Tuesday, February 28, 2012

The Madness of Money in March

Consortium grad Rob Wilson
There's March Madness, and then there's Rob Wilson's March Money Madness.  Once again Consortium graduate Wilson will stage his contest that runs parallel to the college-basketball national tournament. This year, the prizes are bigger. In its third year, his contest helps promotes awareness in investing and stock selections.

Just like the NCAA tournament, there are brackets and rounds of competition. Participants will not project basketball winners; they must predict investment performance by choosing the stocks of companies they expect will generate the highest return during the month of March.  From week to week, just as March Madness brackets are about choosing a winner between two teams in a 64-team tournament, Money Madness also embraces "bracketology." Participants decide which of two stocks will out-perform the other. As with NCAA brackets, participants try to project the winner of several pairs of stocks in several industries.

For example, in week 1, a participant may be required to decide between Apple and Dell or Citi and Wells Fargo.  The stock with the higher percentage return in that period is the winner within the bracket. In basketball, participants tap their knowledge of the game, teams and players. In Wilson's tournament, participants must tap their knowledge of markets, stock trends, specific companies and industries.

This year, Wilson says, the contest has an entry fee of $5. That means the grand prize will be larger than before. Wilson hopes to attract up to 100,000 participants, including MBA students across the country, Consortium students and alumni, and anybody interested in projecting the outcome of stocks over a short-term horizon.  If he reaches that goal, the grand prize could total $250,000. Wilson says students could use prize money to pay for business school or invest in a start-up.

Wilson, a Consortium MBA graduate from Carnegie Mellon, is a financial adviser based in Pittsburgh. He appears often in local media to provide insight, updates and advice in investing.

To learn more about Wilson's activities, market viewpoints and financial advice, go to Rob Wilson TV.  To register for Money Madness tournament, go to March Money Madness

Tracy Williams

Wednesday, February 15, 2012

MBA Job-Hunting: No Need to Panic Yet

On campus, the hiring process is not quite over.
For some MBA students, including those in Consortium schools, whether in their first year or about to graduate, February's arrival could cause panic:  Do I have significant job offers on the table?  Will I spend the summer at my first choice--proving myself in a formal internship program that will lead to a full-time offer in August?  Or must I resort to the only choice I have? Must I return to an old job I wanted to leave in the first place?  If graduation looms, do I settle for the first offer available, or do I wait for my dream post?

When February comes, some students beam and boast of offers from top-tier financial institutions, consulting firms, or big corporations. Some have already accepted offers. Others, without the offers or opportunities they covet, grow worried and try to figure out what to do with composure and a new strategy in mind. 

There's no need to panic just yet.  Buckle down. This is the time many gripe about campus career and placement services. These departments try to provide pathways from the classroom to corporate cubicles and conference rooms. They suffer, however, much criticism at schools everywhere. 

They operate under pressure to be all things to all students.  Deans watch them and push them to show the highest percentages possible of graduates finding jobs that pay the highest salaries possible.  In February, when they wish they could provide candid, thoughtful guidance on next steps for overworked, pressured students, they get mired in hiring statistics.  Take the first job offered at the highest compensation, they might advise unwittingly and without much thought.

For students still planning a summer or a first year beyond school, buckle down, and work with networks and alumni ties.  Reach out to alumni, professor and/or social contacts--at all levels. Most top firms, funds, banks and companies, where MBAs want to work, have already concluded the hiring cycle for 2012.  Students learn it is probably too late to seek employment at those places.  

But don't give up just yet.  Alumni and network contacts can alert you to what the real story is.  The hiring cycle has just ended, but there could be alternative ways to find an entrance through the backdoor.  

At the notable financial institutions, MBAs are hired for formal programs. But sometimes specific business groups with the larger company have sudden, special business needs. Human Resources may have under-counted the number of interns or first-year associates needed in the coming year. They misinterpreted the incremental work for new presentations, deals, clients, and finance models.  Business units will not want to wait for the next hiring cycle a year later; they seek to fill hiring gaps as soon as possible. 

In such scenarios, the institution will encourage the business unit to hire from within or look for someone willing to transfer into the unit.  Sometimes, however, the unit will head to campus to seek help or tap the MBA student who persevered and came through the backdoor. 

