A quick review of the Growth Capital…

March 31, 2024December 31, 2022 by Louis DETALLE

A quick review of the Growth Capital…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what is Growth Capital and what it consists in.

What does Growth Capital consist in?

Growth capital refers to the funding that a company receives in order to expand its operations, enter new markets, or develop new products and services. This type of financing is typically sought by companies that are already generating revenue and have a proven track record of success but need additional funds in order to take their business to the next level.

What are the main actors a company can resort to when it comes to Growth Capital?

What is interesting with growth capital is that it is all about companies that are halfway between Venture Capital and Private Equity.

For that matter, there are several sources of growth capital, including venture capital firms and private equity firms that invest at different times in the life of the company. Venture capital firms typically invest in early-stage companies that have high growth potential, but may not yet be profitable. Private equity firms, on the other hand, typically invest in more established companies that are looking to expand through acquisitions (see the notion of “build-up”) or other means. A company will choose its investor according to its stage of development, its sector, its objectives and the network of the investors that it will be able to benefit from.

What does an analyst in Growth Equity work on?

The tasks of a Growth Equity analyst are diverse but similar to those of Private Equity & Venture Capital. They include for example, the producing and challenging a business plan, modelling different scenarios and strategies in Excel. The analyst and the investment teams thoroughly analyze the companies seeking for funding and the environments they are trying to grow into. If a company A well anchored in France is willing to conquer a new market European market, the job will consist in assessing the German market and see if the product developed by company A will work efficiently in the next country or if it is more accurate to try and find a similar company that can be bought there!

In other words, an analyst in Growth Equity will try to determine whether the projections of the seeked investment are reasonable, not overestimated and feasible.

What is the life cycle of a company and where does growth capital intervene?

At the beginning, when the startup is only an idea, the founders talk to Business Angels and VC funds that invest very early (called “seed investors”) and therefore small tickets. However, VC can come at the very beginning, as “seed investors”, of later in core venture with “A-B and C series”. These series mean the different funding rounds of the company that is growing.

Later on, companies can resort to growth capital, which aims at entering the capital of a company that has reached a certain maturity and profitability. The funds collected will then be used for internal and external growth: respectively the development of the company’s offers in order to develop its activities or the acquisition of competitors.

For that matter, Growth Capital will be the bridge between Venture Capital and Private Equity. Indeed, companies will finally reach Private Equity funds interest who will keep investing much more money than the previous actors…

After being bought, the most powerful and resilient companies will reach the IPO which can be considered as the ultimate goal. However, as you may have seen, the IPO arrives very late in the life cycle of a company

Source: https://www.dlacalle.com/en/private-equity-and-cheap-money/

Resources

Youtube Video explaining the different cycles of companies: VC/Growth/Private Equity

The top 10 VC actors in France

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the Private Debt job…

December 31, 2022 by Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what private debt is and what the working days look like when you work in this sector…

What does the private debt job consist in?

Private debt refers to the money borrowed by private companies from investors, rather than from banks or other financial institutions. Private debt jobs typically involve working for a private debt fund or a private equity firm, where the focus is on providing financing to companies that are seeking capital for expansion, acquisitions, or other business purposes.

What are the missions of the private debt analyst?

Private debt professionals are responsible for sourcing and underwriting investment opportunities, structuring and negotiating debt financing deals, and managing portfolio investments. This often involves conducting thorough due diligence on potential borrowers, evaluating their creditworthiness and financial health, and determining the appropriate terms and conditions for the debt financing.

Private debt professionals must have a strong understanding of the various types of debt financing available, including senior debt, mezzanine debt, and subordinated debt, as well as an in-depth knowledge of credit analysis, financial modeling, and risk management. They must also be adept at building and maintaining relationships with borrowers, investors, and other stakeholders in the private debt market.

Who are the main private debt lenders?

The private debt market is highly dynamic and constantly evolving. However, some of the largest private debt funds and private equity firms that focus on providing debt financing to companies include Apollo Global Management, Blackstone, KKR, Bain Capital, and TPG Capital, among others. These firms typically have significant financial resources and expertise in the private debt market and are well-positioned to provide large-scale financing to companies in need of capital. In France, Eurazeo and Tikehau Capital are very famous actors of this sector.

How to become a private debt analyst?

First, it is important to obtain a solid educational foundation in finance, accounting, and economics. This can be achieved through a bachelor’s or master’s degree program in a relevant field, such as finance, business, or economics. Coursework should focus on topics such as financial analysis, corporate finance, investment management, and risk management.

In addition to formal education, it is also important to gain practical experience in the private debt market. This can be achieved through internships or entry-level positions at private debt funds or private equity firms. These opportunities can provide valuable hands-on experience, as well as the chance to network with industry professionals and learn from more experienced colleagues.

Having gathered these two abilities, you should be able to make a strong application to private debt jobs and get started!

What is especially appealing in Private Debt jobs?

Private debt jobs can be highly rewarding, both financially and personally. In addition to competitive salaries, many private debt professionals also have the opportunity to earn substantial performance-based bonuses and other incentives. Furthermore, private debt young professionals often have the opportunity to work on a wide variety of deals and transactions, providing them with a diverse and challenging workload that can be both intellectually stimulating and professionally fulfilling.

Resources

Amundi Private Debt

Youtube A Webinar on Private Debt

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the Sovereign Advisory job…

December 31, 2022 by Louis DETALLE

A quick review of the Sovereign Advisory job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what a Sovereign Advisor works on, on a daily basis.

What does the Sovereign Advisory job consist in?

Sovereign advisory is a specialized field of finance that involves providing advice and guidance to governments and sovereign entities on a range of financial matters. This includes things like helping governments to develop and implement economic policies, advising on the issuance of sovereign bonds, and assisting with the management of public debt.

The job of a sovereign advisor is to help governments to make informed financial decisions that are in the best interests of the country and its citizens. This can involve providing expert analysis and guidance on a wide range of issues, including economic growth, public spending, and the management of public debt.

What are the missions of the accountant?

The missions of the Sovereign Advisor consist mainly of three tasks.

About a country’s economic policies

One of the key responsibilities of a sovereign advisor is to help governments to develop and implement economic policies that are effective and sustainable. This can involve providing guidance on the design and implementation of fiscal and monetary policies, as well as helping to identify potential risks and opportunities in the global economy.

About issuing sovereign bonds

Another important aspect of the job is to assist governments with the issuance of sovereign bonds. This can involve providing advice on the structure and terms of the bonds, as well as helping to market the bonds to investors and manage the sale process.

Helping a country master its commercial policy and global regulations

In addition to these core responsibilities, sovereign advisors may also be called upon to provide advice on a range of other financial matters. This can include things like helping governments to manage their public debt, providing guidance on the management of foreign exchange reserves, and assisting with the development of financial sector regulations.

Who are the main Sovereign Advisors?

The main actors of sovereign advisory are typically large financial institutions, such as investment banks and consulting firms. These firms typically have teams of experts with deep knowledge of global economic trends and the ability to provide expert guidance and advice to governments on a range of financial matters. In addition to these large financial institutions, there may also be smaller specialized firms that focus exclusively on providing sovereign advisory services. These firms may have a particular area of expertise, such as public debt management or economic policy development, and may be sought out by governments for their specific knowledge and expertise in these areas.

Examples of banks that provide sovereign advisory services include:
1. Goldman Sachs
2. JPMorgan Chase
3. Citigroup
4. Morgan Stanley
5. Deutsche Bank

How to become a Sovereign Advisor?

