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My Responsibilities as a J.P. Morgan Investment Banking Analyst During a $6.1 Billion M&A Deal - YouTube
Channel: rareliquid
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Today I'm going to take you behind the
scenes of what it's like to work on a $6
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billion
investment banking M&A transaction
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What's up everyone my name is Ben and
welcome to rareliquid a channel where I
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draw from my experiences as a former JP
Morgan investment banking analyst to
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cover videos about tech investing and
career advice
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In case you're new to the channel, I post
videos about tech investing on the
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weekdays
and videos about career advice on the
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weekends. With that said, today's agenda
looks like this.
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I'll first give you the background
behind the deal that I worked on
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I'll then talk about what I did as the
analyst, and lastly, I'll discuss three
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insider secrets
This video will be a part of my
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investment banking playlist
on my channel, so check that out if
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you're interested- I have some videos
about how much bankers make,
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why I left investment banking, a day in
the life of an analyst and things like
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that
Alright so first up let me give you
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some background behind the deal
an M&A or mergers and acquisitions
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transaction
is pretty much exactly what it sounds
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like- you're helping your client either
buy another company or
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asset or you're helping a company sell
itself or
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some of its assets. During an M&A deal, an
investment bank pretty much
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runs the entire process just as a
realtor would during a house sale
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and obviously it's just really helpful
to have an experienced
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party run the entire process for you
if you're selling the house or company
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let's say
to get you the highest possible price
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and if you're trying to buy then
the lowest possible price or the best
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deal. In investment banking, you're either
on the buy side which means that you're
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helping your client buy a company or
you're on the sell side which is where
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you're trying to
help the company sell itself or its
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assets. For this deal that I was working
on Medtronic was
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our client and if you're not familiar
with them they're the largest med tech
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company in the world
the market cap is somewhere around 167
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billion dollars
We were helping Medtronic sell its
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medical supplies business and this was
the largest asset sale that Medtronic
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had ever done
in its 68-year history, so this was a
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really big deal for
not only the client but also our MD and
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just the overall
group that I was in at JP Morgan. We were
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co-advisors to this deal with another
bank called Piper Jaffray
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and it's kind of common sometimes for
these really large transactions to have
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multiple advisors and basically our job
as the investment bank was really to
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reach out to as many potential buyers as
possible
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and have Medtronic sell its assets at
the highest possible price,
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and as banks, you're incentivized to also
do this because you get a percentage of
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the total transaction so
the higher the transaction price at the
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end when you're actually selling,
the more you earn in fees. Next up, let me
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give you some info about what I did
for the deal as an analyst. The very
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first thing that happens to you as an
analyst is you get an email from your
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staffer that says that you'll be working
on a transaction
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and when I got this email, I basically
was like okay this is going to be a big
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transaction I'll probably work
70, 80, 100 hours a week for the next few
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weeks and
I'm not going to really have that much
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time for anything else. The following day,
my associate and I would meet at my
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managing director's office and he would
give us the rundown of who the potential
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interested buyers were, what the process
was going to look like, and
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what kind of analysis we would need to
be doing and in this particular
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deal, we had both strategic buyers and
financial sponsors aka private equity
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firms interested in the asset
and so basically what this meant was we
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would have to do our standard valuation
analysis which was trading and
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transaction comps and
discounted cash flow analysis, but for
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our financial sponsors, we also had to do
a leveraged buyout or
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LBO analysis. In case you are interested
in learning more about trading comps, you
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can check out this video I made here
and then if you're interested in
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learning more about discounted cash flow
analysis you can check out this video
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here
Also, if you want to really dive deep
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into financial modeling I highly
recommend checking out the
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Investment Banker course at Financial
Edge- the founder Alistar is literally
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the instructor who taught me and
hundreds of other analysts during my
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summer training at JP Morgan
and he's this British guy who has a
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really really great
good natured personality and cares a lot
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about being a good teacher
Financial Edge is a sponsor for this
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video but I recommend this course to
anyone who's interested in investment
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banking because
I really think it's the best product out
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there. Their instructors train the
analysts at the top four banks who pay
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tens of thousands of dollars
if not more, and you can get the same
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lessons for just a few hundred dollars
and learn at your own pace
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so I really think that this course is
worth it. You'll learn everything that I
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learned during my training including
accounting,
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valuation DCFs, LBOs and a lot more
If you are interested, check out the link
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in my description below because then you
can get 25%
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off but anyway going back to the
transaction this was back in around 2017
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so I was about two years into the job,
but I'd actually never built any LBO
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analyses
except during training and so what's
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kind of funny interesting about this
