My experience of Account Manager in the office real estate market in Paris

October 12, 2021 by Clément KEFALAS

My experience of Account Manager in the office real estate market in Paris

In this article, Clément KEFALAS (ESSEC Business School, Global Bachelor of Business Administration, 2021) shares his working experience as an Account Manager at Ubiq.

Ubiq: A company disrupting the market

Ubiq was founded in 2012. At that time, it was known as “Bureaux A Partager” (a French expression meaning “office to share”). This digital startup comes from the brilliant mind of Clément Alteresco when he faced a problem of unoccupied seats in its offices at Fabernovel (a strategic consulting firm). He thought that it was a real waste of space and even if he did not think of making profits from it, he could at least try to create value!

Source: Ubiq

This is why, Clément began by conceiving a shared Excel File with a planning and spread it amongst his network. The idea was to enable people to come to work for free in Fabernovel’s office and who knows, maybe creating synergies through exchanges and shared moments. It was then non-lucrative and totally selfless. However, it generated lot of interest and Clément wanted more than a standard employee’s life. Therefore he decided to launch his own digital platform: “Bureaux A Partager”.

The concept was easy: a website on which people would try to find their coworkers or on which people would be looking for their new offices. It was basically the “Airbnb” of the Flex office. You could forget your 3/6/9 bail, now was the time for the day-to-day contract that you could end in less than a month!

Source: Ubiq

It worked out well and in 2017, a team of about 15 people were working on the project. Clément then decided to diversify and launched Morning, the main concurrent of Wework in Paris. If he was not working on Bureaux A Partager anymore, the project kept going and became more and more mature.

Needless to say that the Covid crisis hit hard the office real estate market. The home office is definitely a restraint to the rent of offices, it also became a huge opportunity for Ubiq and a big step forward for the Flex office.

Indeed, since March 2020, we have been talking about the new methods of working and about the new role of the office in the world of tomorrow.

It is not a reflex anymore to go to the office on a working day. There must be more than just creating an environment dedicated to work. Now, the workplace is more about generating synergies, bonds and company culture than about providing an efficient and professional atmosphere.

What a great opportunity for a marketplace that offers every kind of offices with every kind of contracts than such a disorganized market which is reinventing itself.

Thus, Bureaux A Partager could not miss such an opportunity! This is why, with the help of its main shareholder, Nexity, Bureaux A Partager changed its name in “Ubiq” in June 2021.
It also changed its value proposition and recruited new talents to carry such an ambitious project.

In July and September 2021, Ubiq peaked with its 2 biggest records of revenues !

My recruitment as an account manager

Thanks to ESSEC, I had the opportunity to join Ubiq (at that time Bureaux A Partager) in January 2020 for a two-year apprenticeship in the sales team. Indeed, in the Global BBA program, the students are allowed to sign a 24 months apprenticeship contract instead of doing a 6 months internship. It results in them making one more semester in a professional environment and thus, ending with a Master 1 Degree in 4,5 years of studies.

This specific path gives the student the opportunity to involve himself in a long-term professional mission. He will get considered by its company as a normal employee and will be responsible for key missions. This is a really professionalizing program that I would definitely recommend. It also has the advantage of being a real asset on the CV when companies are asking for a professional experience longer than a single internship.

The job I was recruited for was: Account Manager. It is a function that is key in every sales team. The Account Manager will be responsible for the existing clients while the Business Developer will seek for new clients.

The main objective is to build a long term, professional, trust-based relationship with its B2B
clients.

Most of the requirements for the job are soft skills. The Account Manager works in Customer service which means that the mission consists mainly in communicating with clients.

Expected skills from the Account Manager would be:

curious
open-minded
motivated
excellent interpersonal skills
autonomy
rigor

In terms of hard skills, the Account Manager must master Excel, understand sales dashboards, write, and talk clearly and professionally.

My experience as an Account Manager

At first, I had to get to learn the job and to understand the market. This is why I was assigned in the prospect team, seeking for new clients willing to find offices. In other words, I was trying to stimulate the traffic on the platform through looking for the demand side of the market. It was not why I had been recruited for and this mission surprised me, but I then understood that it was part of the training. How could I work on the offer side of the market and help our partners to market their real estate assets if I did not understand the need of their own customers? I spent few months in the “Demand” team and if it could be at some point repetitive and tough, it was definitely formative, and helped me a lot in the continuation of my mission.

At some point, I finally reached my final position: account manager towards the Offer. It was mainly business-to-business (B2B) since the actors that wanted to rent their places, were most of the time companies and not private individuals.

The idea of creating a long-term relationship with the clients was really satisfying. Every customer had its own problematic and its own needs and still the final objective remained the same. The path to reach it though, was always different from one company to another.

Most of my interactions were by phone and email but I still had few opportunities to meet my clients. It was always interesting to have a quick talk with them in person. These meetings were most of the time the beginning of a stronger partnership based on mutual trust. Inspiring, I wish I had the opportunity to meet all of my clients this way.

I learned a lot throughout this professional experience.

First, I learned a lot about myself. It is really tough to know if you like customer service until you do it. The first sales call is always frightening and stressful but in the end, it is only a conversation with a stranger. It might not be a good experience but it can’t hurt.

The most satisfying aspect of the job is to see yourself getting better from a sales call to another. After few weeks, you do not ask yourself twice before picking up the phone. It is part of your job and you’re used to it. Unexpected problems might always happen but most of the interactions are smooth. At the end of this 24months apprenticeship, every sales call was a real delight. I knew my speech perfectly, could answer any question and managed to lead the conversation where I needed it to go. Handling the pressure was the trickiest and the funniest part.
Once an Account Manager masters his job, he faces constant self-esteem boosts. Indeed, his daily mission consists in leading discussions in a known environment about a mastered topic and with clients that require his help.

This mission enlightened me on the fact that being good at his job is not about intrinsic skills but more about perseverance. My learning was permanent, and I kept being better and better until my last day.

The different archetypes of clients

Through these two years of customer service, I had the opportunity to talk with many different actors of the office real estate market. My clients were from different ages, gender, origins, etc. And yet, we could classify each of them in four different major types.

The Satisfied

The most pleasant customer and the most common one. The satisfied client enjoys the service proposed by the account manager and has nothing to complain about. He doesn’t always get straight to the point because the Satisfied enjoys exchanging with the account manager. He is a loyal client that will not hesitate to solicit the account manager every time he requires help.

The Negotiator

Nor satisfied or unsatisfied, the negotiator will try to grab any opportunity to find himself a better deal than proposed at first. If it is not through monetary gain, this customer will seek for an exclusive treatment or relationship. At some point, we could be wondering if the final objective is to get a real benefit or just to feel special. If the account manager can most of the time propose a solution to his request, the negotiator would not necessarily end the relationship in a situation of an unmet need.

The Busy

Certainly the most boring customer, this archetype just doesn’t have time to give to the account manager. Every interaction comes with the feeling of bothering the client and thus, the exchanges are really short. Only the required information is given. Once the contract between both parts is signed, the client expects everything to work fine without further interventions. At least there is no waste of time.

The Unsatisfied

Fortunately, this is the profile that is the least met by the account manager. Basically, the client is not happy with our services and whatever the efforts the account manager might try to do, they will never meet the client’s needs. This discontent often comes from a misunderstanding of the partnership or from a request that cannot be fulfilled. Sometimes, the conflict might begin with a mistake from the account manager. Although, once the error is recognized, then everything possible will be done to repair the damage. This is by far the most interesting archetype that requires a lot of patience and diplomacy.

Useful resources

Ubiq www.ubiq.fr

About the author

The article was written in October 2021 by Clément KEFALAS (ESSEC Business School, Global Bachelor of Business Administration, 2021).

For any further information about the office real estate market or about client relationship management, feel free to email Clément Kéfalas at: b00730327@essec.edu.

A New Angle in M&A E-Commerce

October 12, 2021 by Antoine PERUSAT

A New Angle in M&A E-Commerce

In this article, Antoine PERUSAT (ESSEC Business School, Global Bachelor of Business Administration, 2019-2023) shares his working experience as an M&A Analyst at a start-Up.

The Company

Last summer, I worked for two months in London at a company specializing in Venture Capital (VC) of digital assets in the e-commerce market. The company was headed by financial specialists coming from a range of backgrounds such as hedge funds and investment banks. Yet, there were also many on-board programmers with expertise in finance because of prior experience in areas such as algorithmic trading.

The company had recently acquired a website for $1 million. After considering the slim margins attributed to affiliate schemes in which we provided this website’s online traffic on a commission basis, we decided to start backlinking the website to a drop shipping website which provided accessories at ‘cheap’ prices. For instance, we would write posts on the website we acquired, and their active audience would read articles with titles such as “top 10 vision equipment”, and 5 of those 10 would be linked to our drop shipping platform.

My Job as an M&A Analyst

My main job within this startup was to do the financial appraisal and forecasting of the potential of this new drop shipping venture. Obviously the first hindrance was that there were barely any historic data (17 days of data) and prior budgets to leverage in the forecasting.

I shadowed a former PwC Vice President specialized in M&A and I learnt a lot from the ‘learning by doing’ process which is concurrently one of ESSEC’s main values. The forecast and model provided the board of investors with an overview of our cash-generating projects.

All these figures are based on inputs that were placed into the forecasts.

Figure 1 – Forecasts based on 17-day data input values.
GGD Forecasts

Source: GGD Forecasts

My work

The surrounding macro-variables are instrumental to the success of this project because these products are manufactured in China and shipped all the way to the U.S. I drew up a detailed PESTEL specific to arms and its accessories. I chose to make it as detailed as possible by also applying a base scenario, an upside scenario and a downside scenario to the P&Ls which would forecast the next 24 months. I used color coding which is a simple but instrumental and valuable method to present data in a tidy manner: assumptions in blue, hard coded input in blue, drivers in green and formulae in black. Other simplifiers include shortcuts and skills such as not using the mouse. The P&L’s all had to follow the traditional accounting format so that any financial analyst could quickly skim over it without issue. Although it was mainly for the board of investors, they could check back to the detailed sheet if they had further questions.

Figure 2 – Detailed Forecasts (Inputs).
GGD detailed forecasts

Source: GGD Forecasts

This kind of complexity is great if you are willing to put a few hours into studying the forecasts at great length.

Figure 3 – P&L (Upside).
GGD PL

Source: GGD Forecasts

However, this is much faster and simpler. The element of choice is what the investor wants.

Side Projects

The start-up nature of the company meant that I had to complete other tasks than just forecasting. I conducted internal presentations of the company stock option policy to all new recruits. This taught me a lot about the value of equity in a world structured with salaries and bonuses.