A career in sovereign advisory typically requires a strong background in economics, finance, or a related field. Many sovereign advisors hold advanced degrees, such as a Master’s in Business Administration (MBA) or a PhD in Economics. In addition to academic training, many sovereign advisors also have practical experience in the field, such as working in government or in other financial institutions.

In order to work in sovereign advisory, it is important to have a deep understanding of global economic trends and the ability to analyze and interpret complex financial data. This may require studying economics, finance, and related subjects at the undergraduate and graduate levels, as well as gaining practical experience through internships or other job opportunities. Additionally, many sovereign advisors also participate in professional development programs and continuing education courses in order to stay up to date with the latest developments in the field.

Resources

Rothschild & Co Sovereign Advisory

Youtube Interview of a Sovereign Advisor

Lazard Sovereign Advisory

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of an Analyst in Transaction Services’ job…

December 31, 2022 by Louis DETALLE

A quick review of an Analyst in Transaction Services’ job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what does an analyst in Transaction Services work on.

What does Transaction Services consist in?

The Transaction Services consultant assists clients and advises them on their financial transactions. He or she works on disposals, mergers and acquisitions, and restructuring. Clients of a Transaction Services department are generally investment funds, investment banks or very large companies that conduct financial transactions and require the expertise of a Transaction Services team.

What does a Transaction Services analyst work on?

There are two types of missions: buy-side and sell-side due diligence. The approach is different depending on whether you are on the buy side or the sell side. We will review what these missions consist in.

A due diligence is conducted by a specialized audit firm, its objective is to evaluate the risks inherent in the target company when the latter is being sold for instance. All the checks are made possible to understand the company’s strategy, to analyze its strengths and weaknesses, and also to have an overview of its accounting, financial, tax, social and environmental situation.

This analysis is therefore based on the analysis of the historical performance, cash flow and assumptions made in the business plans of the target company.

Calculations of metrics and normative ratios (e.g., EBITDA) or an in-depth analysis of the company’s working capital requirements, sector and business model are also carried out.

In short, the mission of Transaction Services is to carry out all the analyses to ensure that the client and the parties involved do not make any mistakes on the valuation of the company.

What are the biggest Transaction Services firms?

Deloitte, Ernst and Young (EY), PricewaterhouseCoopers (PwC) and KPMG are the four audit and consulting firms that make up the Big Four. They are the most influential consultancies in the world, employing nearly 1,200,000 people worldwide.

What are the main jobs possible after a Transaction Services position?

Some former Transaction Services staff move into areas such as investment banking, private equity (PE), controlling or mergers and acquisitions (M&A). Others use their time in Transaction Services to target departments where they can re-use the skills they have acquired.

To go into M&A or PE, Transaction Services will lack modelling, and this should be kept in mind. Thus, consultants are often found in managerial positions, M&A managers or even in the financial department. Eventually, the excellent command of numbers, operations and the ecosystem allow some to become partners.

Resources

Youtube How to nail TS interviews?

KPMG Careers website

EY Careers website

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

My experience as an Audit intern at PwC

December 31, 2022 by Louis DETALLE

My experience as an Audit intern at PwC

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) interviews a former Audit intern at PwC.

First of all, let’s recall what Audit consists in?

The financial auditor expresses an opinion on the financial statements of a company. Their objective is to carry out the work necessary to enable the auditor to give an informed opinion on the true and fair nature of the published accounts.

The financial auditor is therefore the guarantor of the reliability of the company’s financial information and has a great responsibility, in particular to the company’s third-party stakeholders who invest in the company on the basis of the information published by the company.

Where had you applied for and what makes PwC different from other big 4?

It was my first internship in corporate finance, for that matter, I wanted to get into something but I did not really know what was possible. Since, an internship in Audit is a great way to launch one’s career; because you can do whatever you want after; I figured that it would be easier for me to apply there. I quickly got interviews at KPMG and PwC.

The reason why I chose PwC is because I was accepted there first! They offered me the position first and I was very keen to get over my internship hunting!

What does an intern in Audit work on?

An intern in audit at PwC will work on different tasks depending on the specific organization and the needs of the audit team. Some common tasks that an audit intern may be responsible for include:

• Assisting with the preparation of audit plans and procedures
• Conducting research and gathering information to support the audit process
• Analyzing financial statements and other data to identify potential risks and issues
• Participating in meetings with clients to discuss audit findings and recommendations
• Preparing reports and presentations to communicate audit results to clients and internal stakeholders
• Assisting with the development and implementation of internal controls and other risk management processes

Overall, the work of an audit intern typically involves providing support to the audit team in order to ensure that the audit is conducted in a thorough and professional manner. This may involve conducting research, analyzing data, and participating in meetings with clients and other stakeholders.

What do you plan to do next?

Most former Audit intern go for transaction services, investment banking, private equity or M&A internships.

As a consequence, I am not sure, but I think I will try to get into M&A and see if I like it.

Overall, would you recommend this experience to younger students? Why?

I would personally recommend this experience to anyone who is interested in corporate finance. Because it is one of the rare fields of corporate finance that you can have a with no experience before.

For that matter, it is an excellent internship, and anyone would be very lucky to do this internship because it would mean great opportunity to do things after. However, if you are lucky, you will be able to find a more interesting internship in banking perhaps or even in a financial department of a large corporate firm.

Resources

PwC Careers website

Youtube How to succeed in Audit interviews?

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the Accountant job in France…

December 31, 2022 by Louis DETALLE

A quick review of the Accountant job in France…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what an accountant (comptable en français) works on, on a daily basis, in France.

What does the Accountant job consist in?

All businesses and organizations need an accountant whose role is to record the day-to-day expenditure, income, and investments of the business.

The accountant is therefore the internal guarantor of the reliability of the company’s financial information and has a great responsibility, in particular to the company’s auditors & third-party stakeholders, who invest in the company on the basis of the information certified by the Audit firm and the Accountancy Department. The Audit firm will have to certify or to reject the authenticity of the accounts from an external point of view whereas the accountancy department will have this function internally.

What are the missions of the accountant?

The missions of the accountant depend on where he or she works.

In a small company

In a small company, the sole accountant is on all fronts. He or she monitors the company’s payrolls and various tax and social security declarations on a daily basis. On the other hand, the accountant must also anticipate the preparation of the closing of the annual accounts, which will be checked by the chartered accountant and certified by the auditor.

In a large company

In a large company, his or her tasks will in theory be the same, but given the size of the company, a transversality of subjects is not possible. Therefore they will work in a team and will be required to specialise rapidly: in charge of accounts receivable or payable, in charge of payroll. He will be working under the responsibility of the chief accountant.

In an accounting firm

In an accounting firm, the accountant will have various companies whose accounts he or she will have to monitor. He will be in charge of different company files, as an assistant, under the responsibility of the chartered accountant (expert comptable en français). Given the way the accounting firm operates, a great deal of advice and commercial work will be required to maintain and develop the client portfolio. It is a profession that includes busy periods, particularly during the closing of accounts, and is sometimes stressful, but which recruits a lot.

What are the academic diploma required to become an accountant?

In France, although it is possible to become an accountant after 2 years of higher studies, for big accountancy firms, it is often required to obtain specific diploma in accountancy.

