1. Wall Street Irina Zilbergleyt

2. 2 My Background Graduated with a Finance Major December 2002 Merrill Lynch Investment Banking Analyst (Chicago) Allied Capital Private Equity Associate Oct 2004 - Present (Chicago and New York)

3. 3 Why Work in the World of Wall Street? Challenge / Responsibility Be in a position to provide advice and guidance to people whom, if you worked in a corporate setting, you would probably have no exposure to Compensation: 2006 Investment Banking Average First Year Compensation $60K salary + $70K bonus = $130K Opportunities after Investment Banking Private Equity / Venture Capital Hedge Funds Corporate Finance Business School Networking Direct Promotion to Associate

4. 4 Components of Wall Street Sell-side Firms Agents or Middle Man Sell investment banking services: Acquisition Advisory Capital Markets (IPOs) Trading Services Stock Research Morgan Stanley, Goldman Sachs, Merrill Lynch Example : Merrill Lynch advised P&G on their acquisition of Gillette in 2005. 4 Buy-side Firms Principals Those who buy the services that the sell-side is offering: money managers including Mutual Funds Private Equity Firms Hedge Funds Fidelity, Putnam, KKR, Carlyle Group, Blackstone, Citadel Example : Fidelity asking Merrill Lynch to sell their Microsoft Stock.

5. 5 CORPS: Abbott, GE Sell-Side / Buy-Side INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH strategic advisory underwrite and place securities Sell-Side

6. 6 INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH MUTUAL FUNDS (Buy-Side) MUTUAL FUNDS (Buy-Side) CORPS: Abbott, GE strategic advisory underwrite and place securities sell equity and debt securities, provide research invest directly Sell-Side

7. 7 INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH INDIVIDUAL INVESTORS INDIVIDUAL INVESTORS sell equity and debt securities, provide research, financial planning strategic advisory underwrite and place securities sell equity and debt securities, provide research invest directly MUTUAL FUNDS (Buy-Side) MUTUAL FUNDS (Buy-Side) CORPS: Abbott, GE Sell-Side

8. 8 INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH INVESTMENT BANKING CAPITAL MARKETS SALES & TRADING RESEARCH CORPS: Abbott, GE institutions strategic advisory underwrite and place securities invest indirectly by buying mutual funds, insurance policies, etc. sell equity and debt securities, provide research invest directly MUTUAL FUNDS (Buy-Side) MUTUAL FUNDS (Buy-Side) INDIVIDUAL INVESTORS INDIVIDUAL INVESTORS sell equity and debt securities, provide research, financial planning Sell-Side

9. 9 Individual Investors: High Net Worth Individuals Institutional Investors: Insurance Companies Pension Funds College Endowments Cash Equivalents Debt Securities Stocks Private EquityHedge Funds Real Estate Money Flow Mutual Funds Publicly Traded Investments Privately Traded Investments Buy-side Firms: Investment Types: Private Assets Other: Metal, Oil

10. 10 Private Equity Fund Private Equity Fund: is an investment company that provides equity capital in exchange for an ownership position in a private company (not traded on a public stock market post transaction). Venture Capital: invest in start-ups and early stage deals (Technology) Leverage Buyout Funds: invest in buyouts, usually of mature companies (Allied Capital) Leverage Buyout (LBO): is the process of acquiring a company using a significant amount of debt, which helps increase the acquirer’s equity return.

11. 11 Leverage Buyout: Example HouseLeverage Buyout (LBO) Pre Deal Research:Hire a Broker or look at listings, attend open houses. Hire investment bankers who help find potential opportunities or do your own search. Visit companies, meet management. Deal Related Work/ Investigation (Due Diligence): Hire inspector, attorney, title company Perform Financial, Legal, Accounting, and Insurance Due Diligence (Usually hire outside parties) Payment: 1) Down payment 20%25-40% 2) Borrow From BankMortgage PaymentInterest Payment Hold Period:Varies3-7 years

12. 12 Leverage Buyout: Ultimate Goal Buy low, sell high! An equity investor expects that the Company will grow in value. How does Private Equity Firm create value? Cost cutting (outsource to Asia) Selecting operating executives and boards of directors Industry consolidation or acquisition strategies

13. 13 Power of Leverage Why borrow capital (debt) to fund buyout transaction? Transaction Structure: Cash PurchaseLBO Purchase Price Today:$100 million Equity $s Invested:$100 million$30 million (30%) Selling Price (1 year later): $125 million Profit: $25 million Simple Return Calc:$25 (profit) / $100 (invested amount) = 25% $25 (profit) / $30 (invested amount) = 83%

14. 14 Private Equity Firm Structure Former CEOs, COO’s, CFO’s, and management consultants Recent MBA’s often with related experience Undergrads with 2-3 years experience as: Investment Bankers Management Consultants Big Four Accountants General partners (GPs) The private equity firm employees that manage the firm’s investing activities Receive a 2% management fee and 20% of profit Limited partners (LPs) The pension funds, college endowments, etc. that provide capital to the private equity firms but do not actively manage the investments Receive their initial investment and 80% of profit