Another side project was writing the prospectus of over 300 bicycle websites ranging from forums, magazines, and e-commerce platforms. This prospectus would be used to discover investment opportunities.
Research also formed a substantial part of my internship, and I undertook market research on our e-commerce competitors and their Key Performance Indicators (KPIs) like revenue figures and cash cow assets as well as their different investors and funding in initial rounds.
Here are a few KPIs on who the market leaders are in terms of e-commerce sellers and the materials sold as well as the overall revenue figures of the market.

Figure 4 – Overview of E-commerce competitors in the UK mattress market.
Ecommerce competitors

Source: Company – European Mattress Market Analysis

M&A valuation methods

On my first day during lunch, the Chief Executive Officer (CEO) of the company told me that fundamental analysis and traditional financial evaluation methods were all pretty much useless for our M&A operations. You can imagine this quite shocking to hear as an intern who came in to specialize in M&A, but I understood why he said this soon enough. Most of the prospectus portfolio we were involved with included internet platforms with little historical data (sometimes less than one year) which was of no use. So, from a financial aspect, we would usually just take a multiple of their Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) like X3 and sometimes X4.
To do the valuation work of the different prospects of interest, we would use Ahrefs (Search Engine Optimization audit software).

Figure 5. Ahrefs Audit Software.
Ahrefs Audit Softwares

Source: https://www.blogdumoderateur.com/tools/ahrefs/

Not only is this a great tool in order to see how lucrative the acquisition is but its true value came into play after the acquisition. We could see general KPI’s such as traffic value and portfolio website health so that we could apply the required SEO mechanisms to maximize the investment’s value.

Final Message

My main message is that we mainly all come from academic institutions and families which force us down a structured and standardized route. For example, in finance, you can usually kick off your career in a range of routes like asset management, investment banking, trading, etc. The growth in new-age financial roles may incorporate more risk exposure in your career but they can provide a more stimulating and rewarding route!

Useful resources

Ahrefs

WallStreetOasis (WSO) Financial Modeling Best Practices: Color Conventions

SPS commerce E-Commerce and the New Age of Retail

Le coin des Entrepreneurs Analyse PESTEL : définition, utilité et présentation des 6 composants (in French)

Philippe Gattet Comprendre l’analyse PESTEL Xerfi video (in French).

About the author

The article was written in October 2021 by Antoine PERUSAT (ESSEC Business School, Global Bachelor of Business Administration, 2019-2023).

My first experience in corporate finance inside a CAC40 group

September 30, 2021 by Pierre BERGES

My first experience in corporate finance inside a CAC40 group

In this article, Pierre BERGES (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021) shares with us his experience in the Finance Department at Bouygues (a French firm included in the CAC40 index).

About Bouygues

Born in 1952 under the impulsion of Francis Bouygues and now managed by his son Martin, the Bouygues group has become in 70 years a gigantic and well-oiled machine which diversified in many fields along the years such as construction (Bouygues Construction), Telecommunications (Bouygues Telecom), Real Estate (Bouygues Immobilier), Road (Colas) and Media (TF1). Operating in over 80 countries with 129,000 employees, Bouygues is one of the biggest actors of the building industry around the world and the second French building company behind Vinci. As a major actor of the CAC 40 index and because of its numerous actions in M&A (Colas in 1985, TF1 in 1987…), Bouygues has developed a strong financial expertise especially regarding corporate finance.

My experience at Bouygues

My goal as an ESSEC’s student was to develop my skills in finance in order to find a job that will challenge me and help me learn each day, that’s why I chose to search for an internship in corporate finance and, if possible, inside a French historic group. I had the chance to join the team of the Finance Department of Bouygues SA and work with the senior financial managers on two missions. The first mission was to report all the critical financial information of the Bouygues’s subsidiaries to the Chief Financial Officer (CFO) and Top Management Team (TMT) each month and monitor the results of the subsidiaries in order to adapt the strategy in case of unusual results. The second mission was the construction of the rating files dedicated to the two rating agencies, Moody’s and S&P, for the rating of Bouygues. I had also to work on more punctual missions related to Bouygues’s stocks (share buyback, stock options, employees saving plan, protection thought derivatives…).

The process of rating

My main mission was to support the managers during the construction of the rating files for the rating agencies Moody’s and S&P. The aim of those files was to help the agencies during their decision process by giving all the information needed under the best light possible to increase or at least maintain the rating of Bouygues. Even though it’s almost impossible for a company to influence the financial aspects of the rating, the company can still work on more flexible aspects of the rating process such as the country risk (risks of the countries where the firm operates), the industry risk (risk of the industry the firm chose to develop). For Bouygues some flexibility is possible regarding the repartition of the earnings coming from media, construction, telecommunication…) or the management governance for example. Our work was to find the best way to optimize those topics and therefore the best way to improve Bouygues’s rating for future market operations.

Figure 1: Structure of the S&P rating.

Source: S&P.

What I’ve learnt during this internship

This internship taught me a lot about corporate finance and how companies use finance to maximize their profits and protect their assets. It also taught me about the central position of rating agencies in the strategy of a company, especially if this company plans to expand through bonds or other financial instruments. Finally, I’ve learnt the way a company can and have to interact with other actors and how the market can influence both the company strategy and its behavior on a daily basis.

Relevance to the SimTrade certificate

The SimTrade certificate is a powerful ally especially regarding the missions linked to Bouygues’s stocks. It allows me to quickly understand the concepts of stock-options or derivative and increase my effectiveness regarding those topics. The certificate is a very good way to learn the basics of financial markets and build on those basics to progress on more complex subjects

Useful resources

Academic articles

Louizi, A., Kammoun, R., 2016. Le positionnement des agences de Notation dans l’évaluation du système de gouvernance d’entreprise, Gestion 2000, 33(5-6):149-175.

Business

Bouygues Presentation and history of Bouygues group

S&P Global

Moody’s

About the author

The article was written in September 2021 by Pierre BERGES (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021).

Mon expérience lors de la fusion Lafarge Holcim

September 16, 2021 by Oliver BEGUE

Mon expérience lors de la fusion Lafarge Holcim

In this article, Oliver BEGUE (ESSEC Executive Education, Mastère Spécialisé Direction Financière Contrôle, 2020-2021) nous partage son expérience professionnelle lors de la fusion d’entreprises Lafarge Holcim en avril 2014.

La fusion Lafarge Holcim

Lafarge

En 2015 Lafarge était une entreprise française devenue numéro 1 mondial dans la production de ciment, béton et granulats dans le secteur du BTP avec un chiffre d’affaires de 12,8 Mds d’euros. Lafarge était côté à Euronext et faisait partie de l’indice CAC 40 avec une capitalisation boursière de 16,7 Mds d’euros.

Holcim

En 2015 Holcim est une entreprise suisse devenue numéro 2 mondial du même secteur d’activité que Lafarge (BTP) avec un chiffre d’affaires converti en euros de 19,9 Mds d’euros. Holcim était coté à la Bourse suisse (Swiss EBS Stocks) avec une capitalisation boursière convertie en euro de 21,5 Mds d’euros.

L’opération de fusion des deux entreprises

Le 5 septembre 2015, les deux groupes, Lafarges et Holcim, ont annoncé leur projet de fusion d’égal à égal (1 action Holcim pour 1 action Lafarge). Cette fusion avait deux principaux objectifs :

Générer de la trésorerie pour les actionnaires (dividendes par de meilleurs résultats)
Devenir le géant mondial du BTP pour concurrencer les entreprises fabriquant à bas couts des pays émergents.

Bilan de la fusion

L’opération de fusion a coûté plus de 2 Mds d’euros au Groupe soit le double du budget prévu. La Commission européenne, afin de valider la fusion des deux géants du BTP, a demandé la cession d’un périmètre de sociétés rentables des deux Groupes afin de maintenir la politique de concurrence de l’Union Européenne.

La fusion elle-même, et le volume d’entités cédées ont ainsi fait la une des journaux en 2015 et 2016 soulevant nombre de scandales (financement du terrorisme, obtention de l’appel d’offre du mur entre le Mexique et les Etats-Unis, présence non officielle en Iran…)
Depuis la fusion et suite à ces différents évènements, le Groupe a connu un désengagement de ses clients ayant pour conséquence la chute de son chiffre d’affaires qui atteint en 2019 24,6 Mds d’euros avec une capitalisation boursière de 27,2 Mds d’euros.

Le Groupe LafargeHolcim, en crise de croissance, rattrapé par la concurrence et les nouveaux marchés plus porteurs, et subissant le désintérêt sur le marché (chute du volume d’échanges) quitte ainsi le CAC 40 en juin 2018.

Mon expérience personnelle

La fusion Lafarge Holcim est un réel succès dans ma carrière professionnelle. En plus du volume de données à traiter étant donné la taille du groupe, les spécificités de chacun (groupe français intégré par un groupe suisse-allemand, deux outils de consolidation différents, un traitement normatif et une communication différence, une gestion RH différente), le réel challenge chez Lafarge Holcim était pour moi une question de légitimité. A à peine 24 ans, j’étais amené à valider des transactions, mais surtout à former des équipes (des centaines de personnes) aux nouveaux outils de consolidation. Former des équipes ayant mon âge en nombre d’année d’expérience fut compliqué. J’ai dû prouver mes compétences techniques et faire preuve d’empathie dans un contexte humain difficile afin de gagner la confiance de mes interlocuteurs.

Cette fusion a bel et bien été un tremplin dans ma carrière professionnelle. Néanmoins, je doute qu’elle ait été positive pour le Groupe.

Fusion d’entreprises : création de valeur ?

La fusion d’entreprises présentent des avantage set des inconvénients que nous listons ci-dessous :

Avantage :

A cout terme, la fusion Lafarge Holcim a bénéfié d’une réduction des couts fixes liés aux synergies (fermeture totale du siège social de Lafarge notamment), pour un total de 1,4 Mds d’euros. La fusion de ces deux Groupes permet aussi, dans un secteur où les ressources employées en investissements sont particulièrement important, à mutualiser les ressources et le réseau géographique en termes de périmètre de société du nouveau Groupe. Ainsi Le groupe accroîtrait sa solidité financière avec une forte génération de cash-flow et un bilan robuste.

Les implantations des deux entreprises sont complémentaires, Lafarge apportant une forte présence en Afrique et au Moyen-Orient ; Holcim, des positions majeures en Amérique latine et en Asie pacifique. La réunion de ces deux portefeuilles permettra au nouveau Groupe de disposer d’une présence géographique équilibrée dans 90 pays, dont 73 pays émergents.