The DCG (diploma in accounting and management in French – Diplôme de Comptabilité et de Gestion) is a 3-year training after A level at the end of which the accountant to be will have to take an exam in order to check that the knowledge has been well learnt.

The DSCG (Superior Diploma in accounting and management in French – Diplôme Supérieur de Comptabilité et de Gestion) is a 2-year program that one can take after obtaining the DCG. This will give the accountant a Master’s level, often needed for certain jobs.

The DEC (diploma of certified accountant in French – Diplôme d’Expertise Comptable) …allows you to work as a chartered accountant in an accounting firm. To register for the DEC exams, you must have completed a three-year internship in a public accounting firm and have a baccalaureate +5 years of higher education. The DEC is prepared in 3 years after a Master’s degree, which is often the DSCG mentioned above.

How AI can impact the Accountancy’s job?

Artificial intelligence (AI) can potentially impact the field of accounting especially as regards the automation of tasks. Indeed, AI can be used to automate certain tasks that are currently performed by accountants, such as data entry, reconciliation, and financial reporting. This can potentially save time and reduce the risk of human error. In addition, AI can analyze large amounts of data and identify patterns and trends that might not be immediately apparent to a human accountant. This can help accountants make more informed decisions and provide valuable insights to their clients. AI can also be used to identify unusual patterns or transactions that may indicate fraudulent activity. This can help accountants detect and prevent fraud before it occurs.

Overall, AI has the potential to significantly improve efficiency and effectiveness in the field of accounting, but it’s important to underline that although AI can assist accountants in their work, the final word belongs to humans when it comes to making informed decisions based on their expertise and the help of AI.

Resources

KPMG Careers website

EY Careers website

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the Audit job…

December 28, 2022 by Louis DETALLE

A quick review of the Audit job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what an Audit analyst works on, on a daily basis.

What does the Audit job consist in?

The financial auditor expresses an opinion on the financial statements of a company. Its objective is to carry out the work necessary to give an informed opinion on the true and fair nature of the published accounts.

The financial auditor is therefore the guarantor of the reliability of the company’s financial information and has a great responsibility, in particular to the company’s third party stakeholders who invest in the company on the basis of the information published by the company.

What are the biggest audit firms?

Deloitte, Ernst and Young (EY), PricewaterhouseCoopers (PwC) and KPMG are the four audit and consulting firms that make up the Big Four. They represent the most influential consulting firms in the world. They are the most influential consultancies in the world, employing nearly 1,200,000 people worldwide.

However, some other players are very influential, such as Mazars in France, which is ranked neck and neck with the Anglo-Saxon Big Four. On the other hand, smaller companies do not necessarily need to call on such large firms as their audits are not as labour intensive.

What does an Auditor work on?

In the case of an accounting and financial audit, it is an examination of the company’s financial statements in order to assess the company’s accounts and verify their fairness, compliance and regularity. As the auditor is expected to give an opinion on the fairness of the accounts, the auditor and his team will study the different accounting cycles of the company: income and customers, costs and suppliers, but also equity, cash flow, stocks and fixed assets, etc.

The objective of this review of the major financial masses is to understand the client’s challenges related to its business, its environment, its organisation, and to understand its internal processes in order to see how all this is reflected in the accounts. A meticulous verification of the accounts and invoice amounts is carried out (often subcontracted).

The common objective of all engagements is to provide confidence to both external investors and the client, who may need to make adjustments after the annual audit. The client may have to make adjustments after the annual audit because their internal control systems are more or less effective, and they may present inaccurate accounts unintentionally but more inadvertently.

Other audits may therefore cover the environment, the production system, ethics, safety and many others. The role of a quality audit, for example, is to check whether the client company’s stated quality objectives are being met. The auditors must ensure that the quality management systems comply with the applicable contractual and regulatory requirements.

The use of AI in order to quicken the audit job.

Artificial intelligence (AI) can potentially impact the audit profession in a number of ways. Here are a few examples:

Auditing large amounts of data: AI technologies, such as machine learning algorithms, can help auditors analyze and interpret large amounts of data more efficiently and accurately. For example, an AI system could be used to identify patterns and anomalies in financial data that might indicate fraudulent activity or other problems.

Improving efficiency: AI can automate certain tasks, such as data entry and analysis, allowing auditors to focus on higher-value activities, such as interpreting results and communicating findings. This can help improve the efficiency and effectiveness of the audit process.

Enhancing risk assessment: AI can help auditors better understand and assess the risks associated with a particular business or industry. For example, an AI system could analyze data on economic conditions, market trends, and other factors to help identify potential risks and provide recommendations for how to mitigate them.

Providing real-time monitoring: AI can be used to monitor a company’s financial data in real-time, alerting auditors to any unusual activity or trends that may warrant further investigation. This can help auditors identify potential issues earlier in the process, which can lead to more timely and effective interventions.

Overall, the use of AI in the audit profession has the potential to improve the accuracy and efficiency of the audit process, while also helping auditors to identify and address risks more effectively.

Resources

Youtube The Audit Methodology

KPMG Careers website

EY Careers website

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the Venture Capitalist’s job…

December 28, 2022 by Louis DETALLE

A quick review of the Venture Capitalist’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what a Venture Capitalist works on, on a daily basis.

What does Venture Capital consist in?

Venture Capital (VC) represents fundamental and indispensable early funding-support throughout the life cycle of the company.

VC consists in taking (minority or majority) stakes in the capital of small companies which are generally unlisted on the stock exchange and that have not reached break-even point. It is therefore a method of financing companies in order to support them on the path to growth. Indeed, the objective of a VC fund is obviously to realize a capital gain at the exit, when the start-up has matured and has become a powerful actor.

This is risky because start-ups are less successful in borrowing from banking institutions, so they attract other investors such as business angels and venture capitalists.

What are the main differences among Venture Capitalists?

VC funds can be specialized in sectors such as deep tech, biology, marketplace, telecom and plenty of others. A start-up will therefore have better chances at obtaining funding from them if they target funds that know well the field in which they evolve.

In addition, another aspect of VC is the stage of investment and the size of tickets.

Because VC can come at the very beginning, as “seed investors”, of later in core venture with “A-B and C series”.

For that matter, Growth Capital will be the bridge between Venture Capital and Private Equity.

What are the main VC actors a company can resort to?

Start-ups and small companies can resort to a wide range of financial investors:

Early-stage investment funds (BPI, Axeleo Capital, Alven Capital, etc.
Corporate funds represented by large groups that are interested in the creation of innovative companies.
Business angels, represented mainly by entrepreneurs, who organize themselves into associations or investment companies.
Crowdfunders, who are individuals who invest in start-ups such as Xavier Niel for instance.

A company must choose its investors according to its stage of development, its sector and according to its objectives.

What does an analyst in VC work on?

The tasks of a Venture Capitalist are diverse and include, for example, the producing and challenging a business plan, modelling different scenarios and strategies in Excel. The analyst and the investment teams of the VC teams thoroughly analyze the companies seeking for funding. They try to determine whether the projections of the seeked investment are reasonable and not overestimated.

Indeed, bear in mind that private equity funds intend to fund companies trough equity. And as equity investors (i.e. shareholders) are reimbursed at last in the event of a bankruptcy, their work is to determine if the company will really generate growth with the capital at stake. That’s why deep sector-analysis are also required from a VC analyst.

This is all the truer for Venture Capitalist who will take on huge risks since they are the first financial actors the start-up can turn to.

Why do VC jobs appeal so much to business school students?