15. 15 Development Meineke hired investment bankers to help them sell the Company Investment Bankers put together a book describing the business (Offering Memorandum) and submitted it to Allied and other interested parties Allied performed financial analysis to determine the value of the Company and submitted it to Meineke through Investment Bankers Allied met Meineke management Investment Bankers compared all the offers and decided that Allied’s offer was the best Deal Execution Work with Lawyers to prepare acquisition documents, debt documents, management employment agreements Finally work with Allied’s treasury department to make sure that the money wires go to the right recipients Celebrate Allied Internal Process Financial Analysis of Historical information Determine the appropriate Capital Structure (How much debt should the company hold) Hire Third Party providers to perform additional investigations: Accounting Tax Insurance Legal Industry (Customer Calls) Background Checks of Management Present the deal to Allied’s internal Investment Committee for approval Deal Process: Allied acquisition of Meineke

16. 16 Insurance Diligence Allied hired Marsh (risk management consulting firm) to perform Insurance Due Diligence: Review existing policies and provide recommendation to Allied concerning uninsured and underinsured risks Project estimate of annual cost of Meineke insurance program going forward Insurance policies reviewed: Product Liability, Pollution Liability, Auto liability, Property, Directors and Officers Liability, Workers’ Compensation, & Franchisor Liability Marsh’s issued a 30 page report summarizing their findings. They recommended additional insurance that would increase the current annual premium by 85%. Marsh is an insurance broker and gets commission for any additional insurance that the Company buys from them. Allied’s and Meineke’s role is to figure out what additional Insurance is truly necessary.

17. 17 Risk Management M & A Insurance solves deal specific liability concerns Tax liability To protect against changes of tax treatment of the transaction Environmental Liability To protect against pollution liabilities arising post transaction close Litigation To insure against a lawsuit or threat of litigation

18. 18 Exit 3-7 Years The Private Equity Summary Insurance Companies College Endowments Pension Funds Wealthy Individuals Private Equity Firms: 25% Returns Work with: Investment Bankers Lawyers Accountants Insurance Consultants Debt Providers Portfolio Companies $ $ $ $ Equity 30% Debt 70% Value Creation: Strategic Direction Cut Expenses Acquisition Strategy Managing Oversight LBO Structure:

19. 19 My Job: the Good and the Bad Good: Interesting and challenging work Enjoy learning about different businesses and every deal has different issues Interaction with upper management both at Allied and at portfolio companies Good compensation Bad Work long hours and difficulty making plans Spend many hours doing work that might not go anywhere

20. 20 Overview of Investment Banking Jobs Investment banks provide financial advice for corporations, trade and sell stocks and other securities, and develop research and opinions on all financial markets and economies. They hire college graduates each year into two- to three-year analyst programs. Entry level positions on Wall Street that have active recruiting programs are as follows: Investment Banking Debt and Equity Capital Markets Equity Research Sales and Trading

21. 21 Investment Banking Analyst Typically organized into Industry (Consumer Products, Healthcare, Energy and Power, etc.). However, role of the analyst doesn’t change much across groups. Marketing Preparing presentations (“Pitch Books”) Industry research Financial modeling (Projecting the Company’s Financials in Excel) Live Deals Valuation work (Determining the value of a Company) Writing offering documents (SEC Documents) Expect to work 90+ hour weeks This means 13 hours every day of the week…

22. 22 Debt and Equity Capital Markets Analyst Overall work is a little less technical than in investment banking and the hours are generally better. However, expect to start work early in the morning. Trading floor environment - need to be able to focus despite innumerable distractions Gather market intelligence; talk to traders Keep market transaction database Work with Investment Bankers to prepare presentations and pitches

23. 23 Equity Research Analyst Work will typically include a lot of writing and less technical than investment banking. The hours are better than banking, but very busy around earnings releases. The role of the equity research analyst is to assist the senior analyst to conduct research on a particular industry segment, such as the “Healthcare Industry.” Research analysts usually work with only one or two supervisors. Conducting industry and company research (talking with companies, suppliers, customers, and other industry experts) Writing research reports Developing models to project the future financial performance of specific companies Listen to Company earnings calls Keep Sales and Trading informed on industry developments

24. 24 Sales and Trading Analyst Typically work around market hours (no weekends) and expect to be on your computer and phone every minute the stock market is open. As a sales analyst you will be supporting the work of senior sales people as they provide investment recommendations for their clients. The main responsibilities of this job are: Work with research to collect information and tips on investment opportunities for your group’s clients Record and process “buy” and “sell” orders from clients Talk with the Trading group to execute sales on behalf of clients The trading group is in charge of executing all trades on behalf of the bank’s clients. If a client wants to sell a particular stock at a certain price, the trader must find someone interested in buying the stock at that price. Booking and processing all transactions that you or your senior trading associates execute in a day Receiving orders from sales people or directly from clients who need to execute trades

25. 25 How Do You Get There? High GPA Relevant / Challenging Classes Preferred majors: Finance and Accounting Good Internships Extracurricular Activities Leadership Roles Meeting Recruiters Early Read Wall Street Journal Network with Alumni / Faculty

26. 26 Have a Great Break!