Inconvénients :

Afin d’obtenir la validation de la Commission Européenne sur la fusion, les deux Groupes se sont accordés pour procéder à la cession d’un parc important d’actifs, principalement des filiales en croissance pour un total d’environ 6,5 Mds d’euros.

Aussi les synergies espérées ne représentent au total que 3,5% de la capitalisation du nouvel ensemble, ce qui est peu et ne sera pas suffisant pour combler les pertes liées au Chiffre d’affaires (scandales) et au besoin en financement toujours grandissant.

L’objectif de la fusion était de créer un géant du BTP leader incontesté du marché. Le résultat est un Groupe de taille moyenne, déficitaire, et qui tente de se désendetter en cédant toujours plus de filiales.

Ressources utiles

Rapport annuel 2014 de Lafarge

Rapport annuel 2015 de Lafarge Holcim

La Commission autorise l’acquisition, sous conditions, de Lafarge par Holcim

Précisions de Lafarge Holcim sur ses opérations en Syrie

A propos de l’auteur

Cet article a été écrit en septembre 2021 par Oliver BEGUE (ESSEC Executive Education, Mastère Spécialisé Direction Financière Contrôle, 2020-2021).

My internship experience at Deloitte

August 26, 2024June 14, 2021 by Anant JAIN

My Internship Experience at Deloitte

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) shares his experience as a strategist intern with Deloitte, and talks about the functioning of Deloitte and Robotics Process Automation (RPA).

About Deloitte

Founded in 1845, Deloitte is one of the biggest professional service providers in the world. Being one of the “Big Four” accounting firm, it provides services in audit & assurance, consulting, financial advisory, risk advisory, tax and legal advisory. A key aspect about Deloitte is that it does not sell any products but rather services. Hence, it’s crucial for Deloitte to find the right mix of people to be hired for the job as explained below. Moreover, Deloitte likes to focus on automation of its processes because it increases the human productivity by removing repetitive tasks and allows its employees to focus more on crucial and important tasks. It doesn’t decrease the human input but in fact, increases the human output.

The working process

The working process for a new mission for a client is decomposed in three steps.

Step 1: The engagement letter

When is a new client comes onboard, the first step is to sign the engagement letter which defines the scope of the project, the estimated input and billable hours for the project and its breakup, and finally the price quotation to the client. This is always followed by a negotiation between the client and Deloitte and upon mutual agreement, the engagement letter gets signed.

Step 2: On-boarding

When the client gets “onboarded” with Deloitte then Deloitte’s employees who will be working with that particular client also get onboarded with the client’s firm. For example, if Coca-Cola is a client at Deloitte, then the employees at Deloitte working with Coca-Cola will also have to get onboarded with Coca-Cola’s employee platform .

Step 3: The plan and delegation

The next step is to do a thorough analysis of the project and the problems, the target areas, the areas requiring more efficiency, etc. This is usually followed by a thorough plan formulated by a Director or Senior Manager of Deloitte. The plan is then passed on to the Associates and Analysts with their designated tasks for the project with deliverables to be achieved and deadlines to be met.

The Organizational Hierarchy at Deloitte

The hierarchy of Deloitte is quite simple with titles and levels. In an ascending order, it is given by:

Analyst (I-III)
Analyst IV / Associate Consultant
Consultant (I-II)
Consultant (III-IV) / Assistant Manager
Manager (I-II)
Senior Manager (I-II)
Director
Partner

To reach a position as a Manager or above, it is important to show your business potential to get clients for the firm. Therefore, it important for a person, aiming to reach that level, to have a good network and communications skills.

Work Ethics & Environment

As a Deloitte employee, you have to restructure your schedule according to your client’s requirement especially if the client works at a different time zone (although it is extremely rare to be assigned a client with a huge time-zone difference). It is also important to realize that an employee essentially works at two firms, one being his/her employer, Deloitte, and the second being the Client’s firm. Hence, it is important for an employee to not only work with the Client but constantly update his/her progress at Deloitte. The work has to be extremely presentable to the client because the data and numbers can become very complex and difficult for a client to understand during a presentation. Therefore, it becomes important to make sure that your work is presentable and readable. The work has to be very categorical and detailed.

The working environment is quite pleasant. There are multiple team-building events and activities with various offsites, conducted throughout the year to integrate the employees more. At the same time, your supervisors and co-workers are really helpful. Even though initially one can find the environment quite fast paced and overwhelming, one can get a hang after a short period of time.

Despite the tough schedule and huge amount of workload, it is actually quite rewarding because understanding different clients’ businesses and operations make you more equipped and knowledgeable and thus adds value to your profile.

What is Robotics Process Automation (RPA)?

Robotics Process Automation (RPA) is the utilization of artificial intelligence (AI) to transform and digitize business processes. In this new era of AI, more and more organizations are on the process of completely digitizing and automating every department in their organization and RPA serves as a base for it essentially. RPA is a software which uses robots that can emulate the digital desktop work that people do. RPA is governed by business logic and structure inputs. But it does not mean that they are physical robots, they are just a digital software used to carry out functions which are monotonous, repetitive and one tone in nature. RPA can be utilized in a wide range of daily cases such as the “copy paste” activities, which can be automated using RPA for actions such as copying items from a mail to an Excel sheet, filling out forms, etc. It uses computer software robots called ‘bots’ to carry out these tasks. RPA eliminates more and more mundane admin work and handles it well and in full in compliance. This enables an organization to achieve greater efficiency by streamlining processes and improving accuracy. It also enables humans/employees to focus more on work that requires judgement, creativity, and interpersonal skills.

Robotic process automation uses a logit/probit regression as one of its bases to achieve its function of handling mundane and repetitive tasks. Logit/probit regression is a binary regression model in which the dependent variable (DV) takes the value of 0 or 1. In practice, it is used for answering tasks that have only two outputs: “yes” (1 in the model) or “no” (0). The diagram below explains how RPA functions and how it uses logit/probit in the process. The diagram shows how RPA assesses a mail and enters any relevant information in an Excel sheet and sends it to the employee related to it. The bot (robots called in RPA processes as already mentioned) reads an email sent to the employee, opens the Excel file attached to the email, and enters data from the Excel file into an Enterprise Resource Planning (ERP) platform. When this happens, the bot enters the information in the Excel file, then looks for any possibility of the matter being escalated or not (to be defined). If escalation is required, then the bot sends a notification to the employee for analysis which eventually ends the task. If escalation is not required, then the bot automatically ends the task.

Figure 1. RPA Working Process

Source: Krify

My Experience at Deloitte

As a student pursuing his graduation in Economics, landing an internship at Deloitte was really surreal. I was always inclined towards consultancy and getting a first-hand experience really helped me be more certain about my hunch. I worked as a trainee in the Strategy & Operations Department in New Delhi. During my short six-week internship, I was primarily required to execute individual analysis of RPA and its applicability in Accounts Payable Processes. It was quite an interesting individual project to understand how the digitization of organizations are executed and the capacity to which processes and tasks can be automated using AI. The internship was an eye opener about the effort and handwork required to make as a consultant in one of the “Big Four” companies.

What I learnt during my internship

The three main things I learnt during my internship at Deloitte are as follows:

I gained information about the structure and working environment at Deloitte.
I learnt about digital transformation, particularly Robotics Process Automation.
I acquired an insight about the soft and hard skills required to make as an intern at Deloitte.

About the author

The article was written in June 2021 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Expeditionary experience in a Chinese investment banking boutique

June 1, 2021 by Suyue MA

Expeditionary experience in a Chinese investment banking boutique

In this article, Suyue MA (ESSEC Business School, Global Bachelor of Business Administration, 2017-2021) shares his experience as an intern at InvesTarget, an investment banking boutique in China focusing on capital raising and M&A.

About myself

I have been interested in finance ever since I started my study at ESSEC Business School in 2017. By acknowledging more about finance, during my 2nd year of study, I decided to build up my career in corporate finance, focusing on the primary market. By sending around 400 resumes to different companies and banks, I finally received my first internship offer in a top 10 securities company doing Real Estate Investment Trusts (REITs) and Commercial Mortgage-Backed Securities (CMBS) projects in China. Until now, I have finished 4 internships in the field of corporate finance, private equity, capital-raising advisory, and Mergers and acquisitions (M&A).

In this article, I would like to share with you about my internship in a capital-raising advisory team of a Chinese new-type investment banking boutique. This company mainly focuses on M&A and fundraising advisory; some of those companies will also play a role as venture capital if they have their own money to invest or they find some profitable projects.

My mission

In this internship, my primary exposure covered in Technology & Industrial sector, including Industrial Drone, Intelligence Vehicle, and Advanced Materials.

Main tasks

As an intern, my main tasks were mainly as followed:

Perform pro forma financing consequences, capitalization table, Discounted Cash Flows (DCF) analysis, and accretion/dilution analysis
Perform in-depth financial, accounting, and operation due diligence, which includes financial analysis, team’s background, and technology support on client companies
Prepare materials for internal business plan, business proposal, and financial advisory presentation
Conduct reports of industry research and company analysis on Telecom Media and Technology (TMT) specific sectors.

Details of a deal

Since a round of fundraising process is normally around six months, I had a chance to close two live deals. Let me take one of the deals as an example: we had a client company that is a top intelligent driving-technology startup with valuation around US$250m. The company was looking for US$30m Series B round funding (round of growth stage financing). Our role as a fundraising advisor was to screen potential investors (normally they are Venture Capitals (VCs), since B round is still in growth stage) who are interested in such field at first. We also helped and guided the client company to prepare the material needed for the fundraising, such as business plan, business contract, and company’s financial analysis. Subsequently, if VCs are interested, we will assist VCs to do the due diligence on the client company. It usually includes financial, accounting, law, and compliance documents. After the valuation of VCs, if they agree to invest in company’s shares, both VCs and client company will sign a Term Sheet and finish the transaction within a period mentioned by the contract.

Preparatory work

We also need to do industry and company research report in Technology and Industrial sector, in which industry research report should include the industry’s definition, category, history, political trends, market analysis, competition status, core technology, industry development trend, capital market research, etc. For the company research report, we should present the company’s background information, capitalization table, business category and products, team, financing history, cooperation relationship, etc.

Takeaway from my internship

Thus, by doing such work, as an intern, I could have a deep understanding regarding specific sectors and build up relationship with some top VCs and Private Equity (PE) firms. This is quite important for the students who want to work in the investment field of primary market.

Financial concepts

Venture Capital

Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise. Venture capital is typically allocated to small companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand.

