Dominate Your Investment Banking Summer Internship.

Other Reader Questions And Investment Banking Lifestyle Posts

With all the news of layoffs and the downturn in the economy, some have also asked me if it’s even a good time to get into banking. The short answer: you really have no choice, so do it now anyway. For the longer answer, see my post on signs of a recession in the financial services world.

A couple readers also asked about the “best” groups (despite my insistence that your team matters more than the prestige of your group) and specifically about UBS LA, so I addressed that in a brief post outlining the rise and fall of UBS LA.

Although it was not a commonly asked question, I also looked at a bulge bracket vs. a boutique and went through some of the reasons why I strongly recommend going to the best name you can.

Finally, in another reader Q&A post I covered questions about sales & trading resumes, breaking in from the pharmaceutical industry and the relevance of international experience in China when applying to investment banking jobs.

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-Bud Fox, “Wall Street” (1987)

Heading into an investment banking interview? Make sure you read this post carefully, since your life will depend on it.

One of my most frequently asked questions is how exactly investment bankers decide who gets an offer following a round of Superday interviews. Sure, maybe you did everything right to close your interview offer, but ultimately it’s up to those who interviewed you.

Although it may be tempting, I would not be like Bud Fox here and use inside information to get an investment banking job.

Who Calls The Shots

Unlike the investment banking resume review process, Managing Directors are actually involved in handing out offers. HR, by contrast, does essentially nothing aside from the logistics. They don’t review resumes or make any calls themselves, aside from possibly how many Analysts to give offers to. But usually the MDs tell them how many they need.

Typically everyone from Analyst level to the Managing Director will interview candidates. It’s ultimately the MD’s decision who gets hired and who does not, but everyone does have a say in the process.

The Selection Process

After the first round of interviews, the interviewers decide among themselves who they want to invite back for final round interviews. We don’t “rank” people but generally have in mind the best few people we saw that day.

Sometimes there are too many people and not enough slots, in which case we will give slots to the best few and then decide who among the rest should get an interview. This part of the process can be unfair because not everyone has interviewed all the candidates and different people have different standards.

During Superday, each interviewer will evaluate different qualities (leadership, drive, technical skills, etc.) for each candidate. There is no “ranking” most of the time unless there are a ton of great people and not enough slots. I’ve never seen that happen as there are generally very few outstanding people.

Afterward, HR will gather everyone up for a debrief and see what people thought. Usually consensus emerges pretty quickly on who we give offers to, who we say no to and who we put “on hold.” The MDs have final say, but very rarely do people disagree. And needless to say, if an Analyst is pushing for someone but no one else liked him/her, the investment banking analyst is overruled.

How Many Get Selected

The absolute number depends on the office, group, and specific bank so it’s meaningless to list that here. In general, we will receive 500-1000 investment banking resumes for 30-50 spots, then give Superday interviews to 10 of those 30-50. Then we will pick 2-3 of those to actually receive offers, or maybe even fewer depending on how interviews go.

On a strict percentage basis, your odds aren’t great here. However, most people we interview do not stand out much and you can greatly improve your chances just by following a few simple interview tips.

Investment banks repeat this process at different schools until enough Analysts are hired. If there’s attrition mid-year or people back out of offers, we might look for lateral hires.

What We Look For In Candidates

School/GPA is almost irrelevant after the interview. It’s only relevant for getting your foot in the door.

Generally I look for people who really, really want an investment banking job and will do anything to get it.

Some interviewees are doing it just to test the waters and don’t really know what they’re getting into. Bankers can spot people like this from a mile away.

You don’t want to be one of them. Prove that you can work hard on very little sleep, learn quickly, play well in teams and are hungry to get experience and you will get offers.

Does The Interview Selection Process Change From Year To Year?

Not really, no. This is one area where banks could improve their interview processes - see who does well in the job vs. how they came across in interviews, and look for more of the qualities that result in good Analysts.

It’s very easy to discern a good interviewee from a bad one, but it’s much harder to tell good bankers from bad bankers before they actually do the job. I know of people who interview very well but are actually bad employees and I know of great investment banking analysts who are terrible at interviewing.

It’s never a perfect process but reviewing past interviews and hires may definitely be a good way to re-calibrate things.

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-Glengarry Glen Ross (1992)

As we move further into investment banking summer internship season, one question I’ve been getting lately goes something like this:

“Inquisitor, I’ve done everything you’ve told me to in your investment banking jobs guide. I’ve convinced them I can burn the midnight oil, work til I drop, and want to be Gordon Gekko. But I’m not getting any offers. What’s wrong?”

