Product groups at investment banks generally include capital markets (equity capital markets, also known as ECM, and debt capital markets, also known as DCM), leveraged finance / financial sponsors, and M&A. At a high level, product groups give breadth in terms of industry exposure but specialization in terms of deal type. For example, if you are in the M&A group, you will only work on M&A deals but you will have the opportunity to work across consumer & retail, TMT, healthcare, energy, and more – but you’ll never be involved in a debt raise or an IPO. As product bankers get more senior (particularly M&A bankers), they may naturally find some industry specialty due to relationship building, but at the analyst and associate level – this is unlikely.
Debt Capital Markets & Equity Capital Markets
DCM and ECM are capital markets groups, which focus on debt and equity raises, respectively, across all industries. As an analyst in these groups, you will likely be responsible for creating and updating “market materials,” which the coverage bankers will then use in their pitch-books to provide the client with up-to-date information around how the debt or equity markets have recently been pricing offerings. While certainly not a rule, lifestyle and hours tend to be slightly better in capital markets groups compared to others. Since DCM and ECM are more market-oriented, these groups tend to be placed in public markets or research roles. It may be more difficult to move into direct investing given the lesser focus on the strategy or commercial side of the deal process.
Leveraged Finance/Financial Sponsors
A leveraged finance/sponsors analyst will only work with financial sponsor clients. This team is responsible for assessing the debt capacity of a private equity fund’s LBO target, and determining at what debt levels and pricing the bank is comfortable underwriting the debt. While it differs between banks, most of the 3-statement modeling will still be done by the coverage banker. The leveraged finance team will use the cash flow projections derived from the 3-statement model and run various sensitivity and scenario analyses to assess liquidity and overall risk. Typical exits from this group include private equity, structured credit, and hedge funds.
Mergers & Acquisitions
As an analyst on the M&A team, you will be responsible for working on both sell-side and buy-side M&A transactions across all of the bank’s different industry groups. In terms of how the modeling and other work is allocated between analysts on the M&A team vs. coverage team analysts, it really depends on the bank you are considering. We’ve seen some M&A analysts be responsible for driving the model as well as be involved with the more commercial/due diligence side of the work-stream, with the coverage analyst only providing industry specific perspective. On the other hand, some banks have the coverage analyst do most of the heavy lifting and the M&A team merely provides some pages on the M&A markets and where deals have recently been priced. The best way to assess an M&A analyst’s specific responsibilities at a particular bank is by networking! Speak to friends and other connections at the bank and try to get a sense of how the work is split. Speak to both M&A bankers and analysts on the industry groups, and you’ll have a good understanding of the different work-flows. Exit opportunities for M&A are broad – anything from traditional investing/private equity or other investing roles, to more strategy based opportunities such as in-house M&A or corporate development.
Industry Coverage Groups
As a coverage group analyst, you will have exposure to deals across all product categories, but only within your specific industry. Generally, industry coverage teams will do more of the commercial work and “own” the model – but again, this will differ by bank and even sometimes by deal. A coverage group is a great option if you want a “generalized” background on the more structural technicalities of the product, but want to dive in deeper in terms of the commercial elements of a particular industry. Exit opportunities are broad here as well, as we’ve seen analysts go to hedge funds, private equity, VC/growth equity, as well as strategy and business development.
So how do you pick between different industry groups? The best place to start is wherever your personal passions are. If you love technology but cannot fathom working with a cement business, TMT likely makes more sense than industrials. Joining a group where you’re excited about the companies you will be working with will take you far in terms of being a great analyst. The second consideration is where the bank’s strengths are. Most banks are very strong in 1 or 2 industries. Joining a successful team ensures adequate deal flow and valuable experience to position you best for recruiting. Lastly, you can also try the “process of elimination” approach. Groups such as real estate, FIG, and oil & gas use less-traditional valuation and modeling approaches, and as a result tend to pigeon-hole analysts into that industry in the longer term. Unless you have a strong interest in one of these and feel comfortable specializing early-on, it’s best to steer clear and pick a more “generalist” team. Consumer & retail, TMT, and (to only a slightly lesser extent) industrials and healthcare, will position you to easily switch industry focus in your next role if you choose to do so.