Though it can be risky for investors who put up funds, the potential for above-average returns is an attractive payoff. For new companies or ventures that have a limited operating history (under two years), venture capital funding is increasingly becoming a popular – even essential – source for raising capital, especially if they lack access to capital markets, bank loans, or other debt instruments. The main downside is that the investors usually get equity in the company, and, thus, a say in company decisions.

Capital funding

Capital funding is the money that debt and equity holders provide to a business for daily and long-term needs. A company’s capital funding consists of both debt (bonds and loans) and equity (stock). The business uses this money for both capital expenditures (Capex) and operating expenditures (Opex). The debt and equity holders expect to earn a return on their investment. The form of returns is interests for debt holders, and dividends and capital gains for equity holders. However, in my internship, since the company is still a startup at growth stage, so it only includes equity financing, which means that the investors will directly own the company’s share rights by investment money.

Discounted Cash Flow (DCF)

The discounted cash flow (DCF) method is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today (present value) based on projections of how much money it will generate in the future. This applies to investment decisions of investors in companies, such as acquiring a company, investing in a technology startup, or buying stocks in the secondary market. For business, owners and managers are looking to make capital budgeting or operating expenditures decisions such as opening a new factory, purchasing or leasing new equipment.

The DCF formula is shown below:

Present value of a series of cash flows

where PV is the present value of the investment, CF the series of cash flows generated by the investment (CF₁ is for year 1, CF₂ is for year 2, …, CF_T is for the last year T) and r the discount rate.

Relevance to the SimTrade certificate

The experience shared above is strongly related to the SimTrade Certificate. The primary market is where securities are created, while the secondary market is where those securities are traded by investors. The boundary between primary and secondary market is the IPO. Once stocks are traded in public, it comes to secondary market. From my perspective, most parts of the investment analysis and logic are the same, such as fundamental analysis, DCF, P/E ratio, etc. so we can benefit from SimTrade by learning how business factors will affect the company’s stock performance and why and when should we make the right investment.

▶ All posts about Professional experiences

Useful resources

InvesTarget

Investopedia Venture Capital

Investopedia Private Equity

About the author

Article written in June 2021 by Suyue MA (ESSEC Business School, Global Bachelor of Business Administration, 2017-2021).

Career in finance

May 31, 2021 by Anna BARBERO

Career in finance

In this article, Anna BARBERO (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021) discusses various aspects of a financial career.

I had the opportunity to talk with Alexis Fontana (ESSEC Alumni and Board member of ESSEC Alumni-Club Finance) who has worked in many fields related to corporate finance (audit, private equity, and mergers and acquisitions, etc.) Alexis currently works at EY as a “Strategy and Transactions” manager.

Interview with Alexis Fontana

Question: First, your curriculum and your engagement at Club ESSEC Finance show a real passion for corporate finance. When did you decide you would take this orientation? And why?

Corporate Finance is indeed a field in which I really enjoy being involved and here are the reasons why:

The analytical aspect of Corporate Finance, as a transaction due diligence professional on a day-to-day basis
The investment side, I was once a private equity professional and continue to work with small and large Private Equity (PE) funds
The theoretical approach, I have just finished my certified accountant thesis. The subject deals with the impacts of the working capital requirements on the value of industrial small medium enterprises (SMEs) in the context of a sell-side process.

When I joined ESSEC in 2012, I initially wanted to work for the Autorité des Marchés Financiers (the French financial regulator). The multiple professional experiences required to fulfil the ESSEC curriculum helped me in the design of my professional career I am still building today.
I think that one of the key encounters that made me discover my passion for corporate finance was Albert Aidan, a Senior Partner at Deloitte, who was once my professor of accounting at ESSEC Business School but also, back then, the treasurer of ESSEC Alumni.

Question: The financial sphere is often criticized for being profit oriented. What would you respond to those critics?

The financial sphere is mandated or has in its very statutory purpose the aim of making sustainable profit. One of the key aspects I learned over the recent years is that no company can be durable without being profitable.

During my curriculum at ESSEC Business School, I have been privileged to work in a pan-European French Private Equity fund, attending each week the investment committee with some of the sharpest investment minds I have had the opportunity to meet so far.

What I understood, is that these professionals work to safeguard the interests of the Limited Partners (LP) of the fund (institutions, family offices, individuals which decide to invest money in an investment fund managed by a General Partner (GP) and its team of investment professionals). To that extent the actions taken are aimed to achieve resilient returns through investments in high potential companies which are, by the way, embarked in value creation journeys which bring (i) new jobs, (ii) economic activity to region, (iii) growth and ambition on a national or international scale.

More recently in the context of the COVID-19 crisis, the financial sphere has been faced with a call for greater purpose that is still being translated in concrete actions: (i) extra-financial reporting measuring impact and Environmental, Social, and Governance (ESG) related metrics, (ii) tighter reporting and communication standards, (iii) stronger compliance. I really do believe that today is a good time to start a career in corporate finance. So many fields and uncharted territories are being addressed by the industry which is in high need of bright minds and pioneers!

Question: You have worked in several finance fields: audit, private equity and more recently even M&A. Which one did you like most? Do you feel that an experience in one field can help in another? For a young professional, which one do you advise to start with?

I am really passionate about my current responsibilities as a transaction due diligence professional, it offers me the opportunity to always be working on the most strategic corporate events (acquisition, divestiture, capital reorganization, refinancing and even restructuring). It gives me also the opportunity to work on daily basis with Chief Executive Officers (CEOs), Chief Financial Officers (CFOs), Private Equity (PE) professionals, Merger and Acquisitions (M&A) bankers, lawyers (corporate, law, tax) on top of a broad ecosystem of experts.

My past experiences gave me the tools to advise my clients on very technical aspects of a deal with the aim of always giving them the more acute advice in a timely manner. What I really like is the negotiation phase of the deals – the final word is to convince the other party to get the deal done. Each deal is unique, and I would even say that cross-border deals are the most fascinating as you add the cultural aspects on top of the already complex deal challenges you must solve.

Should you consider a career in Corporate Finance, I recommend performing an introductory experience in Audit as it gives you all the keys to understand how financial information is sourced, processed and then communicated.

My advice to young professionals is to learn and gather soft skills, but to also bring a broader focus on a domain of expertise. Hard skills are keys in the current business environment we are navigating through and it will become more and more sought after. It can be law, accounting (please do write me directly if this field interest you) and other fields of interest but do be curious and keep learning things even after finalizing your curriculum at ESSEC Business School, you always to remain at the top of the game.

Key concepts

Audit

According to the Dictionary of Cambridge, financial audit is “the process of checking a company’s or organization’s financial statements to make certain they are correct and complete, and then providing this information in an official report”. Financial audits are conducted internally and externally by consulting firms. The major audit experts are called the “Big Four”: Deloitte, EY, KPMG & PwC.

Private Equity

“Private equity is an alternative investment class and consists of capital that is not listed on a public exchange” (Investopedia). There are two types of investors in private equity:

Limited Partners (LP) that generally hold 99% of shares and have limited liability;
General Partners (LP) who hold 1% of shares and have full liability.

Private equity allows companies & startups to gain liquidity without necessarily contracting expensive loans or listing on public markets. Yet, it is more difficult to find & negotiate private equity funds than making a match in the public market order book.

Merger and Acquisitions

According to the CFI (Corporate Finance Institute), “Mergers and acquisitions (M&A) refer to transactions between two companies combining in some form”:

Mergers are the combinations of two companies of comparable size. The largest in history was the merger of American Online & Time Warner Inc. The $360 billion deal was closed in 2000 (Investopedia).
Acquisitions occur when a bigger company acquires a smaller one. Vodafone acquired Mannesman AG for $180.95 billion. However promising, the deal was a failure (Investopedia).

Working in M&A can mean several things: leading the strategy to proceed M&A, advising on the target company, proceeding the financial transaction, examining the legal side, etc. M&A is treated internally in corporations and externally by consulting firms, banks, etc. Morgan Stanley and Goldman Sachs are two famous M&A firm.

Useful resources

Corporate Finance Institution, Mergers & Acquisitions.

Shobit Seth reviewed by Eric Estevez, 2021. The 5 biggest Mergers in History, Investopedia.

Shobit Seth reviewed by David Kindness, 2021. The 5 biggest Acquisitions in History, Investopedia.

About the author

Article written by Anna BARBERO (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021) .

How can we apply supply chain management to finance?

May 22, 2021 by Paul Antoine BOHOUN

How can we apply supply chain management to finance?

In this article, Paul Antoine BOHOUN (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021) explains how can we apply supply chain management to finance.

At the end of my master’s degree in logistics and transports, I did an internship at Logistics & Supply Chain Consulting (LSCC) as a junior consultant. LSCC is an Abidjan based consulting firm composed of 10 employees and is engaged in various missions of counsel, audit, and training for public or private entities on several supply chain related subjects. During my time there, I have been able to work on procurement, inventory management, and operational excellence problems for both private and public clients. The missions consisted in business planning and logistics auditing. It has been a great experience for me as a supply chain trainee. The culture of the firm offered me the opportunity to step up on important missions and be in direct contact with the clients.

This internship was the set for my professional thesis for which I worked on the diagnosis of a rubber company which had operational dysfunctions and was preparing the expansion of its activities. Particularly, I participated in the auditing of the procurement and purchasing processes. Our analysis, indeed, revealed that the procurement of primary goods lacked automation and that a further training for some employees were needed. My role was to prepare interviews, collect and analyze procurement data to assess the department performance and elaborate recommendations based on the data analysis results.

How is supply chain applied to finance?

Let us enumerate some aspects of supply chain which are important to link with finance for better performance of any company.

First of all, the sales and operations planning (S&OP) plays a big role in the profitability of a company. S&OP aims to provide an accurate forecasting of sales and the corresponding resources that will be needed to achieve them. The crucial component in this effort is the reliability of the used data. Decisions makers within the company also want to be able to orchestrate a relevant supply and demand plan with the associated expected revenues and/or margin.

Furthermore, there is supply chain finance (SCF) which is a system for buyers and sellers to facilitate their operations by having the financial resources available as soon as possible for the seller end as late as possible for the buyers. It is then a credit system that allows a smooth running of the businesses. A key point about SCF is also the fact that it is increasingly difficult to apply because of regulations and reporting requirements. The following figure compares the benefits from the use of a SCF system in a company between the buyer and the supplier.

Figure 1 : Benefits comparison – Buyer versus Supplier.

