Rothschild
RATES/INDEXES
LIBOR - is a benchmark rate that some of the world's leading banks charge each other for short-term loans - Serves as the first step to calculating interest rates on various loans throughout the world - Current USD 3 month LIBOR: 1.72% US interest rate - 1.25 - 1.5% BoE Interest Rate - Raised for the first time since the GFC this month - increase 25bps to 0.5% US 10 Year Treasury (risk free rate) - 2.54% S&P 500 - US stock market index that is based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices. - Current price close to 2,800 Dow Jones Industrial Average - Stock market index of 30 major companies - 25,800
How to build business plan? (look at how to build assumptions for 3 statement model)
*1. Look at historical financials, calculate key ratios* - YoY growth rates for Rev, GP, EBIT, Net Income. Growth rate calculations can only begin in year 2 not year 1 - calculate COGS, SGA, D&A as a % of Revenue, Effective tax rate as (Tax Expense/EBT). All year 1/year1 - Do the same with balance sheet - AR days, days a customer invoice is outstanding before its collected (AR/Rev x 365 days) - Inventory days, (Inv/COGS x 365 days), the number of days it takes to sell through inventory - AP days (AP/COGS x 365) *2. Make assumptions and forecast* - Look at revenue trend and make assumptions about growth - Typically as company grows revenue and keeps fixed costs constant, it will improve its gross margin, due to operating leverage. Company whose costs are mostly fixed has higher Op. Leverage, which means any increase in revenue is likely to straight to the bottom line in the form of profit, because the incremental cost of producing another unit is so low. e.g. Swimming club - Expenses typically a % of revenue - For balance sheet items like AR, AP days, might look at average across historical years and then keep that number constant going forward - Then create CF statement by taking net income for first forecasted year and making the necessary accounting amendments, adding back D&A adjusting for changes in working capital, cash from investing and cash from financing to arrive at company's net change in cash
What would Redmart and its advisors have presented to Lazada to entice them to doing a deal?
*1. Macroeconomic Overview* - GDP growth - Population growth - Smartphone penetration - Food consumption Look at bar charts and CAGR and explain trends *2. Look at each category RM sells goods in* - Look at volume and revenue in each cat. - Explain the trends for each category, who are the major players and key competitors, what is RM's market share *3. Business Overview* - What does RM do? what are some of the business characteristics? e.g. RM operates a fleet of 300 vehicles and owns two warehouses. - What are some of the key business highlights? It has strong margins and revenue growth - Who is it owned by? - What are the Key risks and mitigants? e.g Risk - Lack of geographic diversification (only operates in SG) Mitigant - One of largest economies in SE Asia, experiencing strong GDP growth. RM is a market leader in online grocery an industry still in its infancy (4% of total grocery vs 20% in mature markets like the UK) *4. Historical Financials* - Revenue, what is CAGR and growth rate - EBITDA - Working capital - Cash flow generation (EBITDA - Capex/EBITDA) shows how much cash generated after investing in business - Cash position - Explain trends and highlight key areas *5. Valuation overview* - Football field graph showing valuation range of company for each valuation methodology used e.g company comps, precedent transaction comps (slightly higher due to control premium) and DCF - Always show a range of values - Use companies similar to RM in terms of both Quantitative and Qualitative factors - What multiple does it imply EV/EBITDA
Behavioural traits
*Leadership* *STAR - OCS, Brunei, PC mission, planned, but navigation fail, therefore change plan, use MG,, instil confidence in men that can complete mission, secured objective by given H-hour *Excellence* - military, bmt, performed not as well, SCS worked harder, perform well, cross over to OCS *Teamwork* - IBCS, UMSU reject, network, GS, put in touch with UNIT , successfully carried out series
Pitch me a stock
*Micro-cap company with market cap of around $85m* *Where Food Comes From operates in one of the fastest-growing niches of the food industry: supply chain auditing.* *The company has built a strong moat with 30+ food verification services, and is beginning to ramp monetization through product and labeling revenue.* *WFCF has a proven track record of creating shareholder value through a profitable core business, organic growth and accretive acquisitions to expand its product line.* - The company's core business is food supply chain auditing. The company currently covers audits for beef, pork, dairy, lamb, bison, produce, dairy, eggs and grain. Future areas of coverage will be seafood, beverages and more produce. - The food auditing market is around $100m in size in the USA at the moment, and growing rapidly, and WFCF is a market leader in the space, with around 80% market share. - Auditing revenue is recurring, and profitability is improving as economies of scale kick in. Currently annual revenues are $10m, with EBITDA of $1.2m. - 80% of revenue at WFCF is currently driven by auditing, with the remainder coming from Cattle tagging and food labelling. - Food labelling is a huge growth prospect, with the market opportunity currently estimated at $2.7bn. WFCF is rapidly expanding in this high margin business, in partnering with grocery stores - Large amount of growth expected in the industry after China announced that it would start importing US beef again. China is already the world's second largest importer of beef, and its appetite is growing rapidly. Beef imports to China rose roughly 10X from 2010 to 2015. As China's emerging middle class continues to grow rapidly, it will continue to drive growing demand for beef imports for years to come. China has indicated it may soon reopen its markets to U.S. beef, which is expected to result in a significant increase in domestic beef producers conducting source and age verifications. How would you value this company? - As the company's revenue has grown significantly over the last ten years, CAGR of 28% - Could be difficult to project free cash flows for the next 5 years - Would look at Comparable companies in the food auditing space and see what multiples they trade at and apply them to WFCF. Multiples you could look at include EV/EBITDA, EV/Sales, P/E.
