Investment Banking Case Studies

Investment banking case studies are a ritual followed by almost every bulge bracket Investment Bank (IB) hiring process. Is it a tough nut to crack? The answer is yes, but only if you have not prepared well. I am not here to frighten you, but let us clarify that preparing for case studies is as important as personal interviews. Not clearing this round could endanger your dream of getting into an investment bank.

But you have nothing to worry about. With this article on investment banking case studies, we shall see what they are and how they are used to judge IB aspirants like you. Also, you will find out how to prepare and answer case studies confidently and get your dream job. There, I already see you beaming with that bright smile, rejoicing your entry into investment banking Investment BankingInvestment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc.read more.

The case studies can be seen when you interview for Senior Analyst or Associate-level positions at an investment bank. Also, they are common when you appear for lateral interviews, i.e., while moving to another investment bank.

Pre-judging your inhibitions regarding investment banking case studies, I have listed a few investment banking questionsInvestment Banking QuestionsThe purpose of this Investment Banking Interview Questions and Answers is simply to help you learn about the investment banking interview topics.read more below. Hopefully, my answers will help you learn about this exciting round at the IB assessment center.

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What are investment banking case studies?

I am sure you must have solved case studies, particularly if you have been to a business school. The case studies at investment banks are similar, wherein you would be given a business situation to analyze and provide detailed recommendations.

You would be given all the required information and enough time to study general case studies. It would typically be a business problem that asks for your opinion. Your job is to: –

  • Make necessary assumptionsAnalyze the given situation, which could usually be a client’s businessAdvise solution on the present problem with supportive reasons

While the case study round would happen most of the time on the day of your interview, some recruiters also provide the material beforehand for the candidates to prepare well at home. You are then expected to discuss the case study during your interview.

A typical case study would have the following features: –

  • It would be a hypothetical situation, although it could resemble an existing condition of a corporation.It attempts to recreate its strategic decisions and its advisors.Financial information may or may not be provided depending on the relevance of the analysis that needs to be done.Your suggestions must be your or your allotted team’s original work.

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Why Investment Banking Case Studies?

  • The answer is simple. The bankers want to judge a candidate in real-world situations. They want to test the three most important skills required in a banker, analytical, communication, and people skills. Due to these reasons, the case study weighs much more than the other ways of judging candidates in the investment banking recruitment process.The investment banking job requirements differ from those of general finance jobs. Hence, the bankers want to use non-traditional candidates to identify the IB potential.Case studies give banking recruiters an indicator of how you would perform on the job. Hence, considered a better measure to judge candidates.You do not have to worry if your answer is correct or not. Instead, the interviewers are eyeing the candidate’s thought process and analytical skills to find a solution to the given problem creatively.Investment banking case studies are designed in such a manner that it enables the candidates to think on their own and brainstorm.One of the primary skills required in candidates for such jobs is solving problems. Therefore, recruiters want a basic insight into tackling challenging situations and apply their intelligence, education, and work experience to handle them successfully.Case studies appraise how you process information and react to new and surprising situations.Many times, the case studies are to be solved with a group. Hence, the interviewer here tests how you work within a team.

What are the Types of Investment Banking Case Studies?

Broadly, you can expect two types of case studies at the IB assessment center: the decision-making case studies and financial modelingFinancial ModelingFinancial modeling refers to the use of excel-based models to reflect a company’s projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact.read more case studies.

Decision-making Investment Banking Case Studies

  • They are more commonly asked as compared to the modeling-type case study. In this case study, you must make decisions for your client and advise them in certain situations.The client case studies could be based on finding sources through which one should raise capital, whether they should undertake the proposed mergerMergerMerger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage firm.read more, and why.You should expect these questions to be made available on the spot. It means that the case study is given to you in your interview. Therefore, you must solve and present the case within the given time frame.For this entire process, you would be given around 45-60 minutes for preparation and a 10 minutes presentation followed by a round of questions and answers.On-the-spot case studies would not involve a deep analysis of the case as the time required to do the same is not sufficient and would be more about presentation and teamwork skills put to the test.

Decision-Making Case Study Example:

One of your clients is a global corporation that manufactures and distributes a wide range of perfumes. They are contemplating ways to expand their business. There are two ways to either introduce a new range of fragrances with the current distribution channels or start a completely new company with different stores.

You are supposed to find out which would be a better solution for the business. To solve this, you need to compare the returns of the investments and decide on the solution with supportive reasons.

Modeling Investment Banking Case Studies

  • These are the take-home case studies where you must do financial modeling and simple valuation. So, it is more like a modeling test than a case study.The case study would perform FCFF valuation on a company or prepare a simple merger or leveraged buyoutLeveraged BuyoutLBO (Leveraged Buyout) analysis helps in determining the maximum value that a financial buyer could pay for the target company and the amount of debt that needs to be raised along with financial considerations like the present and future free cash flows of the target company, equity investors required hurdle rates and interest rates, financing structure and banking agreements that lenders require.read more model.You would be expected to analyze the corporations’ valuation multiples and decide whether they are undervalued or overvalued.Here, you are given a few days to complete your analysis. Then, you need to showcase your recommendations to the bankers on the interview day over a 30–45-minutes presentation.Compared to the client case studies, the analysis would be much more profound as you would be given enough time to work on.

Modeling Case Study Example

A pharmaceutical company has decided to make an acquisition. It has identified the company and has approached you to advise how much they should pay. In addition, you are provided with the necessary financial informationNecessary Financial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more, metrics and multiples, and the buyer and seller company overview.