Key concepts

Supply Chain Management

SCM is applied to business as the optimization of the flows of goods, information, and the financial flows within and between companies by functional and cross-company integration. Overall, SCM mainly deals with the design and optimisation of the flows of goods and information. The financial aspect of it is broadly neglected.

Supply Chain Finance

Supply chain finance (SCF) is a term describing a set of technology-based solutions that aim to lower financing costs and improve business efficiency for buyers and sellers linked in a sales transaction. It provides short-term credit, which can optimise cash flow by allowing buyers to lengthen their payment terms whilst providing suppliers with the option to receive payments earlier.

Data

Data refers to all useful information coming out of a company’s day to day activity and its environment (suppliers, clients, competitors, etc.). Its collection, organization, and security represent a major challenge for companies’ performance and decision making. It is divided into qualitative and quantitative information and its analysis has infinite applications.

Resources

PWC : Enhancing working capital performance

Investopedia : Supply chain finance

Hans-Christian Pfohl & Moritz Gomm (2009) “Supply chain finance: optimizing financial flows in supply chains” Logistics Research 1(3-4):149-161.

About the author

Article written in May 2021 by Paul Antoine BOHOUN (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021).

Classic brain teasers from real-life interviews

January 30, 2024May 17, 2021 by Alexandre VERLET

Classic brain teasers from real-life interviews

In this article, Alexandre VERLET (ESSEC Business School, Master in Management, 2017-2021) provides 10 brain teasers from real-life investment bank interviews, and explains simple ways to solve it.

In most finance interviews, applicants must face the feared trial of brain teasers, defined as unusual questions which have basically nothing to do with finance. Investment banks and funds use them to assess the problem-solving skills, the creativity, the logical reasoning, and the ability to ask the right questions of their candidates. In this article, we will take a look at the most common types of brain teasers based on real examples from the major investment banks and see the simplest way to solve them. Keep in mind that your own method is probably the best since it’s yours, but if you get stuck on a brainteaser in the course of an interview, it can always be useful to remember the general methods on how to solve them. Here we go.

Examples of brain teasers

The bee: a classic distance/time question meant to confuse you

Let there be a point A 100 km from a point B. A car travelling at 50km/h starts from point A, at the same time a bee flying at 130km/h starts from point B. Each time the bee meets the car it returns to B and then once at point B it returns to the car, coming back and forth until the car meets point B. How many kilometres did the bee travel?

Answer: The car travels for 2 hours (since it travels 100km at 50km/h), and the bee flies for exactly the same time as the car travels, so the bee travels 260km (since it flies at 130km/h).
That’s it!

The cube: picturing volumes in your head

A cube of 10 m3 volume is divided into 1,000 small cubes of one cubic metre volume. This cube is dipped in paint. How many cubes are coloured?

Answer: The uncoloured cubes are the ones inside. If you think of the cube as divided into “3D” columns and rows that go through the cube, you will see that the first and last of each row will be coloured, and the 8 remaining will be inside. There are 8*8*8 uncoloured cubes inside i.e. 512, so the number of coloured cubes is 1000-512=488

The gold bar

The gold bar, a question for practical minds (or people who read this article).

I have a gold bar that weighs 7 kg, and I would like to give 1 kg of gold to a person every day for a week. I am only allowed to cut the bar twice. How can I do this?

Answer: Once you have figured that you can actually take back parts of the gold (you will quickly figure there’s no way to do it otherwise), the is to process step by step.
I cut the bar into 3 pieces: a 1kg piece, a 2kg piece and a 4kg piece.
Day 1: I give the 1kg piece.
Day 2: I give the 2kg piece and take back the 1kg piece.
Day 3: I give the 1kg piece.
Day 4: I give the 4kg piece and take back the other 2 pieces.
Day 5: I give the 1kg piece.
Day 6: I give the 2kg piece and take back the 1kg piece.
Day 7: I give the 1kg piece.

The arena

The arena: geometry and common sense.

I am in the centre of a circle of radius a, a lion is running twice as fast as I am, but it cannot enter the circle. The lion is running towards the point closest to me at all times.
How can I get out of the circle without being eaten?

Answer: Double the radius is shorter than the semicircle (2a vs a*pi). So the lion will not have time to catch up with me if I go to a point on the circle and then run directly in the opposite direction.

The clock

The clock: geometry (though owning a watch can help)

It is 3:15 pm, what is the degree between the minute hand and the hour hand?

Answer: Perhaps the most common of all brain teasers (I got it in an interview), so they expect you to be quick and right. Do not say 0, clocks are not so common these days but you should know that the hour hand moves forward while the hour hand turns. The hand has therefore advanced by a quarter of an hour, i.e. : 1/4*(1/12*380)= approximately 7.9

The glasses

The glasses: common but not so easy

We have a 5 L glass A, a 7 L glass B, and a water tap, how do we make 6 L?

Answer: We fill B, empty it into A to its maximum, B then contains 2L. We then empty A. Then, put the contents of B into A. We fill B and then empty it into A to its maximum. This leaves 4L remains in B. Empty A, then put the contents of B into A, then fill B and empty A to its maximum: there is then 6L left in B.

The racetrack

The racetrack: an even trickier distance/time question

A racetrack is 100 km long, a car does a first lap at 50 km/h, at what speed must the car go
in order to travel an average of 100 km/h?

Answer: Be careful, the answer is not 150 km/h. Indeed, if the car made the first lap at 50 km/h then it has driven 2 hours at the end of the first lap. However, if the car is driving at an average of 100 km/h, it must have done the 2 laps in 2 hours. This is impossible because it has already driven for 2 hours. This problem has no solution.

Slot machines

Slot machines: one of the real tough ones

There are 10 slot machines in front of me. In 9 of them the coins weigh 10g, in one of them the coins weigh 20g. You can take as many coins as you like out of each machine. How do you find the machine with the heaviest coins in one weighing?

Answer: Put 1 coin from machine 1, 2 coins from machine 2, 3 coins from machine 3 on the scale… If F is the final weight, then the difference between F is (1+2+3+…+10) allows you to find the machine with the heaviest parts. Indeed (F-(1+2+…+10))/20 gives us the number of this machine, so the number of the machine is (F-55)/20. That solution is super smart so congrats if you found it by yourself.

The crash

The crash: finally, the real distance/time question!

Let point A be X km away from point B. A drives at Y km/h, B drives at Z km/h. When will
A and B meet?

Answer: Simply solve for Yt=X-Zt with t as the unknown, then find t the time when they meet (in hour).

The bridge

The bridge: a typical back and forth question.

Four bankers have to cross a narrow bridge at night. They have only a torch and maximum 17 minutes to cross the bridge. The bridge cannot be crossed without a torch and can only support the weight of a maximum of two bankers. The analyst can cross the bridge in 1 minute, the associate in 2 minutes, the VP in 5 minutes and the MD in 10 minutes. How can they cross the bridge in time?

Answer: The analyst first crosses the pond with the associate, this takes 2 minutes. Then the analyst crosses the bridge in the opposite direction with the torch, this takes 1 minute. Then the analyst gives the torch to the VP who crosses with the MD, this takes 10 minutes. The VP then gives the torch to the associate who crosses the pond in the opposite direction in 2 minutes. Finally, the associate and the analyst cross the bridge in 2 minutes.
They have all crossed the bridge in 17 minutes.

Advice

Keep practicing, there are tons of it on the internet! Knowing the 50 most common brain teasers should allow you to nail any question in seconds, but keep in mind that you will probably face a question you have never done before, so the method is more important that knowing brain teasers by heart! Remember that sometimes you may think you recognise a brain teaser you know when you actually don’t. Take the distance/time questions for instance: I have presented you with 3 questions that looked similar but with totally different answers and methodologies, so watch out for that!

About the author

This article was written in May 2021 by Alexandre VERLET (ESSEC Business School, Master in Management, 2019-2022).

In the shoes of a Corporate M&A Analyst

April 17, 2021 by Raphaël ROERO DE CORTANZE

In the shoes of a Corporate M&A Analyst

In this article, Raphaël ROERO DE CORTANZE (ESSEC Business School, Master in Management, 2018-2022) shares his experience as a Corporate M&A Intern.

My internship at Scor

In 2020 as an intern, I had the opportunity to join the M&A Team of the French Reinsurer “SCOR” for 6 months.

As this internship allowed me to develop both hard and soft skills as well as helping me devising my future career path, I think it would be interesting to share this experience with you, hoping it could help you or give you some ideas.

SCOR is the world’s fourth-largest reinsurer with 16.4€bn of revenue in 2020. As a reinsurer, SCOR provides insurance companies with a range of solutions and services to control and manage the risks they face through its three divisions: Property & Casualty Reinsurance, Life & Health Reinsurance, and Investment Partners (the institutional investor division of SCOR).

What is a Corporate M&A Analyst?

A Corporate M&A Analyst is a Financial Analyst who works within and for a company, in comparison of a M&A Investment Banking Analyst who works in an Investment Bank or a Boutique.

The Corporate M&A Team is responsible for overseeing and carrying out all the transactions (acquisition, divesture, etc.) of a company. The team is in direct contact with investment banks, which it mandates in the case of an M&A operations. The team is also in direct contact with the Executive Committee and/or the Board of Directors of firms. Corporate M&A Analyst also work with other divisions within the company.

On average, a Corporate M&A Analyst and the rest of the M&A teamwork fewer hours than in an investment bank. Nonetheless, workhours strongly depend on the number of transactions the team makes in a year, and a M&A process can still be very intense and demanding even in a company.

What does a Corporate M&A Analyst do?

The tasks of a Corporate M&A Analyst are usually divided into two parts, the first being M&A-linked tasks and the other linked to the other activities the Corporate M&A team is related. For instance, at SCOR, the M&A team was also responsible for overseeing Corporate Finance at group level. Thus, I also worked on internal projects such as a cross-border restructuring project. In other corporates, M&A teams can be merged with Investor Relations, Strategy or for instance being only responsible for M&A related issues.

M&A tasks consist of:

Performing financial modelling and valuation: with conventional valuation tools (discounted cash flows, trading comparables and precedent transactions, etc.) and industry-specific tools (dividend discount model, appraisal value – for the Insurance/Reinsurance industry for instance)
Carrying out competitive and market intelligence of the industry: at SCOR I monitored 20+ competitors and targets, while devising regular updates and case studies on insurance/reinsurance transactions (merger, divesture, IPO, etc.)
Assisting in the execution on deals: in an acquisition or divesture process, the main task will be to perform valuation from bank documents (Info Memos), data rooms and internal data (in the case of a divesture). Compared to an M&A Analyst in an Investment Bank, a Corporate M&A Analyst also works on and follow the integration challenges raised by an acquisition.