Share about a recent deal you have been following
*Overview* · Semiconductor company Broadcom is looking to acquire Qualcomm, has offered $70 per share ($60 cash and $10 stock). The bid has been rejected by Qualcomm. But if it were to eventually succeed it would be the biggest tech M&A deal ever. Also very interesting as it is a high profile hostile takeover deal. · 33% premium to Qualcomm's 30-day VWAP · Proposal stands even if Qualcomm acquires or does not acquire NXP, which it is currently in negotiations with, as long as the price remains · The proposed transaction values Qualcomm at USD130bn (EV) including 25bn of net debt from NXP · Broadcom has already received highly confident letters from banks to arrange the necessary financing. Silver Lake Partners have also provided a commitment letter for 5bn in convertible debt financing · In 2016 Broadcom was ranked as the 5th largest semiconductor company in the world, with Qualcomm being ranked 3rd · Broadcom annual sales are 18bn compared to Qualcomm's 22bn *Strategic Rationale* · Creates leading diversified semiconductor company, Qualcomm's cellular business complimentary to Broadcom's portfolio · Qualcomm's share price has fallen considerably, and has been effected by the poor relations with Apple (lawsuit) over royalties and payments · Good time to capitalize on the low share price of Qualcomm, but highly likely the bid will be rejected as Qualcomm was trading at $70 just a year ago, sees this bid as opportunistic, ignores future earnings potential of the company, building towards the deployment of its 5G networks · CEO of Broadcom is known for cutting costs in previous acquisitions such as the Avago Broadcom acquisition, and believes he can optimize Qualcomm's business · Broadcomm have considered using the upcoming AGM to nominate new directors, a hostile act · One stop shop for smartphone components would give the combined entity greater negotiating power with Apple and Samsung · Deal likely to face anti-trust issues in countries where both companies have market leading positions · Pro forma fiscal 2017 revenues of approximately USD 51bn and pro forma 2017 EBITDA of approximately USD 23bn, including synergies · Transaction expected to be accretive to Broadcom's Non GAAP EPS in the first full year after close *What are some defence strategies that Qualcomm could use to block the takeover?* • A poison pill shareholder rights plan gives existing shareholders the right to purchase more shares at a discount in the event of a takeover, making the takeover less attractive by diluting the acquirer. • A Pac-Man defense is when the company that is the target of the hostile takeover turns around and tries to acquire the firm that originally attempted the hostile takeover. • A white knight is a company that comes into the company, which is the target of a hostile takeover with a friendly takeover offer. *Why hostile bids may ultimately fail?* - If key employees/management at the target are unhappy or unmotivated this can impact the organisation and affect customers too. Essential to focus on keeping key personnel who have driven the companies success - Culture. Two contrasting cultures can cause organisations and departments to be silos. The whole point of a merger/acquisition is that the value of the combined entity is greater than the sum of the values of the entities when separate. If the two companies cannot work together to achieve the cost and revenue synergies set out, the takeover is likely to be unsuccesful. *Latest* - Broadcom has proposed candidates to replace the existing board of directors who are unwilling to engage with Broadcom - Wouldn't make sense to up the bid now as it will likely lead to back and forth and raise the price before the meeting
Restructuring
*Swissco* - Originally appointed as IFA to restructure debt - Debt outstanding of $XXXm USD - Weren't able to gain creditors approval to restructure the debt obligations - Judicial Management, what does it mean and entail - Transaction, how much? Circa $30m USD. How much haircut? Can't say at the moment but unsecured creditors are expected to receive less than $0.10 on the dollar, significant haircut. To be approved by creditors at the Scheme Meeting
What are Rothschilds values?
