Mergers and Acquisitions

Specialists in mergers and acquisitions, or M&A, travel the world to work on deals that reshape entire industries.

M&A is one of an investment bank's core functions: to advise client companies on whether to add businesses to their portfolio of assets, sell off divisions or subsidiaries they no longer want to own, or merge themselves entirely with another company, either by acquiring the target firm or selling themselves to it.

As a result, it would be more accurate to talk about mergers, acquisitions and divestitures, since there are clearly two sides to every deal and M&A advisors are employed on both sides of the transaction. In some mergers, the two companies involved join as equals. In other cases, M&A bankers help their clients find buyers or sellers for businesses that are of interest. In addition, companies are increasingly being taken private in buyouts by private equity firms.

Regardless of what drives the deal-making, because M&A specialists work on both sides of the transactions, they work in a very lucrative business. And, it's worth noting, M&A activity has also exploded in recent years.

According to a February 2007 report from the accounting firm PricewaterhouseCoopers, mergers and acquisitions are at a six-year high. Dealogic, a financial information systems company, calculates that deal-making among U.S. companies alone amounted to $429 billion worth of transactions during the first quarter, and that globally M&A activity grew 15 percent to $1.13 trillion. Dealogic estimates that total M&A activity will surpass the $4 trillion record of 2006, which was also the most active deal-making year since 1999 - 2000.

What's driving the urge to merge? Among other things, there are the swollen bank accounts of private equity firms, which seem to have a nearly inexhaustible supply of capital available to finance acquisitions. Weary of the compliance requirements of the post-Enron Sarbanes-Oxley Act, public companies based in the U.S. are also more open to be taken private in leveraged buyouts (LBOs) engineered by private equity funds. Regardless of the reasons behind the activity, this boom makes it a great time to be in the advisory business.

Most large banks only become involved in deals worth at least $150 million. Lower value transactions might be handled by the M&A divisions of accounting firms, or by middle market/boutique M&A firms that specialize in smaller transactions or deals in a particular sector. Big deals get the headlines in the financial media, but it's the numerous smaller deals, which occur on a regular basis, that drive the business.

Whatever the size of the deal, M&A requires hard work. At their client's beck and call, the people involved are often in their offices nights and weekends. Once a deal is underway, junior bankers can expect to be busy assembling the reams of financial information and legal documentation necessary to get it done. Despite all this, M&A remains popular with graduate applicants, particularly those earning their MBA, because it can be lucrative even as they work their way up the ladder of a firm.

Roles and Career Paths

Mergers and acquisitions is principally an advisory role. When public companies announce they're "exploring strategic opportunities," they've hired an investment bank to advise them on a merger or acquisition. Rarely does the work involve sprucing up existing operations.

Traditionally, M&A bankers advise clients on all aspects of buying, selling, and merging with other companies. They're typically part of a broader corporate finance advisory team, which also advises firms on how to raise the money needed to finance a transaction. Among large investment banks, a recent trend is for a separate unit to also participate directly in the deal. Goldman Sachs Group became a leader in this when it created its own private equity arm.

As a rule of thumb, the more senior you become in M&A, the more contact you will have with clients. But as an analyst, you'll spend a lot of time working on pitchbooks, which outline a bank's ideas for a particular transaction (for example, should the client buy company X or company Y and, if so, how should the deal be financed?).

Analysts in the M&A division usually conduct basic industry research and build the financial models used to price the companies concerned. Associates, who are one level higher in the banking hierarchy, oversee analysts' work and check that their models are correct.

A further rung up, vice presidents oversee the work of analysts and associates, and often ask for the pitchbook to be partially or completely rewritten - even if it means staying up until the early hours of the morning. Vice presidents report to the directors and managing directors who are the main points of client contact.

It's not unusual for pitchbooks to come to nothing. Clients may decide not to go ahead with the suggestions, or they may engage a rival bank. When a pitchbook elicits a positive response, the M&A team moves into execution mode - seeing the deal through to completion.

If you're interested in pursuing a career in M&A, be diligent and keep banging on doors. Bankers, after all, are busy people. It's critical to be a hard worker and a team player. It also helps to be bright.

Job seekers should "find a firm where they really like the people with whom they'll work, and vice-versa," one banker told us. "Selecting a firm involves the age-old question of finding that right fit for you."

Skills and Qualities

- Appetite for hard work

- Analytical ability and statistical aptitude

- Ability to work well in a team environment

- Good communication skills and self-confidence

- Strong attention to detail