The main tools used by a Corporate M&A Analyst are similar to the ones used by an M&A Analyst in a bank: Excel and Powerpoint of course, but also financial data providers such as Bloomberg, Factset, S&P Global, etc.

How can you become a Corporate M&A Analyst?

The majority of Corporate M&A Analysts and their colleagues usually spend some time in an Investment Bank before joining a Corporate M&A Team. This is why the work habits of a Corporate M&A team are similar to those in a bank: high attention to details, same requirements in terms of mastery of Excel and Powerpoint, high expectations in terms of speed and quality.

Between a job at an investment bank a corporate job, a Corporate M&A position can be a good opportunity to get the best of both worlds: high level of technicity and knowledge of a sector, combined with a more manageable workflow. Furthermore, members of a Corporate M&A team have the opportunity to work on transforming deals for the sake of the company they work for. In comparison, Investment Banking Teams continuously switch from a client to another, from a deal to another, without having the corporate strategy dimension of a Corpor
ate M&A Team.

Key concepts

Trading comparable

A comparable company analysis (CCA) is a process used to evaluate the value of a company using the metrics of other businesses of similar size in the same industry. Comparable company analysis operates under the assumption that similar companies will have similar valuation multiples, such as EV/EBITDA. Analysts compile a list of available statistics for the companies being reviewed and calculate the valuation multiples in order to compare them.

Precedent transaction

The cost of a precedent transaction is used to estimate the value of a company that is being considered. The reasoning is the same as that of a prospective home buyer who checks out recent sales in a neighborhood.

Discounted cash flow

Dividend discount model

The dividend discount model (DDM) is a quantitative method used for predicting the price of a company’s stock based on the theory that its present-day price is worth the sum of all of its future dividend payments when discounted back to their present value. A DDM valuation gives the Equity Value (or stock value).

Divesture

A divestiture is the partial or full disposal of a business unit which most commonly results from a management decision.

Property & Casualty insurance

Property and casualty (P&C) insurance provides coverage on assets (e.g., house, car, etc.) and also liability insurance for accidents, injuries, and damage to other people or their belongings.

Life & Health insurance

Life and health (L&H) insurance provides coverage on the risk of life and medical expenses incurred from illness or injuries.

Reinsurer

A reinsurer is a company that provides financial protection to insurance companies (basically an insurer of an insurer). Reinsurers handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.

Useful resources

Sources: Investopedia, Wikipedia, Corporate Finance Institute, Scor

About the author

Article written in April 2021 by Raphaël ROERO DE CORTANZE (ESSEC Business School, Master in Management, 2018-2022)

Covid-19 and its effect around hospital

April 16, 2021 by Subhasish CHATTERJEE

Covid-19 and its effect around hospital

This article written by Subhasish CHATTERJEE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021) discusses the financial impact of the Covid-19 crisis on the healthcare sector in India and especially for hospitals.

Impact of the Covid-19 crisis on hospital operations

For any organization, a positive operating margin is essential for long-term Financial stability. Few organizations can maintain themselves for a long period when total operating expenses are greater than total operating revenues. A positive operating margin allows the organisation to develop its business by financing new projects with internal financial resources along with external financial resources such as debt and equity.

For hospitals, a positive operating margin allows them to invest in new treatment services for enhancing patient satisfaction, building of new facilities, and researching on new drugs.

Before Covid-19

Compared with other sectors, healthcare margins typically have been very low. Even before the appearance of Covid-19, a number of Indian hospitals struggled with poor or even negative margins—in other words, they were losing money on their operations. In fact, the median hospital margin was around 4.7 percent. This situation has been perilous to the future viability of many of Indian hospitals.

My experience during my internship

When the Covid-19 pandemic emerged, hospitals had to renounce the non-Covid treatment. The result was a drastic slowdown in volume of patients and in revenue, but the expenses remained high. To date, nobody can assure when and to what degree these non-Covid patients will return in the hospital. The result has been an uncertain future about the ability of hospitals to serve their communities and remain financially viable. My experience was in India but if you follow the statistics, the hospitals are suffering from same consequences anywhere in the world.

As indicated in Figure 1, during the year 2020, because of the Covid-19 crisis, 39.4% of hospitals lost more than 50% of their revenue compared to last year. Hospital Systems are Data from Hospital Centre Compiled Together.

Figure 1. Covid-19’s impact on hospital systems’ finances
Covid- 19 Impact on hospital systems finance

Source: AMGA surveys.

As indicated in Figure 2, during the year 2020, because of the Covid-19 crisis, 47.6% of independent medical groups lost more than 50% revenue as clinics couldn’t treat and provide bed to patients on a larger scale like hospitals. Independent Medical group are the private clinics run by physicians.

Figure 2. Covid-19’s impact on independent medical group finances
Covid- 19 Impact on independent medical group finances

Source: AMGA surveys.

The possible long-term impact of Covid-19 in hospitals

To date, the financial impact of Covid-19 has been significant, even with Government funding, the financial damage is likely to continue. Adding to this is the unpredictable nature of Covid-19. Now more than ever, hospitals will need support from governments, and will need to rethink their strategic–financial plans for what is likely to be a highly challenging environment even as Covid-19 cases diminish.

Key concepts

I present below key concepts to understand the financial situation of a business.

Ebitda

Ebitda = Revenue – Operating expense – Employee expense – Administrative & other expense

Some expenses of hospitals:

Wages and benefits
Professional fees
Food for patients
Medical equipment
Prescription drugs
Professional liability insurance
Utilities
Nursing, general and other professional services.

Some revenue of hospitals:

Patient service revenue
Research revenue
Academic revenue

Profit before and after tax

Profit before tax = Ebitda – Depreciation – Amortization – Interest on debt

Profit after tax = Profit Before Tax – Tax rate ✖ Profit Before Tax

About the author

Article written by Subhasish CHATTERJEE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021).

My experience as a sell-side equity research analyst

April 15, 2021 by Tanmay DAGA

My experience as a sell-side equity research analyst

In this article, Tanmay DAGA (ESSEC Business School, Global Bachelor of Business Administration, 2017-2021) introduces equity research, shares his internship experience at a top sell-side equity research company named Kotak Securities and gives his opinions on what the future holds for the industry.

About Kotak Securities

Kotak Securities was founded in 1994 as a subsidiary of Kotak Mahindra Bank and is headquartered in Mumbai, India. It is headed by Mr. Jaideep Hansraj who is a leading figure and has over 20 years of experience in the equity research industry. The company has over 1.7 million customer accounts and handles over 800,000 trades every single day making it one of the biggest brokerage houses in the country. The company handles operations in over 394 cities in India and is well poised for further expansion helping it expand its customer base. Kotak Securities offers stock broker services, portfolio management services, depository services, research expertise, dynamic market data and international reach for clients looking for investment opportunities overseas.

What is equity research?

It is a mainstream finance position which entails fundamental analysis and subsequent recommendation of public securities. Fundamental analysis is a method of evaluating the intrinsic value of an asset (future cash flows discounted to the present) and analyzing the factors that could influence its price in the future. Hence, equity research is an investigation based upon the core business drivers of a particular business which are reflected in its financial statements. Hence, equity researchers use financial statements combined with other industry and macroeconomic reports to form their opinion about a certain company or a universe of companies (also called coverage list). Investors such as money/managers use this information to better investigate their potential or existing investment decisions. To conclude, the main purpose of equity research is to provide investors with detailed financial analysis and recommendations on whether to buy, hold, or sell a particular stock. The professionals working in brokerage firms which sell analysis reports to investors are called sell-side analysts. Professionals working for mutual funds or hedge funds and who make direct investment decisions are called buy-side analysts.

Read an interesting interview with an industry expert who shares his experience of working in the industry.

Me and Finance

I had gotten enrolled in ESSEC’s GBBA in 2017 owing to my curiosity in finance and the university’s premier status, especially in finance. At the end of the first year, I had the opportunity to apply my mind and practically learn a few things along with it. It had always been my mission to work in finance, particularly in valuation. My fascination with valuation is simple – you are allowed to deem the situation as you see fit provided you have a logical reasoning behind it. Nothing can narrow the scope of your thoughts as long as they are realistic and reasonable. It is a great way for individuals to look at things from a broader perspective and develop an analytical mindset to help comprehend several moving parts simultaneously. It does take time getting used to the idea of having to dig into minute details but it’s worth it! Valuation is not purely science per se. It is a blend between sound analytical reasoning that helps you come up with a story (forecast as experts call it) and simple objective mathematics to help validate your story’s credibility. The fact that valuation today in investment banking and other fields looks so complicated is partly to mask the simplicity involved in the process so big banks can continue to charge hefty fees for what they do. Moreover, it is not a skill that will ever go in vain. The mindset a sound valuer develops helps him/her analyze the pros and cons any situation better than a counterpart. It is a skill that I recommend everyone to acquire.

My internship in Kotak Securities

In 2018, at the end of my first year of my GBBA at ESSEC Business School, I did an internship at Kotak Securities equity research division in Mumbai, India. I was 18 years old and comparatively new to equity research. Resulting, I witnessed a steep learning curve requiring me to learn and apply several concepts in a short span of time. My main responsibility was to help the fundamental research team carry out due diligence (financial analysis to analyse the true or intrinsic value of an asset and all other factors affecting this value) for the companies under our coverage universe. This was done by performing rigorous research for the company’s business, its supply chain, its value drivers and all other factors that affect its value and ultimately its stock price. The conclusions were to be presented to the senior management and the sales team along with a thorough explanation behind the rationale of selecting a particular stock for client recommendation. Based on the findings, recommendations were to be published in a bi-monthly analysis report which also included other important topics like the economic analysis of the current situation and trends in the currencies traded in foreign exchange (FX) market. As the organization was agile and flexible with what responsibilities members could take, I had the opportunity of working with several other departments aside from fundamental research. Some of the other projects I worked on were developing a proprietary algorithm based on analysis of trading patterns for index companies alongside the technical analysis team (which is the motivation for me in selecting the SimTrade course) and a model project on sentiment analysis – how news and company perception (especially on Twitter) affect the stock price in the short run. I learnt several hard skills such as modelling in Excel, literacy in reading company’s financial statements and intermediate level of coding in Python. Overall, it was a great work experience for me.

Key takeaways from my internship

During my time at Kotak, I have come across some important financial concepts that I believe every individual, irrespective of their affiliation with the finance industry, must truly understand. They will help you better understand financial issues and make sound investment decisions.