*Thoughtful* IBCS, saw students weren't utilising networking events, asking basic questions to bankers which led to wasted opportunities and less meaningful conversations Student society rejected application to set up society, claiming there were already enough finance society's at the university Rather than quitting or being determined to set up our own society, we swallowed pride and networked with existing societies to ensure that we could deliver the seminars to the students. Many societies saw the value we could add and one subsequently accepted our proposal and provided us with the resources needed to facilitate the seminar series Set up seminar series, educated students, gave seminars Led to students giving feedback saying how useful it was, having more meaningful convos, Goldman Sachs wanted to sponsor the seminar series in the following year *Principled (integrity)* During my National Service, I was chosen for leadership training, and after a 9 month course was commissioned as an Infantry Officer. After commissioning, I was posted as an instructor at the Officer Cadet School - Here I took charge of a section (7 cadets) - I was in charge of their training, welfare and discipline - After a week's worth of being out in the field or jungle in Singapore, I could see my cadets were weary and lacking motivation - To encourage to perform well in the final mission ahead, I told them that if they were successful in completing the mission, and if they met my standards, that they would be rewarded with a canteen break (explain what this is), when we returned to camp, something I had already asked my superior for - After completing their mission successfully, I approached my superior to check that they could still be rewarded with a break - In our meeting however, he took back his words, and said that there wouldn't be enough time to complete the other post mission administrative tasks if they went on their break - When I heard this, I was quite disheartened, I had given my word to my cadets that they would be rewarded for their hard work - Even though my superior was far more senior than me in rank and could be intimidating at times, I explained to him my rationale for giving the break. I also told him that trust with my cadets, was the most important value to me as an instructor, and told him that I must lead by example and stick to my word, so that one day when my cadets became officers, they would also keep their word to their men - I also explained to him that I would personally ensure, that all the other administrative tasks were accomplished as well - After explaining to him all my reasons, we reached an agreement and he eventually said it would be alright for them to go for a canteen break - I was thoroughly happy with the outcome, not only had I delivered results in ensuring my cadets performed will in their mission, but I also kept my word and rewarded them accordingly. *Creative* -IBCS, saw students weren't utilising networking events, asking basic questions to bankers which led to wasted opportunities and less meaningful conversations Set up IBCS, educated students, gave seminars Led to students giving feedback saying how useful it was, having more meaningful convos, Goldman Sachs wanted to sponsor the seminar series in the following year
You moved around a lot, why?
- At university I was always set on working in Sales and Trading, as my family used to work in that aspect of Finance, and that was something I was often exposed to - However, when I started working on the trading floor, I realised I really wanted to learn about Companies and their business models, and I felt if I stayed on in trading I would never have gotten that exposure. - After joining Redmart, and learning about the e-commerce business, and then becoming interested in transactions, it became clear to me that working on the advisory side was what I wanted to do, and speaking to people in the industry to understand about the type of work they performed confirmed this - When joining EY, I always knew I wanted to use the role as a platform, to eventually join an investment bank
Global economy
- Coming to the end of quantitative easing in Europe - The US has already begun hiking rates - Likely to see a lot of uncertainty as rates continue to hike, as this is the first time that rates have begun climbing in the US since 30 years ago - Asset valuations globally are at record levels, capital is chasing yield and certain assets such as cryptocurrencies have shown the record amounts of funds looking for higher yields *M&A market* - M&A market looks strong for 2018 - A lot of companies are increasingly looking to enter into sectors which are not their traditional sector especially in Retail and Tech, e.g. Amazon Whole Foods - Economic strength across the globe. "In 2018, 75% of major economies are expected to generate more than 2% GDP growth, compared to only 57% in 2011," Citi writes. "Aggregate corporate earnings are expected to rise by 10.1% in 2018, up from 7.0% in 2016." - The Amazon effect is lingering in corporate boardrooms. "Rapid technological change is requiring companies to think unconventionally about the types of deals that are necessary to adapt to changing demographics, consumer behavior, and technological innovation," Citi writes. The report continued: "More firms are exploring transactions that blur traditional sector boundaries to create shareholder value." - US corporate tax reform will provide cash flexibility for acquisitions. "The domestic provisions of the tax reform result in an estimated annual 12% increase in cash flow for the median U.S. firm which, over a five-year period, creates 0.5x incremental leverage capacity," Citi writes. - The repatriation of offshore profits could provide a boost, too. "The top 15 firms have more than $10 billion each and the next 20 have over $5 billion each. While access to this cash provides immediate dry powder for additional M&A, many of these firms already have significant financial flexibility," Citi writes.