In the meantime, if the ideal offer hasn't come yet, now might be one more chance to review, refine and polish the story you are presenting to prospective employees. Make sure you convey a unique or intriguing story that shows how the finance MBA and past accomplishments translate smoothly into what you want to do, how a polished resume' will lead to immediate contributions in an entry position. 

The story you told before might indeed have been near perfect in your view; prospective employees might even agree.  But it may not have been for what they needed for the moment. Sometimes revising or re-engineering the story is an effective way of proving not just competence, but fit. 

Reach out to alumni at the places on your wish list, especially alumni who were in the same programs or management tracks you are pursuing. Touch bases even with first- or second-year alumni,  those who have recently gone through the process. They won't be involved in hiring strategies and decisions, but they are the ones who can share intelligence of hiring trends, hiring practices and strategies. They know which units are hiring, cutting back, or expanding abroad. Having been through the process, many don't mind sharing details of how they got through it or how they slipped through back, if that was necessary. 

Now is also the time to peek at Plan B and realize that Plan B may not be as bad as you initially thought.  Approach Plan B as if it were a stepping stone back to Plan A. You might find, in the process, that Plan A was wrapped in the wrong reasons to pursue a position (prestige, incentive compensation, amenities, e.g.).  Plan B might actually encompass the rational reasons (experience, exposure, skills refinement, immediate contributions, e.g.).

Explore carefully opportunities you might have dismissed early in the process. They may be at smaller companies, boutiques, or funds.  They could be in regions outside of the usual finance centers. They may be in industries (manufacturing, technology, communications, or energy) you hadn't discovered before, but where roles in finance, strategy, capital markets and M&A are still critical. 

If you pursue opportunities off the beaten path and are successful, negotiate an experience or role that will emphasize financial analysis, corporate finance, modeling, finance strategy, and/or markets. A profound summer experience at a global company or a first assignment in strategy, treasury or markets can still become gems on a resume' down the road. 

Everywhere in recent weeks, we detect hints, signs and trends that the environment has improved. The known banks and institutions are tip-toeing through this hopeful, but fragile scenario--still hesitant to hire in large numbers, still not sure what they should do for the long-term. Yet in pockets or office corners in scattered places, an alumnus contact might let you know that in her group, they desperately need a smart MBA intern from, say, Cornell, Virginia, Rochester, or Emory to help on a current deal, portfolio review, or strategy presentation.

Tracy Williams

Monday, February 6, 2012

Facebook IPO: The Lucky Underwriters

Ready for public scrutiny?
Who will be the fortunate few--the lucky underwriters who take
Facebook public this spring, who will earn millions in fees for arranging the most watched IPO perhaps since Google went public (Aug., 2004) or the most interesting banking deal since, say, the breakup of AT&T (1983)?

Sure, the Goldmans, Morgan Stanleys, and JPMorgans will be at the top of the syndicate list--the lead underwriters, the dealmakers who negotiate the fees, arrange the syndicate group, and ensure there is an orderly process when the stock finally goes to market.

Facebook is being valued in the range of $75-100 billion, an unusually wide range, but such range is not a surprise. Facebook has only just begun to share details of revenues, profits and business strategies.  Prospective investors and regulators will now pore through vast amounts of information it filed with the SEC last week and will ask questions about what the company will look like five or 10 years from now. 

They wonder how Facebook will achieve steady revenue growth and high investment returns once the number of users reaches a plateau (at 1 billion?) or when another new thing comes along to distract those same users.  They must determine whether Google+ will be a threat.  And they will assess whether Facebook will be able to handle the strain of being a public company:  shareholders pressing for rapid growth, analysts expecting the company to beat quarterly earnings estimates, or a stock price fluctuating frequently without reason.

While the company will be valued at $75 billion or more, the actual public offering is expected to be $5-10 billion of new shares. Market behavior this spring and investors' response to Facebook's long-term storyline will determine the total valuation (closer to $100 billion than $75 billion?) and the total value of shares offered to the public (closer to $10 billion than $5 billion?).  Of course,  corporate-finance models, the instincts of experienced bankers, negotiations between bankers and company management, and supply-demand dynamics in the marketplace will also influence valuations.