Inflation

Inflation refers to the sustained increase in the price of goods and services in an economy. This increase in price is hard to pinpoint at any one factor but more often than not, it is a combination of various factors. This could range from increase in labor prices to jump in raw material costs. As prices rise due to inflation, you’ll be able to afford less and less over a given period of time. That’s why it is imperative to understand that long-term savings must be invested in a manner by which the returns surpass the inflation rate. That’s the only way one can continue to afford to buy more in a definite time period in the future. In many countries, the only reliable way to beat inflation is investing in stocks/equities. As Bonds or Bank savings do not offer any positive real interest realization.

Diversification

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk. The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security. This is a widely approved method for protecting capital against unexpected events in the global markets. By using the primary study of correlation, investors can diversify certain risk away. However, data on correlation is historical and thus, backwards looking, and might not always hold true in the future. For instance, during the shutdown of the global economy in March 2020, multiple assets like stocks, commodities and bitcoin (which have not been positively correlated in the past) collapsed together. All have had a positive recovery together since (again implying positive correlation as opposed to results from previous studies).

Time Value of Money

The time value of money (TVM) is the concept that money you have now is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received. For instance, assume a sum of $10,000 is invested for one year at 10% interest. The future value (FV) of that money is: FV = $10,000 x (1 + 10%) = $11,000. The formula can also be rearranged (reversed) to find the value of the future sum in present day dollars. For example, the present value (PV) of $5,000 one year from today, compounded at 7% interest, is: PV = $5,000 / (1 + 7% ) = $4,673.

TVM is also sometimes referred to as present discounted value. This is a fundamental pillar on which company valuation is based. The true value of a company is the future free cash flows the company generates, discounted to the present time using an appropriate discount factor.

Future of equity research: my personal view

Equity research is an important role that has come into prominence since the bull market in the 1950s. Thousands of fund managers handling trillions of dollars in assets under management often use sell-side research to get an outsider’s opinion before making investment decisions. Certainly, the size of the industry has shrunk significantly since buy-side and IB analysts are being better compensated, causing a shift in the workforce. However, things are not bad. Companies are now letting analysts focus more on analysis than on sales. This is certainly going to attract new talents who want to focus purely on analysis.

Read this interesting counter-view on the future of the industry.

Relevance to SimTrade

This course helps in understanding the other side of the same coin – technical analysis (using price movements and other factors to predict the future of a security). Participants of this course can expect to gain practical knowledge about stock trading by using a real-world like simulator where multiple strategies can be applied and tested. Other benefits include gaining a broad understanding of the financial markets and concepts.

Useful resources

Kotak Securities

Corporate Finance Institute Example of equity research report

About the author

The article was written by Tanmay DAGA (ESSEC Business School, Global Bachelor of Business Administration, 2017-2021).

Private banking: evolving in a challenging environment

March 12, 2021 by Hélène VAGUET-AUBERT

Private banking: evolving in a challenging environment

This article written by Hélène Vaguet-Aubert (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021) discusses the challenging environment in private banking based on her experience at the Banque Internationale à Luxembourg (BIL).

Banque Internationale à Luxembourg (BIL)

Banque Internationale à Luxembourg (BIL) was founded in 1856 and is now steered by Marcel Leyers, appointed as director and chairman of BIL’s executive committee in 2019 (BIL, 2021). Being a top bank for over 160 years and being owned to a 10% extent by the Luxembourgish government, BIL supports Luxembourg’s economy at all levels. BIL has also established itself as top international player thanks to its international subsidiaries. BIL’s international scope, 2,000 top-skilled employees worldwide, strong financial results and growth confirms its systemic importance.

Headquarters of Banque Internationale à Luxembourg (BIL)

Source: BIL

BIL brings together all its banking business lines under a common umbrella in order to propose top-of-the-range solutions tailored to the requirements of a very diverse client base. Indeed, the bank has all the financial products and expertise necessary to fulfill all of its clients’ needs: private banking, retail banking, corporate banking and financial markets. As of H1 2019, the bank had a €45 million profit and €41.9 million of assets under management.

As BIL’s “create, collaborate, care” mission statement clearly indicates, BIL’s marketing strategy is client oriented. BIL’s objectives are to focus on core competencies to boost its revenues. To do so, BIL’s short term strategy is to strengthen its activities in mature markets such as Luxembourg and Switzerland. On the long term, BIL’s objective is to leverage the potential of Legend Holdings and the Chinese private banking market.

My internship at BIL

Passionate by strategy and sales, and willing to acquire international experience in the financial sector, I carried out a six-month internship in the Sales Management Department of Banque Internationale à Luxembourg (BIL). In this department, I worked with a team of five international people whose role was to design strategy, sales and marketing solutions to be the direct support of BIL front office and the private banking clients’ indirect support. During this internship, the responsibilities that I had where divided in two parts: on the one hand, sales and marketing, and on the other hand, strategy.

First, regarding the sales and marketing part, my role was to analyze the performance of the bonds and equity financial markets and mutual funds as well to develop weekly sell/buy/hold recommendations regarding BIL products. Once these sales recommendations were made, my role was to analyze the performance of wealth managers from BIL Europe, Asia and Middle East. Finally, once BIL products and wealth managers’ performances were analyzed, I had the opportunity to design relevant marketing content (pitch book containing the details of the financial products) for BIL 20,000 private banking clients.

Second, regarding the more strategic parts, I contributed to the management of two projects at the group level: digitalization of the commercial process on a selection of 2,500 products and repositioning of the private banking service offering targeting 2,000 customers.

Private banking

The financial concept that was the most linked to my experience at BIL is the concept of private banking. Private banking is the main subset of wealth management, it offers investment, banking and other financial services to high-net-worth individuals (HNWI) on different markets. The adjective “private” emphasizes a more consumer-centered approach than what is offered by retail banks since each client is usually assigned to dedicated relationship managers and benefits from tailor-made products. Historically, HNWI from different markets or private banks’ target, were individuals with liquidity over $2 million. However, now, it is possible to open a private banking account with cash and/or financial assets of $250,000. Hence, HNWIs segments that wealth management institutions such as private banks target can be divided into four categories based on their income:

Affluent: between $250,000 and $1 million
Lower HNWI: between $1 million and $20 million
Upper HNWI: between $ 20 million and $100 million
Ultra-High Net Worth individuals or UHNWI: over $100 million

Under one roof, private banks’ offering encompasses wealth management, tax and insurance services.

Pricing model

For these services, private banks can use three types of pricing models (Goyal et al., 2019):

“Standard” model: the client pays custody fees, transaction fees and management fees
“All-in fee” model: the client only pays management fees
“Performance fee” model: the client pays performance fees and custody fees

Challenges

Today, the private banking industry is facing many threats such as: digitalization, enhanced regulations, rising clients expectations but I would say one of the most important one I noticed in the wake of my internship is: negative interest rates, which is the second financial concept I will introduce here. Indeed, in the wake of the 2008 financial crisis, central banks such as the European Central Bank (ECB) in 2014 had to charge negative interest rates to fight the deflationary spiral. These negative interest rates (-0.5% since September 2019) are a big trouble for European banks such as the ones in Luxembourg: banks must now pay interests on their reserves to the ECB. The excess in bank reserves has exploded since the “Quantitative Easing” program of the ECB in 2015. Therefore, banks have paid €25 billion of negative deposit rate to the ECB since 2014 which had a had a considerable impact on banks’ profitability, equating to a 4% decline in profits for European banks in 2018 for instance (Honoré-Rougé, 2019).

To compensate these profits cuts, some European banks have started charging their clients on their cash deposits or take the risk to grant more risky loans to maintain a decent level of profitability (Arnold, Morris & Storbeck, 2019). However, despite these negative economic trends, Luxembourg is still the leading asset management center in the Eurozone. In Luxembourg, AUM increased to $4.9 trillion in 2020 (+5.4% from 2019).

Useful resources

Arnold, M., Morris, S., & Storbeck, O. (2019). European banks fear no escape from negative rates. The Financial Times, 1-3. Retrieved from https://www.ft.com/content/93015730-d960-11e9-8f9b-77216ebe1f17

BIL. (2021). BIL, a key player in the Luxembourgish financial market. Retrieved 27 December 2021, from https://www.bil.com/en/bil group/the-bank/Pages/discover-BIL.aspx

Goyal, D., Zakrzewski, A., Mende, M., Alm, E., Kowalczyk, L., & Wachters, I. (2019). Solving the Pricing Puzzle in Wealth Management. Retrieved 28 December 2019, from https://www.bcg.com/publications/2019/solving-the-pricing-puzzle-in-wealth-management.aspx

Honoré-Rougé, C. (2019). Les taux négatifs et leurs conséquences sur les banques de la zone euro. Retrieved 25 February 2021, from http://www.bsi-economics.org/1039-taux-negatifs-consequences-banques-zone-euro-chr

Relevance to the SimTrade Certificate

It relates to the SimTrade Certificate in the following ways:

About theory

By taking the Discover SimTrade course (Period 1), you will discover the SimTrade platform that allows investors (or their financial advisors or private bankers) to invest in the financial markets.
By taking the Market information course (Period 2), you will know more about how information is incorporated in the stock market price.

About practice

By launching the Sending an Order simulation, you will practice how financial markets really work and how to act in the market by sending orders.

By launching the Market order simulation and the Limit order simulation, you will practice market orders and limit orders that are the two main orders used by investors to build and liquidate positions in financial markets.

More about SimTrade

About the author

Article written by Hélène Vaguet-Aubert (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2021).

Asset valuation in the real estate sector

March 11, 2021 by Ghali EL KOUHENE

Asset valuation in the Real Estate sector

This article written by Ghali El Kouhene (ESSEC Business School, Global BBA, 2019-2022) discusses the valuation methods in the real estate sector.

Definition of a real estate

Real estate is a property, land, buildings, air rights above the land (with certain limitations) and underground rights below the land. The term “real estate” means real, or physical, property. It is the land and its attached constructions that represent a capital good that produces a flow of services over time. Therefore, land includes earth’s surface, lateral support and subjacent support. But it also includes materials under the surface such as substances, minerals oil and gas.

There are four types of real estate assets. First, we find residential real estate. It is a type of leased property, containing either a single family or multifamily structure that is available for occupation for non-business purposes. This includes both new construction and resale homes. Secondly, there is commercial real estate. They are property used exclusively for business purposes or to provide a workspace rather than a living space. All of them are owned to produce income. Thirdly, we can mention industrial real estate. There are generally two uses for industrial properties: companies make things, or they store things. These includes manufacturing buildings and property, as well as warehouses.

