Planes, Trains and Capital Equipment: What You Do In the Industrials Group at an Investment Bank

64 Comments | Investment Banking Groups & Regions - Industry Groups

2 Flares 2 Flares ×

Investment Banking IndustrialsOne question I’ve gotten a lot over the years is what different groups at a bank do.

Yes, everyone knows that M&A is supposedly more technical than other areas, but what about other industry and product groups?

Some of that has been answered with coverage of ECM and related groups – and today we’re going to fill in more of the puzzle via an interview with a reader who works in an industrials group.

Here’s what it’s like, how it’s different from other groups, who does the work, and how you get recruited into these groups:

Definitions

Q: I get a lot of questions on which group is “the best” and how modeling and technical work is split among industry groups and product groups (M&A, LevFin, etc.) at a bank.

What has your experience been so far? Do the product groups do most of the heavy lifting?

A: Generally the product groups, such as M&A and Leveraged Finance, are more modeling-oriented – but the analysts there also don’t get much of the industry exposure that you would get from being in a strong coverage group.

The three-statement model or standalone operating model is the standard model used in any industry coverage group, so you do get exposure to that.

Many people assume that more modeling is always better, but like anything else it’s a trade-off – for me, the “best” group is the one that gives the most well-rounded experience and lets me work with companies I’m interested in.

I like being in an industry group because I get to work on a wider range of deals, rather than just M&A or just debt offerings.

I’m also more interested in industrials than other groups – I prefer to read about railroads rather than semiconductors.

While the work itself in a technology group and an industrials group may not be that much different, I find myself far more interested in the latter.

Q: Is an industry group always “an industry group?” What determines how much marketing work (pitch books) you do vs. how much deal and advisory work you do?

A: That’s a good point – there are actually a couple group variations:

  1. Origination – These groups just do marketing and pitch for new clients, especially on financing assignments.
  2. Advisory – This is the traditional M&A work that banks are associated with.
  3. Coverage – In this group there are elements of both origination and advisory work, but you’re focused on a particular sector.

Since I’m in a coverage group I do both marketing and client work – I bring this up because a lot of people incorrectly assume that an industry group is 100% marketing and a product group like M&A is 100% deal execution.

That said, there is definitely an emphasis on knowing the sector in coverage groups.

Q: Right, so it sounds like “industry groups” should really be labeled “coverage groups” if we wanted to be more accurate.

What kinds of companies do you cover in industrials and how is the group divided into different sub-industries?

A: Most investment banks divide industrials into capital goods (machinery, equipment, anything used to produce other goods) and transportation (railroads, trucking, and so on) groups.

Sometimes there’s overlap with related groups such as natural resources and chemicals; for example, a metals and mining group might fall under industrials or it might be classified under natural resources.

One of the areas I work on is aerospace and defense, which is usually a sub-group within industrials (capital goods).

Dealing

Q: What types of deals do you work on and how is the work divided between your group and product / other groups?

For example, let’s say you’re working on a sell-side M&A deal – who would be responsible for the buyer list, the Information / Offering Memorandum, model, management presentation, and final negotiations?

A: We get exposed to all types of deals, but my group is strongest in M&A advisory followed by high-yield debt; we don’t do many equity issuances.

There is also some restructuring, for example, in the airline industry – though that is more of a transportation sub-sector. Aerospace works with the parts manufacturers (ex: Precision Castparts, Spirit Aerosystems, etc..) instead.

The split between different types of work depends on the deal and who’s busy at the moment, but usually coverage analysts run operating models for clients because we’re more familiar with the industry.

The rest of the work and other models may go to the M&A team, with input from us – especially on industry-specific issues such as identifying appropriate buyers.

If I were working on a high-yield debt offering, I would still be responsible for the operating model but the Leveraged Finance team would come up with the optimal pro-forma cap structure and do the analysis on credit ratios and other debt-specific modeling (ex: pricing).

If the assignment were even more specialized – for example, a restructuring deal – then the restructuring team might manage the entire process with the coverage team helping with tasks like finding buyers and summarizing the state of the market.

Q: That makes sense – I think the division of labor is dependent on the bank as well, but those are some good guidelines for anyone who’s wondering about this.

Is there anything specific to valuation or deals with aerospace and defense companies that you don’t see elsewhere?

A: The mechanics of models are similar – a merger model is a merger model, after all – but there are specific metrics and drivers for aerospace and defense companies that you don’t see elsewhere.

For example, for airlines you use metrics like revenue passenger carried, revenue passenger miles, and available seat miles.

When you’re making projections for aerospace companies you use drivers like the order backlog, capacity utilization, and the airline sector’s overall health (N.B: measured in the number of planes in the air, or how many are kept parked).

