As second-year MBA students chatter at cocktail parties, one of the major topics of discussion is who landed investment banking offers. Although the reputation of investment banking has taken a beating following the 2008 financial crisis, corporate finance jobs are still an incredible way to gain valuable business experience and earn a handsome paycheck.
Since the financial crisis, many perceive investment banking to have changed forever, and in many ways, it has. But there will still be IPOs, mergers and leveraged buyouts and a need to raise capital to grow businesses, and that means there will be jobs for those who have what it takes to succeed in corporate finance.
For the MBA, the typical entry job into the corporate finance department is an associate position. It’s a demanding slot, but it’s one rung above an analyst position, pays well and leads to great client exposure and business experience. So what will it take for an MBA to secure an associate position?
From B-School to I-Banking
Yes, corporate finance looks for bright individuals who can clearly articulate business insights and who will dazzle clients with social skills. But at the associate level, investment banks are also looking for MBAs that have strong finance experience and are driven and disciplined.
In terms of experience, bankers are ideally looking for candidates with previous corporate finance experience. Such experience could be a pre-MBA stint as an analyst or a summer internship with an investment bank. Firms also tend to value candidates with Big Four accounting experience, commercial banking experience or other positions that require significant exposure to finance and accounting.
Similar to the analyst hiring process, interviews for associate positions can be intense, and the ante is upped for candidates who have completed graduate programs and will be expected to work more closely with clients. Associate candidates should put in several hours of practice interviews and be prepared for all sorts of questions. For those who have already gone through the interview process as an analyst, the interview won’t be as intimidating (otherwise, get ready!).
Interviews may involve several rounds, culminating in a “super Saturday” round in which the top candidates meet with all the bankers at the firm for another round of interviews and socializing – giving the firm an opportunity to see which candidates are the best cultural fit.
As with most interviews, candidates must be prepared to impress the firm with their intellect and skills, but more importantly, they must prove that they are a likeable person that will work well with the firm’s employees. For candidates who receive offers, it’s time to get ready for life as an investment banking associate.
The Corporate Finance Quarterback
There’s a good reason why associates earn a healthy salary and a large bonus each year. In short, they are the quarterbacks of the corporate finance office. They may have analysts to whom they can assign projects, but they have to juggle multiple projects from multiple bankers with complicated schedules. Managing the analysts is no easy task either, as each of them are pushed to the max with their project workloads.
Like analysts, associates may start their day at 8 am and not finish it until 1 or 2am – and sometimes may not go home at all. They come in on the weekend to stay on top of projects and ensure that documents and presentations are completed with enough time for thorough editing. Associates usually put in as much time as analysts – often 80 to 100 hours a week at New York firms or 60 to 80 hours at firms off of Wall Street.
The Deal Cycle
Associates play a key operational role in the deal cycle of the corporate finance department. In the deal cycle, investment bankers – the vice presidents and managing directors – will either approach or be approached by companies with ideas for potential transactions. These deals may include IPOs, follow-on offerings, private placements, mergers and acquisitions.
Bankers will set up a meeting with the company called a pitch, in which they pitch the services of the firm to the company and present their analysis of the feasibility of the potential transaction.
At the pitch, the bankers will present the potential client with a pitch book – usually a hard-copy PowerPoint presentation that describes the credentials of the bank along with a detailed analysis of the market in which the company operates and often a valuation of the company itself.
If the company is impressed with the firm and interested in pursuing a deal, then it will engage the firm to execute the transaction. Depending on the type of transaction and the conditions of the market, these transactions can take anywhere from a few months to a few years to complete. At any point in time, bankers can be working on several pitches and deals all at once.
What do Associates Do?
Analysts tend to work on the front end of the deal cycle, working on pitch books for the bankers. Associates also work on the front end of the deal cycle, overseeing and editing the work of analysts in the preparation of pitchbooks.
But associates also assist in the execution of deals – preparing sales documents for various transactions, editing prospectuses and even discussing due diligence materials with potential purchasers in M&A and other transactions. As associates gain the respect of senior bankers, they may get to accompany the senior bankers on pitches and become more involved in business development.
A first-year associate may initially perform many of the same analyses as analysts – comps, DCFs, LBO, etc. – but associates eventually transition to more senior level work. Rather than cranking through the template financial models that analysts work with, some may redesign these models or build models specifically for particular deals.
Much of the legwork that associates perform involves spreading client financials to share with potential investors or drafting private information memoranda for M&A transactions or private placements. Because of the nature of this work, associates often work closely with clients, speaking with CEOs, CFOs and other members of the management team to assemble relevant information for sales documents.
Associates quickly learn to charm clients while at the same time leaning on them to provide timely, detailed information for sales documents. Corporate finance transactions can be extremely stressful on clients (and associates), and associates must be able to navigate tough situations where clients have become fatigued and emotional by the deal process.
The Perks of Being an Associate
Despite all the pressure and long hours, there are some payoffs for associates who stick around. Depending on the firm, starting salaries for associates can range from $100k to $150k, but when you add in bonuses that are often north of 50%, total compensation can range from $150k to $250k.
Many firms have a policy that when employees have to stay at work past 7pm, they get their dinner paid for. Like analysts, associates stay past 7pm nearly every night, so free dinners can quickly add up to a lot of money.
Other perks often include reimbursement for cell phone or blackberry bills, free cab rides for late trips home and the occasional opportunity to celebrate with other bankers at a lavish closing dinner.
If an associate chooses to leave the investment banking world, their experience can often be leveraged to move into positions that would normally require more experience. Investment banking is incredibly rigorous work with associates wracking up double the hours of the average worker and performing their work at an intensity level that is among the highest in the business world. It is no wonder that they have an easy time excelling in other careers.
For associates who hang around, two or three years of experience usually leads to a promotion to a vice president position. Hours for vice presidents may be a bit lower, but travel is a good bit more.
A high-performing vice president can make the jump to senior vice president or managing director after several years. Although the hours and seniority of these positions may be slightly more appealing than an associate position (senior bankers can still be found at the office on many weekends), they also bear much more responsibility for bringing in new business.
Like any career, anyone considering an associate position at an investment bank should look beyond just pay and prestige and think about whether or not they will enjoy the work. Some of the most valuable benefits investment banking has to offer are the incredible experiences of working with companies during pivotal times – and the character that those experiences build.
Adam Fish, aka Professor Fish, writes on educational finance topics at Finance Ocean – an educational resource to help people broaden their knowledge of finance.