First of all, it should be noted that this profession combines corporate finance skills with entrepreneurial thinking, which is rare!

Indeed, the best Venture Capitalist often has previous entrepreneurial background, and this is what enables him to see things that startups cannot: because this person has already made the mistakes the fund-seeking entrepreneur has not.

This entrepreneurial aspect of the job is very well known and argued by VC actors and it attracts young & ambitious students who don’t want to get into large corporate firms and favor more agile structures.

Resources

The top 10 VC actors in France

Youtube How to get a VC internship?

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

My experience as a Transaction Services intern at EY

December 28, 2022 by Louis DETALLE

My experience as a Transaction Services intern at EY

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) interviews a former Transaction Services intern at EY.

First of all, let’s recall what Transaction Services consists in?

The Transaction Services (TS) consultant assists clients and advises them on their financial transactions like disposals, mergers and acquisitions and restructuring. Its clients are generally investment funds, investment banks or very large companies that conduct transactions and require the expertise of Transaction Services teams.

In short, the mission of Transaction Services is to carry out all the analyses to ensure that the client and the parties involved do not make any mistakes on the valuation of the company.

Where had you applied for and what makes EY different from other big 4?

It was my second significant internship in corporate finance, for that matter, I wanted to get into M&A or Private Equity, but both are pretty complicated to get into. For that matter, I figured that it would be easier for me to apply for a Transaction Services internship or in M&A corporate. I quickly got interviews at EY, Deloitte and KPMG.

I chose EY because I really got along with my manager-to-be; he insisted that they would make me work on interesting stuff and they offered be the position first.

What does an intern in TS work on?

As you may know, in TS, there are two types of missions: buy-side and sell-side due diligence. The approach is different depending on whether you are on the buy side or the sell side.

As an intern, my job was to help my team assess the risks inherent in the target company while preparing the due diligence. For that matter, all of the checks are made possible to understand the company’s strategy, to analyse its strengths and weaknesses, and also to have an overview of its accounting, financial, tax, social and environmental situation. I could help them on any of the topics above, although the tax aspect of the company was given to a dedicated department.

In the due diligence, I can assist my team in the reading of documents from the major international institutions for all the data relating to global and entire sectors for the specific sections of the due diligence.

Also, a last type of task that I was given was taking notes about Q&A sessions that occur during the M&A process. I would thereafter write a summary for the team.

What do you plan to do next?

Most former Transaction Services intern go for investment banking, private equity, controlling or M&A internships.

As a consequence, I believe that this is what I will do next, I can wait to be on the banking side of the merger! The advantage of my internship is in fact twofold. On the one hand, it allows me to have EY on my CV and on the other hand, I have experience that finance recruiters describe as “significant finance work experience”. So I can do many things afterwards and that is the strength of my internship.

Overall, would you recommend this experience to younger students? Why?

I would personally recommend this experience to anyone who is interested in corporate finance. Because it is one of the rare fields where you gain a lot of knowledge about financial modelling. When you work in TS, you spend most of your time on Excel and this will be a valuable skill for your following internships.

For that matter, it is an excellent internship, and anyone would be very lucky to do this internship because it would mean great exposure and lots of financial analysis.

Resources

EY Careers website

Youtube How to nail TS interviews?

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

My experience as an Equity Research Intern at Oddo BHF…

December 28, 2022 by Louis DETALLE

My experience as an Equity Research Intern at Oddo BHF…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) interviews a former Equity Research Intern at Oddo BHF.

First of all, let’s recall what Equity Research consists in?

The objective of equity research is to make buy or sell recommendations on stocks to advise investors on their asset allocation. In doing so, the Equity Research team will closely monitor certain stocks to see if the stock is outperforming or underperforming. In doing so, they will closely monitor the share price and sell their monitoring as a service to determine whether to buy or sell a share.

This equity research service is therefore sold to investors in the financial markets to provide them with a comprehensive financial analysis, as well as advice on whether to buy or sell particular securities. The analysis report presented by an equity analyst is used by investment banks and private equity firms to evaluate the company for an initial public offering (IPO), a leveraged buy-out (LBO), alliances and others. Therefore, all these investors constitute clients of Equity Research teams.

What banks did you apply for and what makes Oddo BHF different from others?

Most banks have Equity Research teams such as Société Générale, UBS, BNP Paribas, Barclays, Goldman Sachs and Citi for instance. In short, equity research analysts are mainly employed by investment banks but also investment funds (KKR, Blackstone, Bpifrance, etc.) or asset management firms (BlackRock, Vanguard, Amundi, etc.).

For that matter, I had applied virtually everywhere but I only got interviews from UBS, BNP Paribas & Oddo BHF. I was refused at UBS but got the offer at BNP Paribas. However, since I had gotten along very well with the team at Oddo BHF, I chose to go there instead!

Is your equity research team specialised in a specific sector? Which one?

Whereas most equity research teams are specialised in a specific sector such as automotive, aerospace, healthcare, telecoms and biotech, mine isn’t. Some of the team members follow very closely the stock prices and market indicators of certain companies but it is more about personal interest!

That makes the experience super interesting, because I am able to see for myself how the stocks of companies in the luxury sector are impacted by the announcement of the quarter results and how they evolve, relatively to companies from other sectors.

What does an intern in Equity Research work on?

As an intern, I have assisted the work of the equity research analyst by doing information research, reading quarterly financial reports, and press releases which may provide information on the company’s performance to date compared to expectations. As the analyst will also look for information on upcoming mergers, I have to keep an eye on financial news as this will impact significantly the prices of stocks.

As for the sectoral notes, I can assist my team in the reading of documents from the major international institutions for all the data relating to global and entire sectors.
Once this research work is completed, equity research analysts proceed to forecast results through financial modelling. I can look at the financial modelling but I must say I am not allowed to work on it since the slightest mistake could cause significant errors.

Also, a last type of task that I was given was taking notes about clients’ questions by telephone during morning meetings. I would thereafter write a summary for the team.

Overall, would you recommend this experience to younger students? Why?

I would personally recommend this experience to anyone who is interested in finance, be it corporate finance or market finance. Because it is one of the rare fields where you enjoy the benefits of each: you analyze financial market products while comparing them to the financial results announced by companies.

For that matter, it is an excellent first internship in this field and anyone would be very lucky to do this internship because it would mean great exposure and lots of financial analysis.

Resources

Finance walk Equity Research Interview Questions with answers

Youtube An analyst in Equity Research’s Youtube Interview

Youtube How to do the Equity Research of a company?

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the M&A – Real Estate job…

December 5, 2022 by Louis DETALLE

A quick review of the M&A – Real Estate job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains how is working as an M&A Analyst in Real Estate any different from being a general M&A.

Let’s recall what M&A is and then, we will assess how working in the Real Estate sector makes it different

M&A (Mergers & Acquisitions) is a profession that advises companies wishing to develop their external growth, i.e. growth through the acquisition of another company or through a merger with it. M&A mandates are therefore carried out on the side of the company that wishes to acquire another company, “buy-side”, or on the side of a company that wishes to be acquired, “sell-side”.

Therefore, an analyst in M&A with a Real Estate focus will only work on Real Estate-related topics. For example, clients may be property managers, real estate companies, property developers or hotel groups. By the same logic, the subjects encountered and studied in the M&A pitches will be centered around the real estate sector. These include shopping centers, entire housing estates, office towers, hotel chains and their hotel stock.