Defense companies rely on government contracts – which have long lead times – and the defense budget, so you need to factor those into any models you create.

You also have to be up on the industry and the latest trends to figure out which specific areas within companies might have room for growth (e.g. persistent intelligence, surveillance, and reconnaissance) and which might see decreased spending (e.g. C-17 Globemaster).

I would highly recommend the equity research report “Deciphering Defense – An Industry Primer” by Ronald J. Epstein, Bank of America Merrill Lynch, September 2009 if you’re interested in learning more about the sector.

Another quality guide is this BoA-ML report on the Commercial Aerospace sector from April 2009.

A few further resources and example pitch books for the industry:

Lifestyle, Pay & Recruiting

Q: What’s your average day like? Do you work more, less, or the same as analysts in other groups?

A: Hours are comparable to other industry groups – in other words, long, and definitely longer than more markets-based groups such as ECM or sales & trading.

I’m not sure how it compares to M&A or other product groups, but once you get to a certain number of hours per week you can’t sense much of a difference.

I usually start each day by reading the news and looking for details of companies in my industry “exploring strategic alternatives” (banker-speak for “looking to buy or sell”).

I also pay attention to developments such as management changes, government contract awards, and inventions and patents within the set of companies I cover.

After that, it really depends on what’s going on at the moment – I might spend a lot of time on an operating model for a company if we’re working on a deal, or my day might consist of working with other groups and providing input on pitches or deals they’re working on.

Q: Right, that seems consistent with what you mentioned before about how coverage groups operate.

I also get a lot of questions on how bonuses compare in different groups. At the junior levels I would assume that most product and industry groups are very similar – is this accurate?

A: Yes.

Q: Finally, how do you actually get placed in an industry group? Do they focus more on lateral hiring or recruiting straight out of universities / business schools?

A: Most of the time analysts are recruited directly from the undergraduate training pool (and associates from the MBA training pool).

Recently, with the market picking up, many firms have been hiring lateral analysts with experience in investment banking as well [N.B.: As of mid-2010].

Q: Great, thanks for your time.

A: No problem – enjoyed speaking.

About the Author

is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys learning obscure Excel functions, editing resumes, obsessing over TV shows, and traveling so much that he's forced to add additional pages to his passport on a regular basis.

Break Into Investment Banking

Free Access to Exclusive Content for Members Only!

Loading the player...

Sign up for The Banker Blueprint today and enjoy:

ebook
  • Free Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews,
  • Exclusive emailed bonus material,
  • Free Banker Blueprint newsletter with more in-depth advice,
  • Unlimited access to all articles, videos, and advice - and free updates whenever new content is added to the site,

 

We respect your email privacy

Read below or add a comment...

64 Comments to “Planes, Trains and Capital Equipment: What You Do In the Industrials Group at an Investment Bank”

Comments

  1. Peter says

    Hey Brian,

    nice to read sth about industrial groups – never read about them before :).

    Further, you sometimes speak about “your journal” when you recall certain days when you were still employed. So what did it look like? Did you note all your deal involvement into a journal/your day-to-day events?

    Thanks for your input!

    • says

      It’s very scattered because I was too busy to write for long stretches – it was more about other analysts and friends vs. what was going on with deals, as that was actually easier to remember.

  2. A says

    Does being placed in a particular coverage group pigeonhole you to work forever within that group/industry? If for example an analyst in industrials wanted to exit into buyside tech. would it still be possible?

    • says

      You do get pigeonholed as you move up – not because there’s a good reason, but because headhunters need to save time by looking for really specific people. It’s worse on the buyside actually – very difficult to move from a fund that uses one strategy to one that uses a completely different strategy. Sell-side is a little more flexible but you do get labeled “the aerospace analyst” or “the semiconductor analyst” once you’ve been there awhile.

  3. Joe says

    Hi Brian,

    What technical knowledge is required for investment banking? I’m a math and econ major, and I think I’d be stuck if they were to ask me finance related questions. If so, would you recommend any specific classes?

    Also, I’m currently planning to graduate early by a year. Since my resume could probably be stronger from an extra year’s worth of work experience, would this be a good idea?

    Thanks!

  4. Eric says

    Dear Brian,

    I’m a regular visitor to your website and I must say that I really appreciate all your effort and time in sharing all these wonderful insights and knowledge about the banking industry.

    I have one question for you though. If everyone is doing banking for exit opportunities, is it really okay to say that you’re doing banking because your long term goal is to get into PE. By the way, Im a senior in college and will be applying for analyst positions this recruiting season.

    • says

      I would keep it more open-ended and say, “I want to be in finance in the long-term, though I’m not sure where specifically quite yet – definitely interested in advising or investing in companies though.”