Lazada-Redmart deal details
- Deal value not disclosed but estimated to be between $30 - $40m USD *Strategic Rationale* - Lazada offers all items except perishable goods - Groceries have a much higher frequency purchase, almost twice a month compared to electronics etc. More data from which to gather info from potential customers - Singapore online grocery market very much in its infancy, only 3/4% of total grocery sales. Total grocery market is estimated to be around $4bn USD market - Out of all SE Asian countries, Singapore has highest smart phone penetration and greatest spending power, making it most mature market for this business model - Defensive strategy to gain first mover advantage in the grocery market over Amazon, Amazon Fresh launched in mid 2017 in Singapore
Why Investment Banking?
- I want to work in IB, as I want to learn more about how transactions can help companies to achieve their goals - I am very interested in learning more about companies and their business models, and I think in working in investment banking you get to learn the ins and outs of companies in a specific industry, by looking at their financials, and understanding their strategies, and that is really interesting to me - I also believe IB also has a steep learning curve and at times can be a challenging environment to work in, where you are expected to deliver results - Through my previous experiences both in the military, I have learnt that I enjoy significant responsibility, as well as working in a results driven environment, which I firmly believe Investment Banking will provide - I also think that in working in IB, I will be surrounded by very talented and interesting individuals which will only help me to speeden my professional growth
You already work in TAS at EY why do you want to work at an investment bank?
- I'm very much interested in learning about all aspects of a transaction, from the financial modelling and valuation, to the due dilligence. - At EY, you become specialised in one of those areas of the transaction. And having spoken to people who have worked in IB, it is clear that they have a strong understanding about all aspects of a transaction, which is what I am interested in
What do investment bankers do?
- IB's provide advice to corporations and PE firms on mergers, acquisitions and financing solutions to help them to achieve their goals - Investment bankers offer advice on how the company should go about the transaction, including the pricing of the offer. This involves valuing the targeted company and coming up with a price that represents its value. On the other side of the deal, companies putting themselves up for sale also need investment bankers to evaluate asking price and offers.
How would Lazada have gone about valuing Redmart?
- Look at what similar publically ecommerce grocery retailers are trading at - DCF analysis
What did you do at ANZ?
- Sold investment products, mainly Dual Currency Investments to ANZ's private banking clients across asia - Its a derivative product which combines the yield on a fixed deposit with a currency option to provide a higher yield - Client is essentially selling a call option with the strike slightly below spot rate - If the spot falls below the strike rate the client is converted from the base currency into the opposing currency at the given strike price. - Not principal protected.
Questions to ask Interviewers?
- You mentioned earlier that you work on Power and Utilities deals, would you mind sharing what drew you to that sector? - As someone who is at the start of their career, joining a firm invests in training its people is important to me. Would you be able to share whether there is a training program for analysts? - You've had a very successful career in investment banking at Rothschild, what would your advice be to a junior with ambitions of having a successful career at Rothschild? - Would you mind if take your email down, in case I have any follow up questions?
What are your strengths?
1. Ability to work well in a team environment - During my time in NS, I often had to work in a team to achieve an outcome - Learnt how to communicate effectively and collaborate efficiently with large groups of people from diverse backgrounds 2. Being rational and not phased by challenging environments - Not phased by stressful situations, time in army, shouting on mission, constantly changing variables, learnt how to keep calm to think rationally and make a decision whilst facing adversity 3. Curiosity - I'm constantly looking to learn more, whether it be from reading or listening to something, or meeting new people and learning from their experiences
Walk me through your CV
1. I was in born in Singapore, but grew up in London and went to high-school there. After school, I returned to Singapore to serve my compulsory National Service for just under 2 years, after which I chose to study a BComm at the University of Melbourne, where I majored in Finance. In my last year at university I was awarded the Melbourne Global Scholars award to study abroad at the London School of Economics. 2. After graduating from Uni I started working at ANZ in their global markets division. The team I joined sold cross-asset class investment products to ANZs Private Banks across Asia. Although I thoroughly enjoyed the fast-paced and quantitative nature of the trading floor, I wanted to learn more about the value drivers behind companies in various industries. 2. After leaving ANZ, I joined local ecommerce retailer, Redmart, as a graduate. During my time there, I performed a lot of quantitative analysis using both Excel and Tableau to recategorise the Food Cupboard category which helped to reduce bounce rates for the site. I learnt a lot about how an ecommerce business operates, both from a merchandising perspective and a logistics perspective. During my time at Redmart the company was acquired by Lazada, this deal really sparked my interest in M&A and transactions, and showed me how valuable a transaction can be, in helping a company achieve its goals. After this happened, I started to read more and more about transactions and tried to reach out to people who worked in the investment banking industry to find out more about the type of worked performed. 3. At the beginning of the year I joined Ernst and Young Restructuring group. Here I've assisted in the JM of of a publicly listed marine company. I've had to help in running the day-to-day operations of the company, along with reviewing legal documents and contracts. I have enjoyed learning about the OSV industry, I have become much more interested in working directly on a transaction, and learning more about financial modelling and valuation. I'm speaking to you today because I want to learn more about how transactions can help comapanies to achieve their goals. Having spoken to people who have worked at Rothschild previously, I am confident that Rothschild is a great firm for me to join, to achieve my personal goals.