whole situation was that
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Medtronic was paying JP Morgan millions
of dollars for this deal
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and for an analyst who had pretty much
never run the analysis that he was
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running for this like huge six billion
dollar deal
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Of course, they never really knew that
and I would also say that this happens
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all the time
in banking where analysts or even
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associates sometimes
get thrown into the fire and into
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situations that they haven't really been
in before
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and in my situation the associate I was
working with was really sharp and
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thorough- she checked
all the work that I was doing as
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associates do and so there was never
really a huge risk that things would go
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wrong
Most M&A deals are done within a super
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super short time frame and so I had to
build out a draft of the
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LBO model by the next day, so I think I
remember staying around
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until like 3, 4 a.m that night working on
the model
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and I remember I was also just looking
at my old teammates' LBO models to kind
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of get a feel of what the structure
should be
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and what kind of assumptions I need to
include in there, how to build out the
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switches and the flexibility for the
model, I was also even going on youtube
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and googling concepts that I didn't know
so really I was kind of learning as I
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was building
The rest of the valuation work that I
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had to do the trading comps transaction
comps DCF were things that I'd already
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done before so
they were relatively easy or
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straightforward and so the rest of my
responsibility for this transaction was
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really just building out the
presentation
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for the upcoming meeting with
Medtronic's CFO. This was probably the
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coolest part of the transaction for me
and it's because during that call since
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it was such a high profile deal
we had the global healthcare JP Morgan
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Vice Chairman on the call,
a lot of senior MDs, the Medtronic CFO,
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and the
Medtronics team and all these people who
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are paid millions of dollars to
you know do whatever work they do and I
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got to listen in on
how they thought about the whole
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transaction, overall industry strategy,
how to negotiate,
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what they thought they could do to
increase the competitive tension within
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the whole deal making process,
and so yeah it was just a really
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interesting discussion and of course I
was just on mute not saying a single
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word-
nobody knew who I was pretty much on
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that call
except the the team, the MDs that I
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was working with
So yeah that's pretty much a summary of
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the transaction and what I did
I would say that this is a very very
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simplified version- I think what's you
know really hard to explain
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is just all the detail of you know for
example our LBO model that we had I
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probably
sent it back and forth 30 to 40 times if
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not more with my associate and the team
and
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also with the presentation that we're
building because we would have to change
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our assumptions all the time, we would
have to
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see if we could increase the price if we
got like a higher bid from one of the
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potential buyers, and so
there was a lot of back and forth, a lot
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of other parties involved like the legal
teams and the other banks that we were
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working with, the management team, so
there's a lot of coordination and stuff
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that involves
that is involved in an M&A transaction
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but yeah I don't want to bore you with
all of those little tiny details
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Ultimately, the transaction was announced
on April 2017 and Medtronic sold
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its assets for 6.1 billion dollars to
Cardinal Health-
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we helped draft the press release and
all the major news outlets published the
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articles about the transaction,
so I guess this is one of the cooler
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parts about banking is that you get to
work on these deals that transform
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companies and industries and
some of them I guess get somewhat
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worldwide attention. Before moving on to
the next part of the video, I would
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really appreciate if you could help
support the channel by smashing that
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like button
and feel free to subscribe if you
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haven't already. Next up let me share
with you some insider secrets about the
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M&A process
The first one is true amongst all
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well-run M&A processes and that's that
competitive tension
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is manufactured. In most M&A transactions
there are two rounds of bids and it's
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pretty much like an auction process but
it's all blind- meaning that nobody knows
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what the other person is bidding
and in the first round is basically
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where we get all the potential buyers
and have them
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do their valuation work and submit their
first round bids on what they want
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to buy the company or asset at. Then the
bank on the sell side part of the
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transaction which in our case was JP
Morgan for Medtronic would evaluate
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those first round bids
which pretty much just meant okay who
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are our top bidders and all the ones
that are kind of
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lowballing or don't seem like they're
really super interested based on their
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offer-
they would be cut and we would have a
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second round with a smaller pool of
interested buyers
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At this point, in the second round the
companies who are involved as potential
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buyers
usually are super super interested in
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the asset and just imagine yourself if
there was only one I don't know car that
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could be bought amongst you and five
other friends
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and you had to write down on a piece of
paper what your bid was
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and you were in the second round so a
bunch of other people were cut
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and you don't know what anyone else is
going to bid but you really really want
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that car
right? So you're incentivized to put as
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high of a price as you can