To solve this, first, you need to find out if the acquisition is possible. Then, how would the deal structure and synergies be if the buyer has sources to finance the deal? After this, you need to use multiple valuation metrics to decide the price range of the agreement.

How to prepare for Investment Banking Case Studies?

  • Make sure you read business news often and focus on discussing how and what business transactions are concerned.Learn about various valuation techniques, their calculation, and how they are interpreted.Especially for modeling and valuation-based case studies, you must be prepared to format it consistently using PowerPoint and Excel.Yes, that is all you need to do. Read and solve as many case studies as possible so that you get the knack for understanding business scenarios and solving them.You may not find real case study questions that banks use for interviews. But since you have to practice, try asking a friend or colleague you know who has been through such case study rounds for the kind of questions they received.If even that is possible, create your case study. Yes, you could do that by taking up a company, building up a hypothetical situation, and asking yourself questions like whether they should merge with ABC Co.? What kind of capital structure should the company have?Check the company’s website to see if sample case studies are available for reference.

To practice more on case studies and tests at the assessment center, check out

Tips for Performing Well at Investment Banking Case Studies

While working on the Investment Banking Case Studies

  • Make a concrete decision and base your recommendations on logical reasons.Use a structured approach to tackle the problem.Focus on the most important issues prevalent in the case.Understand the case and questions carefully before interpreting and think twice before finalizing the problem’s decision.Do not panic if the solution to the case is not obvious.For modeling case studies, format the Excel and PowerPoint professionally.Prepare the type of questions you may be asked during your presentation.Assess all the relevant factors and possible problems, but keep in mind your resources.The solutions you provide should be realistic and be aware of the implications of the organizations under study.Have strong logical reasons behind every statement you make and cater to the case’s critical issues at the beginning.Having specific knowledge regarding the industry under study is unnecessary, but it would be an added advantage.When preparing, focus on reading deal news and practice as many scenarios as possible.

While presenting your Investment Banking Case study

  • Practice public speaking.Speak slowly and clearly.The presentation needs to be structured logically.While working in groups, interact with everyone. The interviewer usually eyes leadership skills and teamwork.Do not just try to show your ability to talk finance and business knowledge in an applied sense.Remember not to exceed the time limit allotted to present the slides.Rehearse well before so that it goes through smoothly.If it is a group presentation, ensure everyone gets the chance to speak and express their views. The assessors would mark your behavior while working in a team.

While Answering the Questions

  • Do not hurry to provide the answer. Instead, always organize your thoughts and then answer.Be attentive throughout the process.Expect the interviewer to ask additional questions to test how to deal with the unexpected.Be creative and think “out of the box” to get the banker’s attention towards you.The next important step is collecting your thoughts and bringing them across the main points. Do not beat around the bush, as you will have limited time. Hence, be precise as you speak.There is nothing right and wrong, but arguments (which surely happen if there are group discussions) strongly mention why you did not opt for those possibilities.

Investment Banking Case Study- Sample

You must be wondering how we apply all this in a case study. Let us understand investment banking case studies through an example discussed below: –

Investment Banking Case Study – Situation:

Simons Ltd., a software company, wants to maximize its shareholder value. It has three options to look forward to selling the company, i.e., making small acquisitions or growing organically. Argus Ltd. requests advice from your bank on the right course of action.

What you have to do:

  • They would provide an overview of the business, its competitors, probable acquisition candidates, financial statements, and future projections to review the company.Read through the provided information and understand the industry.Try to gauge the worth of the company compared to its peers Company Compared To Its PeersComparable comps are nothing but identifying relative valuations like an expert to find the firm’s fair value. The comparable comp process starts with identifying the comparable companies, then selecting the right valuation tools, and finally preparing a table that can provide easy inferences about the fair valuation of the industry and the company.read more.Conduct a valuation analysis using DCFUsing DCFDiscounted cash flow analysis is a method of analyzing the present value of a company, investment, or cash flow by adjusting future cash flows to the time value of money. This analysis assesses the present fair value of assets, projects, or companies by taking into account many factors such as inflation, risk, and cost of capital, as well as analyzing the company’s future performance.read more and relative valuation techniques.Compare the three options with the valuation and the impact of acquisitions.Prepare a presentation giving our recommendation on the best method to maximize the shareholder valueShareholder ValueShareholder’s value is the value that company shareholders receive as dividends and stock price appreciation due to better decision-making by the management that ultimately results in a company’s growth in sales and profit.read more in this situation.

The solution to the Investment Banking Case Study

The answer to this case study is somewhat subjective. You could take a stand and support it with reasons. However, here, we assume to sell the company for understanding purposes. Let us now see how you could sell as the suggested option.

Reasons:

We recommend selling because of the following reasons: –

  • The industry is growing slowly (less than 5% a year).The companies are overvalued.The acquisitions would not increase the revenue or profit significantly.

Presentation of Investment Banking Case Study

  • Please keep it straightforward with the reasons for your recommendation to sell.A brief overview of the industry, its growth characteristic, and its position.How would the company grow organically in the next 5-10 years?Briefly explain the acquisition candidates and opportunities with them.Justify why both the organ growth options and the acquisitions do not work out.Explain the DCF analysis you performed and show how selling is the best feasible option.

Conclusion

Since investment banking case studies are an important element in the interview process, messing it up will mean missing the offer. So instead, consider investment banking case studies as an opportunity to showcase your skills and talent to investment bankers. Those minutes could change your career, so make them count and give your best.

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