Finally, land is real estate or property, minus buildings and equipment that is designated by fixed spatial boundaries. Land ownership may offer the titleholder the right to natural resources on the land. Traditionally it is defined as a factor of production, along with capital and labor.

Importance of the real estate sector in the economy

According to the European Real Estate Forum, the real estate sector has a higher economic importance than several other sectors. Indeed, it makes a major contribution to GDP in the European Union and provides prosperity and jobs. The real estate sector contributed approximately 7% to the USA economy and 12% to the European economy.
Real estate represents the majority of the existing real capital and is particularly relevant too because of its additional function as provision for old age and protection against inflation.

The value of the world’s real estate reached US$281 trillion, the highest figure we’ve ever recorded. Residential real estate accounted for the largest share ($US220.2 trillion) of that huge figure.

Real estate is by far the most significant store of wealth, representing more than 3.5 times the total global GDP. For comparison, financial instruments like equities represent US$83,3 million, which is three times less than commercial real estate.

Global real estate universe in comparison

Source: Savills World Research

Why does the need for property valuation arise?

The need for property valuation arises in many decisions in real estate project like investing, managing, disinvesting and financing. Thereby, valuation is present throughout the life of real estate investment. It is not a unique need for real estate but common to any investment such as stock investment.

There are fundamental characteristics to be evaluated in the valuation process. Characteristics like the use of the asset (commercial, residential, etc.), the location, the antiquity (1st hand, 2nd hand), construction costs and surfaces.

What are the different types of value for a real estate asset?

According to the Royal Institution Of Chartered Surveyors standards (RICS) which offers qualifications and standards recognized in the real estate sector, a value is an estimated amount for which an asset or an obligation should be exchanged at the valuation date between a buyer willing to buy and a seller willing to sell, in a free transaction, after appropriate marketing, in which the parties have acted with sufficient information, prudence and without coercion. This specific definition is declined in several others values like equitable value, fair value or market value. For each value, different methods of valuation are used.

Which methods are used to appraise an asset?

The great diversity of real estate assets must be approached from different approaches in order to determine their value. The existence of comparable assets in the market, the type of use made of them, the cash flows that they may eventually generate, replacement costs or the state of development of the same opens up a wide range of valuation methodologies. In this way we can identify at least six different types of valuation methodologies applicable to the different types of real estate assets that we will classify into at least 14 large groups. The main axes of the valuation methodologies are: comparison, residual, capitalization and cash flows. It is important to know that each type of real estate asset has its preferred method of valuation. For example, the comparison method is mainly utilized for assets for own use (dwellings and premises mainly) and for rustic land. The concept for this method consists in comparing a property of known price and characteristics with the one we want to value. Regarding the discounted cash flow methodology, it consists in determining the market value of a property by estimating the cash flows generated by the property (mainly rents) during a determined period of time and the resale of the investment.

Reading the real estate market requires the development of an information tool. The study of the traditional approach has shown that the reliability of real estate valuation methods is intimately linked to the information available. Information is essential when it comes to asset valuation for each of the different methods (list of rents, the price per square meter etc.). The difficulty in the valuation process does not come from the methodology but from the availability of relevant information. To complete his/her analysis of the real estate deal, the expert can also consider the future instead of the past contained in historical data.

For example, the value of the real estate can be obtained by estimating the growth rate of future rents. Today, artificial intelligence (AI) can be used to develop new valuation models are based on machine learning (ML) algorithm.

How to invest in the real estate sector?

Real estate investment consists of acquiring a property not for the purpose of living in it, but as a savings investment to earn an income from it. It is considered as one of the most stable and profitable investments in the long term. For this reason, investing in real estate is not a trivial gesture: you must know enough about the state of the market and the different investment possibilities not to put your money in risky options.

Several reasons can push you to proceed to a real estate investment. First, it is a great way to build up a tangible and lasting estate. Secondly, investing in real estate enables to finance a property with the aim of making it your main residence later on, by means of rental investment. And lastly, it improves your purchasing power by collecting additional income.

There are several possibilities when it comes to investing in real estate. Among them, there is direct investment which means creating a property portfolio. Indeed, any private individual can firstly invest and acquire a property as a primary residence and later on acquire other properties for the purpose of making a rental investment in order to collect the rents. In the other hand, other types of investment such as indirect investment. The concept of indirect investment consists in buying shares of property company or Real Estate Investment Trust’s (REITS) which aims at the constitution, management and exploitation of a real estate portfolio. Therefore, this company manages real estate assets on behalf of its shareholders. Lastly, a real estate investment company (SCPI) is a collective investment vehicle which is very similar to REITS. Except that in return for this investment, investors receive social shares. Unlike company shares, these units are not listed on the stock exchange. These savings vehicles offer a very good market return in return for a moderate risk.

About the author

Article written in March 2021 by Ghali El Kouhene (ESSEC Business School, Global BBA, 2019-2022).

My experience as a portfolio manager in a central bank

November 29, 2020 by Youssef LOURAOUI

My experience as a portfolio manager in a central bank

During my studies at ESSEC Business School, I had the chance to attend the SimTrade course. This course helped me to secure an internship as a risk manager at Bank Al-Maghrib (the central bank of Morocco) as I was asked during my interviews technical questions about financial markets that were covered during the course.

In this article, Youssef LOURAOUI (ESSEC Business School, Global Bachelor of Business Administration, 2020) shares his experience as an intern in the risk management department (middle office) at the Central Bank of Morocco (Bank Al-Maghrib) in 2020.

Bank Al-Maghrib

The central bank of Morocco was founded in 1959 after Morocco proclaimed its independence. It is a 100% state-owned bank that regulates the markets and the economy by implementing monetary and economic policies to ensure the welfare in terms of the parity of prices and the control of inflation. Inflation is a major economic indicator that possesses strategic importance and is part of the major focus for the central bank.

Bank Al-Maghrib

I describe below my experience at Bank Al-Maghrib.

My internship at Bank Al-Maghrib

I was affected at the middle office department, which is in charge of measuring risk exposures and profits and losses on the positions taken by the bank on an investment portfolio of 27,4 billion euros of foreign reserve. One of the key risk exposure metrics is volatility measured by the standard deviation statistically defined as the dispersion of a random variable (asset prices or returns in my case) from its expected value. The standard deviation indicates how much the current return is deviating from its expected historical returns. It is one of the most widely used metrics for investors when analyzing the risk of an investment. Among other key exposures metric, there is what it is called the VaR (Value at Risk) at 99% and a 95% confidence level for 1-day and 30-day positions. In other words, the VaR is a metric used to compute how much loss can the portfolio incur at a % degree of confidence for a given time horizon.

Every day, the Head of the Middle Office organizes a general meeting where he talks about global debriefing of the main financial news that happened overnight and debriefing the middle office desk for the “watch out” assets that could have a potential investment opportunity. Accordingly, the team has also the task of staying in line with the investment decision that characterizes the organization, as it does not operate as an investment banking corporation nor a hedge fund in the risk and leverage used. As the central bank has the special task of keeping safe the national reserve and searching for a good mix to invest in a low risk asset (AAA bonds from European countries coupled with American treasury bonds).

My task aimed to get a hand on the investment mechanism in the middle office of the bank. The investment mechanism consists of the division of the overall portfolio into three main tranches where each one has its characteristics. The first tranche (called also the security tranche) is calculated by analyzing the national need for a currency that needs to be kept safe to establish welfare on the exchange market (based mainly on short term position in low-risk profile asset (Liquid and high rated bonds). The second tranche is based on buy and hold and a market strategy. The first one consists of taking a long position on more risky assets than the first tranche till maturity, there is no selling during the lifetime of the asset (riskier bonds and gold). The second strategy is based on buying and selling liquid assets for an expectation of yielding higher returns.

During my time at the middle office desk, I’ve managed to develop a tool to represent the investment mechanism used for asset allocation. The tool, developed in an Excel spreadsheet, is an intuitive and simplified model that enables the understanding of the investment mechanism. Indeed, it is capable of continuously refreshing the data by importing the most recent quotations (from data providers like Bloomberg or Reuters as the two main financial data providers) to allow for an update of the different exposures and thus allow to respect the proportions of portfolio allocations. It has also a dynamic risk management tool to effectively compute draw-downs (a peak-to-trough decline during a specific period for an investment) and stressed conditions, as I experienced how the markets reacted to the novel Covid-19 pandemic with one of the most historic market movements in a long time.

Some of the key learning outcomes:

The introduction to data analysis by manipulating large datasets

Portfolio optimization based on the Markowitz efficient frontier

Dynamic portfolio allocation based on the fundamentals of the modern portfolio theory

The theory of efficient markets to understand how the markets evolve and move in a different direction as a reaction to events.

Front office, middle office and back office

My internship was also a good opportunity to discover the different departments of the bank: the front office, the middle office, and the back office:

The front office directly deals with the individual or corporate clients of the bank. Salespeople propose adequate products and solutions to the clients (they are in front of them!). Traders intervene in the financial markets on behalf of the clients or for the bank itself (proprietary trading). To answer the demand of clients, financial engineers and quants also develop new products and the associated mathematical models to price them. One of the main trends that are emerging in the front office is the automatization with the help of AI and algorithmic trading that is taken some room in the trading desks. At this time the bank didn’t implement any technology based on high-frequency trading, but it is taking the financial industry by surprise and it goes a long way back, nearly decades ago since the first usage of algorithmic trading.

The middle office situated between the front office and the back office (somewhere in the middle!) deals with the risk management of the bank. Risk managers control the traders’ positions (respect of constraints such as value-at-risk limits and stress tests) and compute the profits and losses (P&L) on traders’ positions daily.

The back-office deals with the conformity and the security check of every trade to ensure a proper settlement.

Note that the frontiers between the front, middle, and back-office may change from one bank to another. And last but not the least, the IT people are also supporting all three departments to make the whole system work. In other words, they are in charge of the maintenance of the technical infrastructure that the bank uses daily to operate fluently, as all the departments are dependent on internal software to intermediate and operate in the market or to communicate between each department of the bank or with another organization. The IT desk has great importance in offering a flawless experience for the employees when using the internal electronic infrastructure. There is the backbone of the bank skeleton.

All in all, the SimTrade module served me well as I managed to gain quickly the necessary knowledge and bridge the gap that I had to be in the best position to achieve the missions I’ve been affected. I especially used the content of Period 2 of the SimTrade certificate, which deals with market information. The concepts of trading and investing were also obviously useful for the development of my portfolio management tools.

Useful resources

Bank of Morocco

About the author

The article was written in November 2020 by Youssef LOURAOUI (ESSEC Business School, Global Bachelor of Business Administration, 2020).

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