What’s wrong? You’re lacking a hook. To seal the deal and land offers, it’s not enough to show you can do the job well and have a serious interest in investment banking as a career.

You have to show them that they need you more than you need them.

Of course, this is never really true. You’re just a resource. They’re a $100 billion bulge bracket firm.

But perception is what counts.

What’s A Hook?

A hook makes you stand out from everyone else. It can be your extreme enthusiasm over the job that caused you to email them 59 days in a row (just like Bud Fox calling Gordon Gekko). It can be the experience you had working at a Chinese Private Equity Firm last summer. It can even be how you were a Varsity Athlete in that sport they’ve never heard of.

But it can’t be, “I really want to do banking so I can learn!” or, “I like the fast-paced environment!”

Those are not hooks. Those are just standard reasons to say you want to do the job.

When bankers quiz you in superday interviews, they try to answer three questions:

1. Is he smart?
2. Can he do the job?
3. Do I like him?

If you want to close, the answer to #3 has to be, “yes.” You have to have a hook.

But I’m Just A Normal Person, How Can I Get A Hook?

If you just have standard experience, you have to go outside your previous jobs and activities to close your offers. One tactic is making a connection with your interviewer by having similar interests or asking questions about some topic he or she likes talking about.

This requires upfront research and isn’t always possible. But when you can do it, making a connection with the interviewer is a great tactic for increasing your success rate.

Was your interviewer in the Marines? Maybe your brother/cousin/uncle was too. Was he at a certain company or in the industry where your dad/cousin/uncle works? Same undergraduate schools?

Think far and wide to find that connection.

No One Wants You Until Someone Wants You (Then Everyone Wants You)

Yup, everything really is just like high school all over again.

Convince the firm that you have offers with other investment banks and you’ll get a big advantage. When they find out others want you, they’ll be afraid they’re missing something and decide they want you more now.

The correct answer to, “Are you interviewing with other firms?” is NEVER, “No.” Even if you’re not or have not gotten interviews with others, never say, “no.” Just be vague and say you are interviewing with other firms and are considering several options.

If you are indeed interviewing successfully with other firms, feel free to mention the names - this works especially well if they are competitive with your current firm. Naming any of the bulge brackets when interviewing with a bulge bracket, for example, gives you credibility (sometimes you can even get into specific offices, like UBS LA).

But I’ve Got Nothing… Really, Nothing!

Sometimes this happens. You don’t have any unusual or unique experience. Nothing in common with the interviewer. And no other competitive offers that might hurry them along.

Sometimes it’s just not meant to be. This is why you spread your net wide when interviewing at investment banks, especially in a tougher market. It’s just like applying to colleges - sure, go for Harvard, Yale and Princeton, but make sure you have some safeties (middle-markets and boutiques) in there as well.

Eventually, you’ll find one where people just mysteriously like you and you don’t need a “hook” or one where you have some connection to the interviewer.

And then you’ll close your interview and land your offer.

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After launching in late November just after Thanksgiving and explaining what exactly investment bankers do, Mergers & Inquisitions featured a variety of posts in the month of December.

For those looking to switch into finance and investment banking from other careers such as engineering and law, parts I and II of the series “Breaking And Entering Into Finance” featured some tips and advice:

Becoming A Banker With An Engineering Background

Becoming A Banker With A Law Background

I’ve received questions on getting in from several other professions, including accounting, consulting and industries like pharmaceuticals, so look for “Breaking And Entering Into Finance” to continue this year. Each article actually takes considerable time to research since I’m not an expert on all (or any) of these.

Mergers & Inquisitions also featured several posts in December 2007 for those of you out there trying to get a better handle on what the job entails and how to survive and stay healthy/sane in the world of finance:

A (Bad) Day In The Life Of An Investment Banking Analyst

When I started this blog I hadn’t even thought of this idea, but a reader suggested it to me and I immediately liked the concept. This details one of the worst days I’ve had in this job - stay tuned for an account for one of my best days, which will hopefully be nearly as entertaining.

How To Stay Healthy As An Investment Banker

This one was derived from a popular thread over on Wall Street Oasis about fitness tips and whether it’s possible to stay in reasonable shape as a banker. The short answer: yes, but it takes dedicated effort and you’ll probably be less fit than you were at the beginning no matter how diligent you are.

How To Pick Your Team At An Investment Bank

A guest post by Proud Ex-Analyst, this article featured some tips on selecting your group at a bank. People often like to think in terms of investment banking exit opportunities, but the reality is if you have good experience and have worked hard, you’ll get a good job afterward. Your co-workers matter a lot more than the “prestige” of the group.