What does an analyst in M&A – Real Estate work on?

The tasks of an M&A analyst are diverse and include, for example, drawing up a business plan, modelling different scenarios and strategies in Excel, and drafting information memorandums (IMs) on the various deals in progress. With a real estate asset that you are trying to value for instance, the case scenarios that you will anticipate, will describe the possibility that you do not receive 100% of the rent, but perhaps only 30% for the first 6 months of the project.

All these skills on the real estate sector are cumulated to the ones you acquire as an M&A analyst and are then widely used for the mergers and acquisitions of companies, in the development of their external strategy, in their financial evaluation or in the analysis of databases.

Again, the financial analysis tools for the real estate sector are not the same and are specific to Real Estate. For example, analysts will focus on the possibility that rents for a property will not come in and will try to estimate whether the estimated average occupancy rate is realistic. When valuing by stock market or transactional comparables, the comparables used will be functions of the capitalization rate and not EBITDA or EBIT multiples.

What are the main exits for an M&A Analyst of the Real Estate sector?

There are a lot of opportunities, but of course largely limited to the real estate sector. This is because there are many different jobs and companies in the real estate world: asset managers, real estate companies, real estate management of a large company, etc. It is also possible to join the real estate teams of a private equity fund in order to move to the investor side.

Resources

Youtube Interview with a Deloitte Manager in M&A Real Estate

BNP Paribas Real Estate – Presentation of all Real Estate jobs

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of Wealth Management’s job…

December 5, 2022 by Louis DETALLE

A quick review of Wealth Management’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what an Wealth Manager works on, on a daily basis.

What does Wealth Management consist in?

Private banking is a specialized advisory service offered by financial institutions to individual or institutional clients with substantial financial resources and assets. The clients targeted by this type of activity may be company directors such as Bernard Arnault or François Pinault. Clients may also be wealthy families who maintain and grow their assets through the solutions offered by private bankers.

To do this, institutions that practice private banking employ various experts who cover all the issues related to the optimization of an estate: private bankers, tax lawyers, asset managers and notaries.

What does a Wealth Manager work on?

As stated above, the Wealth Manager should be able to propose a property investment (such as the Pinel Law in France for example), an investment in traditional life insurance or even an investment in a private equity management company. The diversity of investment products can be very great, and it is therefore important for the Wealth Manager to understand his client’s needs in order to offer him the solution that is best suited to his needs.

This is particularly true in an independent wealth management firm but much less so in a division of a large bank with wealth management activities. Indeed, in an independent asset management firm, fund managers will have to invent new investment solutions. The private bank employees of a large bank, on the other hand, will only be able to offer products created by the bank to which they are attached.

For this reason, wealth management work varies greatly depending on the type of structure in which the wealth manager works. Indeed, the proportion of “commercial” work will be much greater for a “non-independent” private banker, since he or she will not be as involved in the construction and development of the solutions proposed. For independent private banks, the work of creating investment solutions and finding investment opportunities will logically be more significant.

What are the different levels of clients that wealth managers can deal with?

In this respect, four main levels of segmentation of high-net-worth clients can be distinguished, hierarchized according to the thresholds of assets managed by the firm or the private bank.

Upper Affluent : The Upper Affluent have assets between €100,000 and €1,000,000. In order to develop their wealth, these clients mainly turn to the so-called premium investment offers of retail banks or small independent wealth management firms.

High Net Worth Individuals (HNWI): High Net Worth Individuals (HNWI) have assets of up to €5,000,000. HNWIs generally make up a large proportion of the client base of both independent and non-independent private banks.

Very High Net Worth Individuals (Very HNWI): These are individuals with an estimated wealth of between €5,000,000 and €30,000,000. This very wealthy clientele is generally advised by the wealth management departments of independent private banks and private banks attached to the network banks. It should be noted that this type of individual constitutes the so-called “premium” clients of these departments.

The “above €30 million”: The most affluent individuals (with assets of over €30,000,000) are the main clients of family offices. They are external organizations of individuals related to a single family and advise them on all aspects of their wealth management. Family offices employ people who are often experienced and have a wide range of skills.

Resources

Article about the different jobs that exist in the management of financial resources: asset management, wealth management, family office…

Youtube Top 20 Wealth Manager Interview Q&A

Youtube Natixis wealth management department’s website

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

What are green bonds?

December 5, 2022 by Louis DETALLE

What are green bonds?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what are the different green bonds and what are they used for.

Green bond

A green bond is a debt security, often issued by a company or public entity on the market to enable it to finance projects related to the ecological transition. These securities function in the same way as traditional bonds, characterized by an interest rate, a repayment schedule, etc. However, green bonds are specific in that the projects financed by this type of bond must be oriented towards preserving the environment. From 2013 onwards, the green bond market has experienced very strong growth worldwide: almost $275 billion of broadly defined green bonds were issued between 2013 and 2017, including over $100 billion in the last year. In 2021, global green bond sales reached a record $513 billion, according to Bloomberg. Despite this explosion of green bonds, the craze for this type of bonds is to be qualified as they remain very marginal compared to conventional bonds, especially in the current context of the war in Ukraine.

What are the main green bond issuers?

Green bonds issuers can consist mainly of states and governments. For example, Europe has an important place in this market: almost 45% of green bond issues in 2019 were denominated in euros, compared to 26% in dollars. Indeed, France was the first country to issue a significant size of green bond, followed closely by Germany, Belgium, Ireland and the Netherlands. 225 billion in green bonds as part of the European recovery plan.

Outside Europe, the US and China are the largest issuers of green bonds. They account for almost 32% of such issues.

On the other hand, green bonds issuers can also consist of large companies. In France, Suez (the water and waste group) issued a first green bond for €2.6 billion in May 2022. This transaction met with strong demand as it was oversubscribed by about 2.9 times by 200 European institutional investors, the group said in a statement. In the meantime, large companies, particularly in the energy sector, have also launched green bond issues with, in France, Engie, EDF or in real estate with the Icade group. The SNCF also issued a green bond in 2016, becoming the first railway infrastructure manager in the world to adopt such an approach. 900 million euros were issued in the first year, then 1 billion in 2017, the largest green issue for a French company, and 500 million in 2019.

US companies have been slower to embrace green bonds, but with a total of $30 billion in green bonds issued in the first 10 months of 2019, US corporate green bond issuance has jumped by 60%. PepsiCo has obtained 1 billion dollars from investors for its inaugural operation in 2019. These 30-year green bonds will be used to finance projects that reduce the use of non-recycled plastic in the manufacture of bottles, limit the consumption of water in its production processes and, more generally, reduce its carbon footprint. The UDR real estate group is one of the recent issuers. In February 2019, it was telecoms giant Verizon that raised $1 billion, attracting eight times more demand than supply.

How are the green bonds regulated?

In the European Union, the regulation of European green bonds is still at the draft stage. The EU is taking further steps to implement its strategy on financing sustainable growth and energy transition.

The EU Permanent Representatives have given the green light to the Council’s position on a proposal to create European green bonds. The regulation concerned sets out uniform requirements for bond issuers who wish to use the name “European Green Bond” or “EuGB. For the latter, the main interest is that this regulation would provide a registration system and a monitoring framework for European green bond issuers.

Environmentally sustainable bonds are one of the main instruments for financing investments in green technologies, energy and resource efficiency, and sustainable transport and research infrastructure. The Council announced that it is ready to enter into negotiations with the European Parliament in order to reach agreement on a final version of the text that will have to be accepted by all Member States.