Assume the underwriting will be $5 billion.  Underwriters will line up to share a gargantuan amount in fees, recalling the glory years when IPO activity sparked and soared regularly.  (Remember the gushing over dot-com IPOs in the late 1990s and early 2000s?)  If the conventional negotiated fee for an equity offering is about 4%, Facebook could dangle as much as $200 million in fees for capture by the syndicate group.

But Facebook has leverage--because the offering will be large and closely watched and because investment banks will want to secure other banking business going forward.  With that leverage and with hints that it will use it in the way many Silicon Vally firms have tried in the past, Facebook will negotiate the fees down to levels below 4%, or even 2%.  Still, it's likely underwriters will be paid fees at least in the $75-100 million range.

Morgan Stanley, JPMorgan and Goldman Sachs will be the lead underwriters.  Goldman lost the lead it had for much of the last year. Some say bad publicity that seems to follow Goldman often these days hampered its efforts to be the leader among the leaders.  Morgan Stanley touts its highly regarded technology banking team, and JPMorgan has a leading corporate-lending business that recently arranged a loan facility for Facebook.  Those factors helped thrust them into lead roles with Goldman.

All three will also want a more permanent advisory role with the company in future deals:  other credit facilities, future debt offerings, mergers and acquisitions, another round of equity financing, or an advisory role when Facebook is finally able to penetrate China, if ever.  Don't forget, too, all three have substantial private-banking businesses and will hustle to try to manage the portfolios of newly minted millionaire employees.

For the IPO, banks will, therefore, settle for lower fee rates now to ensure long-term relationships later, but only so much, as investment banks squirm when they set precedents in allowing underwriting fees to fall below traditional levels.

But now comes an interesting question:  Who else will be in the syndicate?

Who else will get to share the exposure, visibility and fees from the Deal of 2012?  Will Facebook ensure the selection of the syndicate is fair and includes regional broker/dealers, small boutiques, and firms majority-owned by those from under-represented groups (women and minorities)?

Sometimes the company issuing shares doesn't rely on investment banks to fill out the lower rungs of the syndicate. Sometimes they request that the syndicate leaders respond to specified wishes. (One frequent wish is to allocate shares to investors who say they will hold the stock, instead of "flip it" shortly after the offering.)

Before it's time to go to market and sell the new shares, the arranging banks are responsible to ensure the offering has been successfully pre-sold at the offering price and under the terms negotiated. They use market intelligence, previous relationships, and industry prowess to get the deal done. Often from experience and habit, they allocate new shares to a club that includes other big names and to others based on expansive retail networks, high-net-worth clients, and large funds that have close ties to the banks. 
They won't necessarily step back to try to be "inclusive"--unless they are reminded to be so or, in some cases, instructed to be so. The company going public will then ask lead underwriters to honor its requests.

Facebook is still young.  Early signals, however, suggest Facebook will have special requests for its syndication.  Founder and CEO Mark Zuckerberg will likely want to folow Silicon Valley patterns of breaking the mold when it comes to relationships with banks (new ways of doing the old kinds of deals). (Google certainly did so when it went public and tested new ways of allocating and pricing shares.)  Zuckerberg and Facebook will not want to be seen as strong-armed by banks.

COO Sheryl Sandberg, from her days at Google to the present, has been an effective advocate for women in business.  She is known to devote extracurricular time as a leader in women's initiatives.  She regularly hosts gatherings to discuss strategies for women to advance to senior management, balance work-life pressures, and have an impact on others in entry-level positions.

Sandberg and Zuckerberg also have binders of statistics that show women comprise the majority of Facebook's 845 million users and drive most of the daily activity.  While the top rungs of banks still have diversity challenges, Facebook users are as diverse as the world is. All groups, many countries, many religious backgrounds, many ethnic groups, and many races log on.

So why shouldn't the prospective list of new shareholders, investors, and underwriters be similarly diverse?  Why shouldn't such firms as M.R. Beal, Sibert Brandford Shank, Guzman and Williams Capital be included in the syndicate list and share in the lucrative fees?

Let's watch and see what happens.

Tracy Williams