Vacation Time In Finance Jobs

Can you actually take a vacation as an investment banking analyst? Does anyone ever take time off? Yes and yes, contrary to a lot of what you’ll read out there. This article explains when and how.

I also decided to start a weekly reader Q&A and post answers to some of the questions I receive from readers each week if the questions apply to a large set of people (e.g., if you’re not asking how to get into banking after having been a monk in Nepal for 5 years and having circumnavigated the Earth by swimming and walking on your bare feet).

Q&A On Questions For Senior Banking Hires, Cover Letters And How Old Is “Too Old” To Switch In

The types of questions to expect if you’re interviewing for something other than an Analyst position, cover letter tips (hint: we barely read them) and changing careers when you’re over 30.

Q&A On Low GPA Issues, Internships For Freshmen And Saving As An Analyst

How to overcome a low GPA when applying for investment banking jobs, getting an internship even as a freshman and how much you can expect to save as an analyst.

If you want to be featured in one of these weekly Q&As or if you have any questions for me, email me and I’ll answer anything (assuming I can answer it, some of the questions I’ve been getting lately are tough).

Finally, just for fun I posted the other day a couple of reasons NOT to do investment banking. Hint: don’t say you’re in it for the “models and bottles”, because you want to start a company or to see if you can handle it.

Happy New Year everyone and stay tuned for more posts coming up this week and next!

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-My Wardrobe, Leveraged Sellout (11/12/2004)

I get a lot of questions on good reasons to say you want to be an investment banker. The good news for everyone out there is that the list of reasons to do investment banking is fairly standardized. There’s not a whole lot you can say that I haven’t already heard before, and to be honest, standard answers like “I want to learn a lot” are still good ones.

But as an investment banking analyst, there is typically more downside than upside in most of what you do.

The same goes for interviewing and especially superday interviews. It’s easier to give a bad answer than to surprise someone with a brilliant answer, because there are no brilliant answers: just good answers, mediocre answers and terrible answers. Today I’m going to focus on the downside: mediocre and terrible answers. Reasons NOT to do investment banking.

Models And Bottles

This is one of the funniest videos I’ve ever seen on “banking lifestyle” (ok, I guess there haven’t been all that many videos on this topic), but it doesn’t mean you should say “models and bottles” when asked why you want to do banking. I don’t think anyone’s actually foolish enough to answer with this exactly, but any variant of making money/living the high life/getting beautiful women is a bad answer.

A lot of (most?) bankers are actually in the job for this very reason, but it’s not acceptable to admit it or suggest that’s why you’re interested in the field. Yes, investment banking salaries are legendary, but it’s taboo to discuss that.

Sometimes they try to put you on the spot in stress test superday interviews and get you to admit this under duress. In one interview they asked me, “Are you motivated by money?”

How do you answer such a question without admitting that you are motivated by money but also letting them you know you are in fact motivated by money?

“I’m not motivated if you just hand me a pile of money. I am motivated to work hard and earn money through my efforts.”

Plus, if you actually admit to doing it for the models and bottles, you’ll probably be fired (like A.J. here in the video once HR found out).

You Want An Entrepreneurial Work Environment

This one is a bit more controversial. I’ve heard interviewees say their long-term goals are to start their own companies or do something independent, and they’re just using banking as a stepping stone. Even if this is your actual goal, I would strongly recommend against saying so in an interview.

Working at a bank, especially as an investment banking analyst, and doing something entrepreneurial are completely different. As Samuel L. Jackson might say, “ain’t the same ballpark, it ain’t the same league, it ain’t even the same sport.” At the very top levels of banking, what the Managing Directors do is somewhat entrepreneurial because they have to build the business and bring in new clients. It’s not the same as building a business from nothing, but it’s closer than an Analyst will ever be.

The other issue here is that investment banks want to see that you are committed to the job for at least 2-3 years. Even if you don’t want to stay in banking, they would be much more comfortable knowing you want to go to private equity or join a hedge fund, because at least those are still in the realm of finance.

To Say You Could Hack It

This one, again, falls under the realm of something you wouldn’t say, but might have in the back of your mind if you want to do something completely different eventually, such as public service.

Although you can learn a lot in 2 years of banking, it is not worth the pain and suffering you go through if you just want to show people “you could hack it.” If you really do want to do it and then go off and do something unrelated, it would be most rational to be an Analyst for 1 year and then leave for other pursuits. I know of several people who have done something similar. While it’s still painful, 1 year is better than 2 (as long as you’re not at UBS LA). And you still get to take advantage of those investment banking bonuses.

Most of your learning occurs in the first 6 months - 1 year period, so you won’t be missing out on much if you leave after that; the main drawback will be fewer closed deals to discuss.

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