Outside the EU, in the US, China and elsewhere, green bond regulation is still in its infancy. This raises a major concern: actors can issue green bonds without using the funds for environmental purposes. For example, according to the Climate Bonds Initiative, only half of China’s green bonds comply with international standards. It is precisely for this reason that regulations are more necessary than ever to avoid a green bond fashion

Resources

French State’s Website about green bonds

An article by BNP Paribas about the EU regulation on ESG criterias

An article by Les Echos on how the US are defining new regulations in order to fight the plague of greenwashing

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the corporate lawyer’s job…

December 5, 2022 by Louis DETALLE

A quick review of the corporate lawyer’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what a corporate lawyer works on, on a daily basis.

How a corporate lawyer is different from any other lawyer?

A corporate lawyer (also called a business lawyer) is first and foremost a lawyer, so he has studied law. However, he specializes in commercial and company law. He can also add banking law, tax law, industrial property law, mergers and acquisitions or stock exchange law to his skills.

Unlike the classical lawyer in the common sense of the term, the corporate lawyer works in a law firm or directly with a large company, advising it on all legal aspects of its activities. They only plead in cases of litigation, whereas a lawyer specialized in criminal law will plead much more often and in various criminal cases.

What does a corporate lawyer work on?

The tasks of a corporate lawyer are varied and depend on the specialty he or she practices within a business law firm. Indeed, the latter may have a dominant advisory role, i.e., he will accompany corporate clients on all their issues such as company takeovers, share transfers, debt issues… On the other hand, the corporate lawyer may also work with a litigation focus, i.e., he will specialize in defending the interests of his clients when they are the target of a lawsuit, or when they sue a third party. In any case, the corporate lawyer is a genuine advisor. The corporate lawyer must lead his clients to make the best strategic choice for them and must defend their interests against the opposing party.

The daily advisory missions of the corporate lawyer

In relation to corporate clients, the business lawyer will have to participate in his clients’ projects by ensuring that they respect a well-adapted legal framework. This will be an important part of the lawyer’s work to ensure that the client is not in conflict with the law and the regulations specific to its sector. The corporate lawyer will also need to assist clients in M&A transactions in the same way that an investment banker will. In this respect, the corporate lawyer will participate in the negotiations on the amount of the transaction and will pay particular attention to the various clauses and legal documents relating to the transaction. Whether it is the drafting of a Non-Disclosure Agreement, a Letter of Intent, a Non-Binding Offer or the signing of the Share Purchase Agreement, the business lawyer will have to supervise all these legal documents in order to protect his client as best as possible. The business lawyer will also have to assist his clients in the drafting and supervision of the various contracts relating to the company’s partners.

The punctual litigation missions of the corporate lawyer

On the other hand, the corporate lawyer will be responsible for advising and representing his clients in possible litigation. This will consist of determining the rights and duties of his clients in case of litigation and pleading in court if necessary. This aspect of a business lawyer’s work may seem less recurrent, but it is nonetheless crucial because it is precisely when a client is being sued that he or she needs the business lawyer most.

How to become a corporate lawyer?

In France, after a baccalaureate, the future corporate lawyer must enroll in a law faculty to obtain at least a Master 1 or a Master of Law. Afterwards, they can specialize in business law and obtain a Master 2 in business law, financial law, or tax law. They can also choose to continue their studies at a university abroad or take a master’s degree at a business school, which they will enter by admission based on their qualifications.

Once they have their master’s degree, the future business lawyer will have to join a regional center for professional training of lawyers or CRFPA to obtain the certificate of aptitude for the profession of lawyer or CAPA, commonly known as the “bar exam” and become a business lawyer.

Resources

An comprehensive interview of a corporate lawyer

Youtube Conference Business Lawyer: between myths and realities

About the author

The article was written in December 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the Equity Research analyst's job…

March 31, 2024November 28, 2022 by Louis DETALLE

A quick review of the Equity Research analyst’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what an Equity Researcher works on, on a daily basis.

What does Equity Research consist in?

Most banks have Equity Research teams such as Societe Generale Bank, UBS, BNP Paribas, Barclays, Goldman Sachs and Citi for instance. In short, equity research analysts are mainly employed by investment banks (BNP, Citi, Barclays, etc.), investment funds (KKR, Blackstone, Bpifrance) or asset managers (BlackRock, Vanguard, Amundi).

An equity research analyst is specialised in a specific sector such as automotive, aerospace, healthcare, telecoms and biotech. The advantage of doing that is that the banks will have extremely complementary profiles that will be able to deal with the analysis of many companies of the same sector. They will have the benefit of hindsight trough building their knowledge of comparable companies. The analyst will often even develop a special expertise on a particular company, which he or she will follow closely.

What does an analyst in Equity Research work on?

As explained above, an equity research analyst will follow the release of sector or company specific information to write a note for subsequent use by the clients as part of their investment strategy. Therefore, the work of the equity research analyst will be primarily information research, reading quarterly financial reports, and press releases which may provide information on the company’s performance to date compared to expectations. The analyst will also look for information on upcoming mergers and acquisitions (M&A) or divestment transactions, the announcement of new partnerships or possible disposal plans.

As for the sectoral notes, the analyst will delve into the reading of documents from the major international institutions for all the data relating to global and entire sectors.
Once this research work is completed, equity research analysts proceed to forecast results through financial modelling: they use historical data to understand how the results were obtained and they confront these historical performances with the constraints of the future environment in order to anticipate how the company will perform. This modelling will enable them to forecast short-, medium- and long-term stock performance and the behavior to adopt in order to make the most of it.

This work will therefore be carried out in the form of a synthesis and by drafting studies for investors and reacting to specific news items.

Finally, a last type of task will consist of answering clients’ questions by telephone during morning meetings in order to give them recommendations for the day.

Why do Equity Research jobs appeal so much to business school students?

First of all, it should be noted that this profession combines corporate finance skills with financial market experience, which is rare! Indeed, the Equity Research analyst will carry out various financial analyses which will be used to issue trading recommendations on the financial markets. A financial profession in such a situation is rare, which is a first strong argument.

In addition, it is the dynamic working environment that investment banking constitutes that attracts young graduates. Equity Research is marked by a culture of high standards and maximum commitment, with highly responsive teams and extremely competent colleagues. Working in a high-powered team though quite small teams enables an analyst to quickly gain knowledge on a sector or a client.

The position of Equity Research in front of clients also makes the job really interesting because the Equity Research Analyst is at the core of the clients’ investment strategies. Because as we have seen together, such a job requires the ability to manage theoretical models and market trends in order to give clients a good insight of what is to expect for the day. For that matter, an Equity Research career can be very challenging and gives plenty of responsibilities, and this is what young graduates seek for.

Resources

Equity Research Interview Questions with answers

Youtube An analyst in Equity Research’s Youtube Interview

Youtube How to do the Equity Research of a company?

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick interview with an Asset Manager at Vontobel…

November 28, 2022 by Louis DETALLE

A quick interview with an Asset Manager at Vontobel…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) interviews an asset manager at Vontobel to better understand their daily work.

Hello, what is your background?

I went to business school and chose to do an internship in finance at Blackrock. When I left ESCP Business School, Blackrock offered me a job and that’s how I launched my career in Finance. I got into Vontobel later, as I had experienced many aspects of Asset Management.