  5. App says

    nice change… really liked it..specially since I am also interested in this sector… one thing though.. How would you rate the chances of a coverage group guy to break into PE(sector specific or agnostic) later on ?

    • says

      Chances are good esp. if you have M&A / debt experience – only issue is that you would be more limited to industrials-focused PE groups.

      • App says

        Alright.. so does that mean that sector agnostic PE firms prefer a product group guy, I mean even though firm might be sector agnostic but it would surely have some core sectors (favorites if i may call it).

        Also, off the discussion, how would Rating agency (I am thinking Fitch) experience stand against an IB experience.

        thanks for your time and keep up the good work..

        • says

          They might, though it’s more about the person to most PE firms. Ratings agency experience is ok but not as good as business development / trading / PE / banking and arguably PWM, maybe about equal there.

  6. Will says

    Do banks ever recruit people from the industry for their industry groups? Would it be kinda situtation where you go and do an MBA and then move in as an associate or do they ever look at analysts with industry experience. (particularly interested in pharmaceuticals as that’s where I’ve got a job lined up as a pharmacoeconomist and I’m thinking a couple years down the line what my options are if I take this route)

    • says

      Good question. It can happen, but in practice it’s pretty rare at the analyst level. Most of the time if they want to hire someone from industry, they’ll find someone more senior – a VP of a division at a company, for example.

      I knew someone who was a VP at a semiconductors company and then moved into banking at the associate level, so that type of move can definitely happen even if it’s at smaller banks.

  7. LL says

    Hey Brian, great article… i was thinking about going to an industry group in the future as well.

    Quick question, I participated in a Recruit Program specifically for finance just couple weeks ago that helps students build their network with the industry professionals, hear them talk about their experiences, etc.

    To be in the program, I was selected as one of the two students from a pool of 100 applicants. Do you think I can put this under my EDUCATION section as follows?

    (School name) Finance Recruit: Selected as one of the two to participate from a pool of 100 applicants

    Do you have any suggestions to improvise?
    And this DOES fall in the Education/Honors right? Or Should it go under Activities at the very bottom.

    Thanks

    • says

      That sounds fine, could go in either Education or Activities… Education is better if you’re not at a well-known school and want to sound more impressive. Maybe add in something that describes what you did as well and which banks you met the professionals at, name-dropping is always good

  8. Don says

    What are the differences and similarities between investment banking and corporate finance? To me they seem really similar yet in the banks, they are in different divisions..

    • says

      They are similar and sometimes used interchangeably. I think there is more of a difference in the UK, where “corporate finance” usually refers more to the debt and equity side instead of M&A (might be wrong there, feel free to correct).

  9. Peter says

    Hey Brian,

    another question…

    If you want to go to a PE firm later but want to “live the dream” as investment banker a few years.. Is it possible to apply at an PE firm even when you are Associate with ease or do you have to apply/ call headhunters after your first year as FT analyst?

    Thanks

      • Peter says

        Brian, why is it much more difficult when you have become an Associate?

        How are chances if you have been VP, did chances decrease further??

        Thank you very much :).

        • says

          Because advancing makes you sharper, but more narrow – just like a pencil sharpener. PE firms want young, malleable analysts who can still work 24/7 as opposed to associates / VPs who are further away from grunt work and might actually have interests outside work.

  10. Peter says

    Hey Brian,

    thank you very much for the answers abouve.
    Another question (sorry if I am annoying you :))…

    I want to apply for those spring weeks but, surprise, competition is quite tough. So would you recommend any networking? How would it differ from the usual networking/informational sessions you recommend because actually you get your first-hand experience at those events. Wouldn’t it be strange to ask bankers for their experience/background in informational sessions (before the event), when the event is supposed to give you those informations/networking opportunities for summer analyst offers. The firms want you to sit many numerical and verbal tests followed by a superday.

    Do you have any input on that topic how to leverage anything I can get into a better chance of getting an offer to participate?

    • says

      Yes, networking is still helpful but in that context you should be more specific beforehand, focus most of your questions on what to expect during spring week, and so on. Contacting them further in advance is also more helpful in that context because then you know them, have spoken before, and can then contact them again right before applications are due just to remind them that you’re applying.

  11. cauchy says

    Hey Brian,

    I’m a junior undergrad at a non-target with a 3.0 due to failing a couple of courses (4.0 before that). if I retake those courses, I can go back up to a 3.6 because the grades will be replaced. Applications start this fall but should I apply after December with a higher gpa? and wouldn’t applying late affect my networking? in this case taking an extra year might help right?

