Question of the day: What an investment banking analyst would perform on a day to day basis in Citi's Asia Pacific (APAC) offices ?
Citi's virtual programme, by Forage, provides an example case study about the responsibilities of an analyst in investment banking division. Given problem is about a customer's request for potential deal. Client is a private equity company, as you may guess and they are considering acquiring an online gaming company called Zeta Inc. Programme consists of 3 stages as preparing quick profile of Zeta, which is the target company, finding comparable companies, finding associated financial metrics and summarizing these 3 tasks in an email format.
Company Profile
Company profile can be constructed as followed;
Quick summary of the company in one sentence. This sentence should include the operations of the company and the market segment in which they operate
Example by Citi: Zeta Inc. is a leading IP-based game operator and publisher, providing quality IP games for global players through game licensing and in-house development.
One could also add foundation year and headquarter location for providing further details of course.
Company Overview
It is crucial to share the key strengths of the company to reflect its position in its industry.
Example by Citi:
– Zeta ranked first in terms of revenue generated from publishing IP-based games in 2019
– Zeta had the largest IP reserve that can be used to develop into IP-based games as of Dec 2019
Moreover, some analytics should be shared depending on the market segment of the company. For example, if target company were textile manufacturer then insightful metrics would be production capacity, # of employees, area of production facility etc. In our case, some metrics for online gaming companies could be # active users, # of launched games, average lifecycle of published games etc.
Example by Citi:
– As of end 2019, Zeta Inc. had over 200mm registered users, over 15mm monthly active users and over 1mm monthly paying users
Industry Overview
Market size per year could be shown to reflect whether target company market is growing, though provides potential for acquisition. CAGR (Compounded Annual Growth Rate) can be useful metric to consider.
Competitors and top players in same market could be mentioned with their market shares for making comparison
Business Model
In the business model, it is wise to indicate the relationships of the target company with its business partners through a diagram
Summary Financials
Financial summary may include revenue and net income over years, also EBITDA can be useful metric as it is considered as key number to evaluate operational profit. Using graphs to present changes over years can be reasonable.
You can check my work for company profile below.
2. Comparable Companies
Here in my case the task was relatively easy because provided data was clean and small. So deciding comparables is possible through scanning. However I still wanted to show what would I do If I was given +5000 rows for research.
We can filter the description of the companies to see if there are online gaming companies. Here i think one should be careful that searching for "online game" may not give you some of the companies which have "online" and "game" or "gaming seperately.
=AND(ISNUMBER(SEARCH("game",cell referance)),ISNUMBER(SEARCH("ONLINE", cell referance)))
When I retrieved data of chosen companies I used again filters to find the closest companies in terms of features. I found the stadard deviation of every metric, (given columns) and I concluded that numbers which are 1 standard deviation away from Zeta's associated metric are close, statistically speaking.
Here in our case we do not have too much data so it is wise to take all 4 companies as comparables.
I also added the ones with "online" "entertainment" in their descriptions to diversify comparables.
3. Financial Ratio Analysis
I already have a blog explaining financial ratios in detail so I am just noting the metrics which are used in Citi's programme.
FV/EBITDA multiples
P/E multiples
Dividend Yield %
Net Margin %
Capex as % of Revenue
Net Debt / EBITDA; and
Revenue CAGR.