Could you explain what Vontobel Asset Management does?

Vontobel is an asset management company, which means that it invests the funds of clients such as banks and insurance companies that do not necessarily have the required expertise.

Our investment strategy must therefore ensure the growth of our clients’ funds while combining several factors such as risk, investment horizon and the profitability objective sought by the client.

What is your role as Managing Director here at Vontobel?

I am responsible for the global development of bond sales, so I have to make sure that our representatives around the world present these bond products well by making sure they have access to all the necessary marketing materials such as tenders. I also have to understand the market behaviour and the expectations of our clients in order to define the best possible strategy.

How were you recruited for this position and what qualities do you think are required?

I was recruited in particular for my experience and knowledge of the various financial markets. Vontobel was looking for someone who had the ability to understand the client segments and the ability to manage teams, for example, I manage 50 people on a daily basis. Generally speaking, the higher you go, the less technical skills are required. A managing director (MD) will of course have to be able to master the financial issues of the day, but he or she will make the difference by his or her ability to lead a team to ever-improving results.

What do you like about this job?

What I like is the diversity of the subjects I deal with in my job. This job requires me to use my technical knowledge of investment products, stock markets and macroeconomic principles in the context of a client relationship.

I have to analyse both the financial markets and my clients’ needs. Understanding their psychology and the structure in which they evolve allows me to define offers in line with their needs. For instance, it is required of me to understand what the best investment opportunities are given the macroeconomic circumstances and the interest rates environment.

Do you have any advice for students who want to go into investment banking or asset management?

Before choosing which area of finance you want to work in, I think it’s important to identify the characteristics of each of these sectors. Investment banking is similar to corporate finance, so it is a very demanding job (including weekends) because you work on M&A and company IPOs. So an analyst in M&A will be required to work from 9:30 am until midnignt and later sometimes…Asset management is a market finance job, with the definition of investment strategies linked to the opening of the market. This is why this sector requires more reasonable hourly volumes, we are talking about 8 am to 8:30 pm. The level of remuneration will be less than the ever-increasing wages of M&A, an Asset Manager can start around 50 K€ per year but it will increase every year.

Resources

Vontobel

Youtube How to approach a job interview for Asset Management

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

What are rating agencies and what are used they for?

November 23, 2022 by Louis DETALLE

What are rating agencies and what are used they for?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what are the different rating agencies and what are they used for?

What is a rating agency?

The purpose of a rating agency is to assess the credit risk of a company or a state. Since the 1980s, these agencies have become benchmarks for both issuers and investors when issuing bonds, for example. They therefore play a major role since the information they communicate (rating, positive or negative outlook) greatly influences the way in which the financial markets perceive the rated companies and states. However, the reputation, independence and existence of rating agencies are sometimes being questioned.

What are the main rating agencies?

There are mainly three rating agencies: Moody’s, Standard & Poors and Fitch Ratings. These three rating agencies are all American. Besides the three main agencies, the Chinese Dagong has gained in importance in recent years, especially in Asian countries.

Each rating agency choses its own rating ranking that you can see below:

Comparison of ratings of credit rating agencies
Source: internet.

After a grade is given to a company by one of these three rating agencies, it will determine how the company is perceived on financial markets. For example, if a company with a “BB-“ S&P rating wants to issue a bond, it will have to pay a higher interest rate to the bond’s buyers that a company with a “A+” S&P rating for the same bond issuance. All this is due to the fact that the risk of default from the BB- company will be greater than the A+ company. For that matter, it will be more expensive for “poorly rated” companies to issue debt on financial markets.

Why are rating agencies debated so much?

Rating agencies are often questioned because of the influence they have. Indeed, the three major rating agencies, Moody’s, Standard & Poor’s and Fitch Ratings, together account for 94% of the government and company rating market as of June 2022. This raises a first concern, relating to the plurality of sources of information and the asymmetry of the financial markets, which are partly based on the information provided by only three rating agencies.

On the other hand, since lower-rated securities present risks and therefore higher interest rates, the rating process ends up acting in a pro-cyclical way. When a company and/or a state suffers a downgrade, this has the direct consequence of increasing the cost of its financing and aggravating the issuer’s difficulties. The opposite is true: when a company sees its rating get better, the cost of its debt will go down and it will improve its financial health…

Finally, since the rating agencies are paid by the companies that want to be rated by them, a potential conflict of interest seems possible. Some rating agencies have entire departments devoted to advising the potential client on how an operation – a merger for example- would impact the rating…

What role did credit rating agencies played during the subprime crisis?

Rating agencies have played a crucial role in securitization, a financial technique that transforms illiquid assets into easily tradable securities, such as bonds. The agencies then rate the securitized loan packages and the bonds issued as counterparts according to different risk bands. This is what the rating agencies did: they rated the baskets containing subprime loans. But the agencies were far too generous in giving AAA ratings (the highest rating) on the securitized packages. This contributed to the euphoria surrounding these financial products. Without this rating, the real risk would probably have been better understood.

Then, when the housing market turned, the agencies did not downgrade mortgage securities properly and in time. They reacted too late and with abrupt downgrades, which aggravated the crisis.

In the end, almost all of the mortgage securitizations marketed in 2006 with a AAA rating are now rated as “junk bonds”.

Resources

Article about how Rating Agencies played a significant role in the subprime crisis in 2008…

S&P

Moody’s

Fitch Ratings

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

A quick review of the tax specialist’s job…

November 23, 2022 by Louis DETALLE

A quick review of the tax specialist’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what a tax specialist works on, on a daily basis.

What does the tax specialist’s job consist in?

A tax lawyer’s main task is to advise a company on the projects it intends to carry out to ensure that these projects are as optimized from a tax point of view while remaining legal. This means that the job of a tax lawyer is to use its knowledge of the legal environment and the latest standards to save the company money by limiting the amount of tax it has to pay. For business projects, this can be an acquisition, various investments, relocation, setting up abroad, and many other projects. The tax lawyer is also the privileged interlocutor and support of a company when it enters into a financial and/or legal dispute with the regulatory authorities for example.

It is the tax lawyer who guarantees the proper conduct of all the company’s operations through his or her recommendations! Thus, the tax lawyer is responsible for choosing the appropriate tax regime for each company, depending on its characteristics and the current state of affairs.

Why would a company employ a tax specialist rather than resort to legal cabinets whenever they need them?

Whether it is the drafting of a contract or the creation of a subsidiary on the other side of the world, the law and taxation of these operations is inherent to their successful completion. This is why the company resorts to a tax specialist at all times, since it needs a rapid response to the slightest of its questions that can come up anytime since law is always involved.

On the other hand, the advantage of having a tax specialist dedicated to the company is that the latter will develop a fine understanding of the company, its structure and its network. In doing so, the tax specialist will be able to provide a more personalized and tailored solution than a tax consultancy that discovers the company when it becomes a client.

What does a tax specialist work on?

The tax specialist’s job is to bring his or her skills to help the company to fill in its tax return if it is complex. He or she can also help with inheritances, in order to calculate the transfer duties that will be applied free of charge. For example, this is an important feature of LVMH, which Bernard Arnault has structured in order to anticipate his succession. For example, he had the holding company that owns LVMH – the Agache holding company – transformed into a limited partnership. This type of company is recognized as a good solution to control family groups (see “Resources” section below).

