The Finance Connection at UCSB “Placing Gauchos on Wall Street” What is Management Consulting? February 16th, 2010 By: Ron Nussbaum Announcements • Resume book submission deadline Thursday night ― Resumes must be formatted properly ― For resume reviews, please schedule an appointment no later than Thursday afternoon • Resume book will be sent to: ― America’s GC, Pathway Capital, Industry Ventures, Eureka Cap, and True Ventures • To apply for a position on the board: ― Must be a paid member ― Complete officer application (will be distributed by next week) ― Submit resumes to [email protected] or apply through our mentorship page • February 23rd: Presentation by Todd Stemler, Principal at Caltius Equity IB Interview Questions of the Week What are the 3 main ways to value a company? What is enterprise value? What does accretive & dilutive mean? Next week we will go over the answers to these questions Recent Deals • First Energy to acquire Allegheny Energy for $4.7B – – • SkillSoft agrees to $1.1B buyout – – • Maker of e-learning programs taken private by Bain Cap., Berkshire Partners, & Advent Int’l 2nd largest buyout since 2009; deal financed with $605M in debt Lennar purchases $243M of distressed real-estate loans from 22 failed banks – – • Deal valued Allegheny at a 32% premium to its 2/10 closing price Combination would yield 10 utilities, 6M customers, and generate significant synergies FDIC and Lennar pay $1.22 B to purchase portfolio of loans with a $3.05B face value 90% of loans are non-performing, with a majority coming from Georgia, Arizona, Nevada Blackstone Group prices Graham Packaging IPO at $10/share ― Stock initially priced at $16/share and was expected to raise $350M ― Raised $167M and sold 16.7M shares What do Management Consultants do? • Provide objective advice to corporations to help them improve performance • Management turns to consultants for advice on: – – – – – • Turning around a failing business Gaining a competitive edge Making their company more efficient Integrating a newly acquired company Incentivizing employees Analyze their client’s business, gather data, and provide recommendations based on their analysis – Consulting firms typically stay at client site to ensure their recommendations are being implemented properly and are achieving expected results Entry Level Position • Typically begin as a Generalist “Business Analyst “or “Associate Consultant” – • No specific industry or functional practice Responsible for gathering data, conducting analysis, and presenting recommendations to client’s management – Interview clients and build financial models • Assigned to 6-12 week engagements • Position lasts for 2 years, with a slight chance for promotion – Usually leave for business school or pursue other opportunities Practices • Strategy – • Corporate Finance – • M&A, Divestures, Valuation, Post Merger Integration, Joint Ventures Operations – • Increasing Shareholder Value, Competitive Advantage, Strategic Planning Manufacturing, Product Development, Service Operations, Supply Chain Management Information Technology (IT) – Outsourcing, Architecture, Cost, Governance & Organization, Practices (continued) • Organization – • Marketing & Sales – • Design, Behavior, Performance Transformation, Merger Management, Enhancing customer relations, Maximizing sales & minimizing costs, Branding, Pricing Risk – Reviewing risk exposures, Asset/Liability management, Achieving optimal credit rating Prestigious Firms Newsworthy Engagements • Time Warner hired McKinsey to reduce $100M in costs across its publishing divisions • Yahoo hired Bain to improve costs and reduce efficiency • Treasury hired BCG to advise on GM restructuring and Chrysler/Fiat “tie up” • UNC & UC Berkeley hired Bain to save costs and improve organizational efficiency – • Studies found that UNC could save up to $161M/year Conde Naste hired McKinsey to help reduce costs and deal with lower ad. revenue IB vs. Management Consulting Management Consulting Investment Banking Less media exposure Market moving deals 60 hrs/week $65-75K Starting Salary Interaction w/ C-level execs. Travel, travel, travel Top exit opps. High % of CEO’s Broader exit opps. Projects last up to 2-3 months Advising corporations on enhancing value 80-120 hrs/week $100-150K Starting Salary Underwrite/Raise Capital Financial modeling skills Exit opps. limited to finance McKinsey Article “Five myths about how to create jobs” (https://www.mckinseyquarterly.com/Five_myths_about_how_to_create_jobs_2526) “Surely there’s a quick fix” Would need to create 200,000 jobs/month for next 7 years to get back to 5% unemployment “They key to boosting employment quickly is to help small businesses” Big companies account for 50% of nations workforce “High-tech jobs will solve the problem” Need to stimulate jobs in big sectors such as retail, wholesale, healthcare, etc Clean-tech & biotech firms comprise 0.6% and ~ 0.5% respectively of all US workers “Higher productivity kills jobs” Since Industrial Revolution, increased worker productivity led to higher incomes, higher profits, and lower prices “Increasing exports will revive manufacturing employment” New job growth will come from other sectors such as service industries Video Accenture-A Day in the Life of Career Progression at McKinsey Partner Associate Principal Engagement Manager Associate Business Analyst 3 years $120-140K 2 Years $65-75K 2-4 Years $175-250k $500K-1M+ 4-5 Years $250-450k Exit Opportunities Top Business Schools Private Equity Corporate Strategy & Development List of Firms/Vault Top 50 Rankings McKinsey Towers Perrin PRTM Bain & Co. Capgemini Gallup Consulting Boston Consulting Group Gartner The Advisory Board Co. Booz & Co. Roland Berger FTI Consulting Monitor ZS Associates First Manhattan Consulting Mercer Cambridge Associates Corporate Executive Board Deloitte Consulting Hewitt Associates Cornerstone Research Oliver Wyman NERA Economic Consulting Mitchell Madison Group PWC Consulting Navigant Consulting LECG LEK Consulting Alix Partners Alvarez & Marsal E&Y Consulting Bearing Point Mars & Co. A.T. Kearney Watson Wyatt Aon Consulting Worldwide IBM Global Business Services Kurt Salmon Associates Analysis Group Accenture CRA International Archstone Consulting The Parthenon Group Huron Consulting Hay Group KPMG Consulting Arthur D. Little IMS Health Katzenbach Partners Diamond Management & Technology What do they Look for? • Excellent problem solving abilities • Leadership qualities • Excellent communication skills • Academic achievement from a top-tier university • No specific undergraduate major necessary Interviews • Generally consist of 2-3 rounds • 1st round: On-campus (at targets) or Phone Interviews (UCSB & other non-targets) – • Interviews consist of Fit questions, case interviews, and problem solving test – • Rounds 2 & 3 are at the office Case interviews: You are given a series of questions based on an example of a business issue Case Study Example (from Bain & Co’s website): – http://www.joinbain.com/apply-to-bain/interview-preparation/practice-case2-quest1.asp?stage=1&ques=1 “Office Vending Services Inc. is a global leader in vending machines services for small and large businesses. They provide a full service to their clients. This includes installing machines at client site, refills and repair. They collect revenues only from snack sales and choose the variety of products they sell in their vending machines themselves. Over the past few years, their profits have dropped significantly and the CEO is unable to figure out why. The CEO asks Bain to identify the root causes of the problem and propose actionable solutions” Preparing for Interviews • Read the Vault Guides – Guide to Case Interviews & Guide to Consulting Interviews • Read The Consulting Bible (http://managementconsulted.com/the-consulting-bible/) • Do many practice tests and cases, which are also available on firms’ career sites – – • Bain & Co. McKinsey & Co. Know your resume inside out and be able to discuss your problem solving abilities Questions?