What are your weaknesses?
1. Sometimes when asked to perform a task can get caught up in the intricacies of the task, and not see the bigger picture/objective - Have been improving on this weakness by clarifying and understanding how the task fits into the bigger picture of events before performing it 2. Sometimes I can get impatient when my work is being held up by other people. - I have been improving on this by putting myself in the other person's shoes and trying to understand that they have other work commitments too, and that my work is not their only priority. 3. Don't feel particularly connected to one country or city, having lived in several countries I feel very mobile - This could also be useful in working in different places globally, but for now I certainly see myself working in Singapore as my family is living here.
Rothschild deal - Bayer + Monsanto
One of the deals that I read about over the last year is Bayer's acquisition of Monsanto, where I believe Rothschild advised on Bayer. The deal was first announced in 2016, with Bayer, the life sciences conglomerate, purchasing Monsanto, the agriculture company, for an aggregate value of $66 billion and a per share value of $128. - 37 percent over Monsanto's closing share price of USD 89.03 on May 9, 2016 - 17.6x Monsanto's EBITDA (before unusual items) in the 12 months to 31 August 2016 (Bayer is financing the deal through raising $19bn through a rights issue and a sale of convertible bonds, whilst also issuing debt) The transaction will bring together Bayer's Crop Science business and Monsanto's GM seed business. Bayer's agriculture business currently focuses on crop protection (pesticides, fungicides etc), by acquiring Monsanto it adds a seed, and GM modified crop business. The deal would elevate Bayer to become the biggest agrochemical company globally, and will create one-stop shop farming supermarket for sprays and seeds. The deal is interesting to me, as it has the potential to change the agriculture industry significantly through a larger R&D budget which will allow for more innovation. The agriculture company of the future will not only sell seeds and sprays, but also provide farmers with data to make better business decisions, in an increasingly challenging climate with less resources. The companies have stated that by merging, the agriculture industry is better prepared to feed an ever increasing population which is expected to increase by 3 billion people by 2050. The deal has taken a significant amount of time to obtain competition regulatory approvals from several governing bodies. I believe the latest news, is that European Antitrust authorities are currently investigating the deal, which is expected to close later this quarter.
Why Rothschild?
Rothschild is a leading independent financial advisory group, and was ranked first in Europe for the number of M&A transactions completed last year and second globally. - I believe independent IB advisory firms are increasingly becoming the preferred choice of advisor to large corporates, as they look to separate advice from financing - Rothschild can provide conflict free unbiased advice, whereas traditional investment banks have conflicting interests with financial or underwriting commitments Having also spoken to people who have previously worked at Rothschild, they spoke very highly of the exposure and opportunities given to juniors at the firm. As someone at the beginning of their career, joining a place which invests in its people and helps to develop them professionally and personally is extremely important to me, and I strongly believe that Rothschild would be able to provide that environment.
Roth businesses and recent financial performance
Three businesses: 1. Global Advisory - about 1.1 billion euros in revenues for 12m ending Sep 2017 - ranked 5th globally in terms of advisory revenues - Advisory revenue roughly makes up 57% of Rothschild's annual revenue - Split into M&A and Advisory, Debt Advisory and Restructuring and Equity Advisory 2. Private Wealth and Asset Management 3. Merchant Banking - Rothschild Merchant Banking is the investment arm of the Rothschild & Co Group with global commitments in excess of €6 billion across Corporate Private Equity, Secondaries, Multi-Managers funds and Co-Investments, Direct Lending and Credit Management