The tax lawyer can also assist the taxpayer when he wants to repatriate funds held abroad. The tax lawyer also comes in support when his client is subject to a tax audit, in this case, his mission is to ensure that the tax authorities do not exceed their powers and respect the procedural guarantees. He must assist him in all stages of the procedure in progress.

Finally, the optimization of his clients’ assets is also part of his missions. The Chief Financial Officer and the tax lawyer will therefore work together to ensure that the company’s real estate holdings are secure, optimized and in compliance with the law. When the tax lawyer works in collaboration with a company, his role is to defend the legal and economic interests of the latter and, in fact, he will be able to manage the various disputes directly related to its activity.

Why does the tax specialist’s job appeal so much to people?

First of all, it is the dynamic working environment that the legal environment constitutes that attracts tax specialists. Indeed, the law evolves with time, and this constitutes the first argument given by them. In fact, as the law is not the same today as it was yesterday, a tax specialist is often demanded to keep a close look at the different regulation changes that happen.

In addition, the position of this job within companies also makes the job really interesting because the tax specialist can interact with other departments such as the Corporate Strategy Department and the Board of Directors. For that matter, a tax specialist career can be very challenging, and this is what young lawyer seek for.

Resources

Youtube Interview with a Tax Specialist

Article about the main trends in taxation in the European Union in 2020

LVMH: how is Bernard Arnault preparing his succession?

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

How does a takeover bid work & how is it regulated?

November 23, 2022 by Louis DETALLE

How does a takeover bid work & how is it regulated?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains how takeover bids and public tender offers work…

What is a takeover bid?

A takeover bid is a transaction launched by a company or a group of investors with a view to taking control of another listed company. After approval and review of the takeover proposal, the buyer triggers the launch of its takeover bid.

The launch of a takeover bid marks the beginning of a period during which the shareholders of the target company will be able to choose whether to keep their shares or to sell them to the acquiring company at a price higher than the last quoted price. This difference corresponds to a premium to encourage the shareholders of the target company to tender their shares to the bid.

There are two cases: cash takeover bids and equity takeover bid.

Cash Takeover bid: If the offer to acquire all the listed shares of the target company is in cash, it is called a cash takeover bid.

Equity Takeover bid: The bid can also be made in shares, i.e., the bidder will pay with its own shares. In this case, the bidder usually carries out a capital increase that will create these shares. This is known as a Public Exchange Offer (PEO) because the shareholders of the target company will be able to exchange their shares for a given number of shares in the initiating company according to an exchange ratio.

The bid can be either friendly or hostile. A takeover bid is “friendly” or “solicited” when the bid is made in agreement with the board of directors or supervisory of the target company; it is “hostile” or “unsolicited” in other cases.

The role of public authorities in regulating takeover bids?

In France, the company that initiates the takeover bid files a draft offer document with the Autorité des Marchés Financiers or AMF (the French authority about financial markets), which presents all the characteristics of the bid to investors. It is published as soon as it is filed, but is still subject to review by the AMF, which may request changes to its form and content.

• At the same time, the initiating company publishes a press release that presents the main features of the draft offer document.
• The target company may then publish a press release disclosing its board’s opinion on the bid and, where applicable, the conclusions of the independent expert’s report and the reasons for the bid.

This press release is submitted to the AMF for review and contains, in particular, the board’s reasoned opinion on the bid and, where applicable, the fairness opinion of the independent expert appointed by the company and the opinion of the works council.

To sum up, the French Authorities -through the AMF- will ensure the transparency of the potential merger between the two companies.

In addition, the Autorité de la concurrence (the French authority about competition) will assess whether the takeover bid is contradictory with the antitrust regulations & others. This is what happened with the TF1-M6 potential merger that we discussed a few weeks ago in an article (see “Related posts on the SimTrade blog” section below). On the other hand, the French Autorité de la concurrence declared this morning that the tender offer of EDF by the French state was allowed.

In the US, the institution from which companies must seek authorization from is the SEC (Securities Exchange Commission). For example, the SEC allowed Merck to buy Imago BioSciences Incorporation 2 days ago.

As regards French Autorité de la concurrence, only transactions exceeding a certain size are subject to its review. This is the case when the following three conditions are met:

• The total worldwide turnover (excluding tax) of all the undertakings or groups of natural or legal persons involved in the merger exceeds 150 million euros;

• The aggregate turnover excluding tax in France of at least two of the undertakings or groups of natural persons or legal entities concerned is more than EUR 50 million.

• The European Commission is not relevant for this merger

Indeed, sometimes, the European Commission’s approval may also have to be seeked for, when companies operate at a continental level. When the transaction involves the territory of more than one Member State and the turnover of the undertakings concerned is very large (e.g., where the worldwide turnover exceeds EUR 5 billion for all the parties to the transaction and EUR 250 million for at least two of the companies in the European Union), the European Commission is competent.

Resources

Autorité de la Concurence (French Competition Authority)

Autorité des Marchés Financiers (AMF) (French Financial Market Authority)

Bank mergers and acquisitions in the euro area: drivers and implications for bank performance

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

How is a decision made by companies?

November 23, 2022 by Louis DETALLE

How is a decision made by companies?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains how companies are organized to undertake the decision-making process…

What is a shareholder?

A shareholder is a person who owns part of the company’s capital, which is divided into shares.

A shareholder is therefore a person or institution that has invested money in a corporation in exchange for a “share” of ownership. This ownership is represented by ordinary or preferred shares issued by the company and held by the shareholders.

Shareholders of small and medium-sized private companies are often closely involved in the management of the company. They therefore contribute to the decision-making process on a regular basis. This is much rarer in large listed companies, where management teams take decisions on a day-to-day basis. In the case of the French company TotalEnergies, it would indeed be complex to take a decision by consulting all the shareholders, as more than 500,000 individual investors are shareholders in the company.

How do voting rights are attached to shares?

The capital is therefore represented by ordinary, or preference shares issued by the company and held by the shareholder.

An ordinary share is a simple share, which has a voting right associated with it and which is inseparable from it. A preference share, on the other hand, will allow its holder to benefit from certain advantages:
-financial: a preference share may be devoid of voting rights but in return allow its holder to benefit from priority dividends each year.
-control: a share with double voting rights may be financially less attractive than an ordinary share but at the same time offer twice as many voting rights as the latter.

Ordinary and preference shares therefore have different prices which fluctuate according to the control/financial balance they provide. They give shareholders rights to different proportions of the company’s profits and may or may not carry voting rights (i.e., the right to participate in the company’s decisions).

Who proposes a decision among companies?

The Board of Directors is a management body whose mission is to define its strategy by being a force of proposal to face the market context. The Board of Directors is therefore composed of:
• Directors (minimum of three and maximum of 18)
• A chairperson of the board of directors.

The chairperson of the board of directors is often also the chief executive officer (CEO) of the company: in this case he or she has the status of chairperson and chief executive officer. The chairman and chief executive officer are therefore a member of the company’s board of directors.

As for the rest of the Board of Directors, they are appointed by the company’s shareholders’ meeting. Some shareholders can therefore propose to work as a Director by applying for the job in front of their fellow shareholders. Once the Board of Directors is organized, they appoint the Chairman of the board of Directors and the decision-making process can start! Please bear in mind that in France only the Sociétés Anonymes (SA) and Sociétés par Actions Simplifiées (SAS) can legally create a board of directors.

Resources

“Who really decides in companies?” 1-hour conference with famous French CEOs

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).