without going way too over what the
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actual car
is worth. So if you're a good banker then
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you understand this whole
process right? And so you want to
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manufacture as much competitive tension
as you can,
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and you can't necessarily tell the
buyers you know hey your
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bid is too low we have another bid
that's offering higher but you can kind
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of subtly slip them information about
hey your bid's not competitive
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enough- if you're gonna want to actually
buy this company it should be higher
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You know I've never been a managing
director myself of course and been in
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those discussions but this is kind of
stuff you hear in the grapevine
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and so yeah that's what you do as a
really senior banker
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and the ones who make a lot of big bucks
uh and the reason why banks get paid so
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much
is that they can kind of create this
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competitive tension to increase the
transaction
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price at the very end to as high as it
can possibly be. So tying this all back
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to Medtronic and Cardinal Health
basically the 6.1 billion dollars that
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Medtronic got-
you know they were our client and they
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were super super happy with this because
this was kind of on the high end of what
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they thought that the assets were worth
The second insider secret is that
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valuation is kind of more of a
justification process and
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much more of an art rather than a
science. What I mean by this is that you
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know at the very beginning we would try
to as
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independently as fairly as we can value
Medtronic in this case
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their assets and what we thought they
were worth, but you know after we do all
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that evaluation work and we get into the
bidding process to sell the
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assets then it's not like we're gonna be
like hey this buyer bid
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way too much we think that you should
sell for a lot less you know
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and so basically if someone bids higher
then what we would do is kind of adjust
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our
assumptions in the model to basically be
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able to say yep
we can justify you basically selling
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your assets for this much
So what this also means is that if
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you're on the buy side meaning you're
trying to buy an asset then I do think
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valuation is a lot more important
and basically you don't want to
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overvalue what you pay because then
you'll get a bad return on investment
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right? But if you're on the sell side
like most investment banks want to be
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then basically you're able to just do
the valuation work to get a baseline of
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what your assets are worth
and then the rest of it's really left to
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what the buyers are willing to pay
The third insider secret is just that
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announcing a deal may not be as
interesting as you might
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think. Basically as an analyst, you're
working on these really high profile
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intense transactions
80 to 100 hours a week you're putting
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your heart and soul into every day and
then all of it culminates into
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finally announcing the deal and
releasing the press release
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and the announcement gets made to all
the bankers in your firm
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and you get a bunch of emails saying
like congratulations from your
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colleagues from people you know and also
sometimes people you don't know
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After, you might get a few days off and
this doesn't mean that you don't go into
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the office it still means that you're
going and
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maybe instead of leaving at midnight or
whatever you're getting off at like 9 pm
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or something like that and you don't
have as much work,
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but if your group and firm has good deal
flow this usually means that after a
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week or so
you'll be staffed on another transaction
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and the whole cycle will repeat itself
and so if you have done or closed a lot
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of transactions,
then pretty much in your second year
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announcing a transaction feels pretty
good for like the day
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and you also get to you know like slap
it on your resume or like put it on your
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LinkedIn or whatever
but you know that's pretty much it. I
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will say though that usually if you work
on pretty interesting transactions and
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usually interesting means larger
deals then I will say that you
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definitely learn a lot like. For this
example, just working on that entire lbo
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analysis and being able to listen on
calls from
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upper level management teams at these
really big firms and a lot of like
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senior level people at JP Morgan like
all this stuff was a super super great
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learning experience
and you know if you want me to share
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actually some more about the deals that
I worked on
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I do have a lot more that I have worked
on and so if you want me to make more of
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these types of videos then
please let me know in the comments. All
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right, so before I let you go
I did want to let you know that I'm
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giving away five percent of my June 2021
YouTube earnings
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if you look for this picture of Warren
Buffett in my instagram
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then you can check out the instructions
there it's super easy and I'm also
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giving away another five percent to high
school
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and college students if you check out my
description below it's like a small
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little
scholarship grant kind of thing and as
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I've expressed in my previous videos, I
gave away ten dollars to the first
[804]
commenter and to a random comment, so
here are our winners today-
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just dm me on instagram if that's you
You can also get ten dollars in free
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bitcoin if you sign up using my links
down below in my description for
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Coinbase or Gemini
and you can also earn some free stocks
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if you use my links for Weeble and
Moomoo
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and also don't forget that 25% off for
Financial Edge if you're interested in
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that course
And all of those are in my description
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below lastly just as always thank you so
much for watching hope to catch you in
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the next video
thanks so much and peace out
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