    • says

      If you can get it back to 3.6 before December, do so – not worth taking an extra year if you can do that. Network now and then go through interviews December – onward.

  12. H says

    M&I,

    Just wondering, when’s the earliest/latest time you should contact a banker for a follow-up in-person meeting? As in after you already talked with them on the phone for the initial “mini-ask” stuff, when should you move for a face to face thing? Thanks

  13. k-Fed says

    Hi M&I,

    Do you have any suggestions for following up with analysts/associates after meeting with them (I toured several bulge bracket firms last week)? I realize these are very busy people; do you recommend including a question or simply thanking them for their time?
    Thanks!

  14. AS says

    Brian,
    First off, God bless you for putting up this website!The amount of info I got from here was like drinking from a fire hose! Your site meant a lot to me!

    Now on to my question. I will be getting out of Purdue with an Aero major and a 3.2 GPA by next year Dec. Do you think I have a long shot at industrials? Or should I take a few finance classes thus “demonstrate” my interest in finance? Oh, and my cousin knows 2 ibankers at Morgan Stanley and one back office guy at Goldman.

    • says

      Depends on your internships… if you’ve had banking or finance internships, maybe, otherwise your chances are not great with that GPA and no relevant internships.

        • says

          Again, it depends on networking and your previous internships… all you can do with a low GPA is network and cold-call aggressively. Some people get in with low GPAs by being super-aggressive.

      • AS says

        Also, I thought that a 3.2 GPA at Engineering (esp. Aerospace Engineering (esp. at 4th ranking Purdue U)) wouldn’t be looked down upon so much, especially since (as you outlined in another article) IB’ers think of Engineering as “hard”…

  15. dave says

    Hi M&I,

    Is there any way I could receive that report cited by the reader, “Deciphering Defense – An Industry Primer” by Ronald J. Epstein? I’m interested in learning more about the defense industry. I couldn’t find it on the internet.

    • says

      Unfortunately I do not have access to equity research anymore so it’s hard to find that information – if you have a brokerage account sometimes they publish research there as well so it’s worth a look. Can ask around but I’m busy at the moment so it may take awhile.

      • dave says

        Forgive my naivete M&I, but is equity research like that usually available for free to an average person? In other words, will it be awkward/inappropriate for me to ask strangers for that research?

        • says

          You can get some research for free on brokerage sites like TD Ameritrade but it’s limited. You can ask a stranger for research but it can be annoying to find / involve asking other people so I would only bother if you really need it and cannot find substitutes elsewhere. At a bank it’s easy to access through paid services they have.

  16. T says

    Hey Brian,

    I’m a psychology major with relatively low gpa who recently accepted a IBD in NYC offer from a brand name firm.

    Needless to say, your advice was crucial throughout the entire process. Thanks so much for all the help.

  17. Mark says

    I graduated from a top 50 university with a major in finance, held a PWM internship at a bulge bracket firm and passed the CFA L1 exam. Post college, I have 2.5 years of experience as a financial analyst and marketing manager in the consumer retail industry. I am looking to break into a consumer retail industry coverage group, what are your thoughts or suggestions on switching to an analyst role?

    • says

      I would talk to headhunters and network with alum for your university that work in the field right now and see if you can get referrals in. Whether or not you move in depends on timing, how aggressive you are, and if you can get a solid connection to groups.

  18. Graeme says

    Hi Brian

    I’ve got offers from a middle market PE firm and an industry group at a bulge bracket bank. Which option gives me a better chance of getting into a top tier PE firm later down the line?

    • says

      Either one works, really – in either case you’d have to go through interviews at larger PE firms in the future. From what I’ve seen, it may actually be easier to move to a bigger firm if you’re already in PE.

  19. julia says

    Hi Brian!
    I am currently writing my application for M&A internships at major banks, and I am telling them that I would be really passionate to work in the industrials team (following my degree in Mechanical Engineering)… Therefore, I wanted to find some big mergers done by each of the said banks, in order to include them in my motivation letter, but I cannot find them online (or maybe I am looking on wrong websites?)… Could you please tell me how to look for M&A deals done by banks like GS, MS, JPM, DB, CS etc? Thanks a lot for your valuable advice, keep up the good work :)

    • M&I - Nicole says

      With free resources, info can be limited – online websites such as http://dealbook.nytimes.com/ – shd help. Banks’ websites also list the major, recent deals they have done
      Other sources are Dealogic (costly, subscription-based), Bloomberg (try to get a hold of a BB terminal at school)..

  20. Chris says

    Hi Nicole,

    I recently received an offer for a Corp Fin/Corp Dev position. However, I am still very interested in pursuing a career in Investment banking. Is it possible to make the transition in the future?

Leave a Reply