In investment banking teams are usually organized into industry groups and product groups . Industry groups focus on executing different deal types within a specific industry . For example an industrials industry group would handle deals related to machinery, transportation and commercial services . In this article we will delve into the details of industrials investment banking .
Industrials as an Industry Group
Industrials is a broad industry group that includes various verticals . Although these verticals may seem unrelated at first look they have common traits: Companies manufacture machinery, large physical products or provide related services . Customers are typically corporations or governments rather than consumers . The sector is highly sensitive to overall economic conditions and macro factors such as credit availability and corporate profitability .
Within the industrials group there are several divisions:
Capital Goods: This division encompasses aerospace and defense, building products, construction and engineering, electrical equipment, industrial conglomerates, machinery and trading companies .
Transportation: Includes air freight and logistics, airlines, marine, road and rail and transportation infrastructure .
Commercial and Professional Services: Covers a wide range of services provided to businesses .
While different banks may have variations in their group structures they often have divisions aligned with capital goods and transportation .
Responsibilities and Tasks of Industrials Investment Bankers
The work of an industrials investment banker involves a mix of pitching for deals, executing transactions and handling various tasks such as research and client relationship management .
During pitch book creation industrials bankers are responsible for conducting industry research, analyzing comparable companies and transactions and preparing financials for potential clients . Capital markets bankers and M&A bankers may provide market information and specific transaction details based on the type of pitch .
Accounting and valuation methodologies for industrials companies are generally applicable to a wide range of industries with adjustments to revenue and expense drivers .
When working on live deals industrials bankers contribute to company and industry background research, qualitative factors and take the lead in building financial models . Other team members may add transactional elements or focus on specific tasks like modeling divestitures or earn-outs .
Industrials investment bankers work on a significant number of M&A and debt deals due to the mature nature of many industrial companies and their stable cash flows . The sector also attracts private equity firms which leads to leveraged buyouts and other transactions .
Specific Verticals within Industrials
Capital Goods: This segment includes companies that are involved in manufacturing machinery, building products and electrical equipment . Key companies in this space are Caterpillar, Saint-Gobain and AB Volvo . Performance is tied to construction spending, corporate capital expenditures and government infrastructure spending .
Aerospace & Defense: Companies like Boeing, Airbus, Lockheed Martin and General Dynamics work in this sector . Defense companies are often considered recession-resistant due to government spending while aerospace companies rely on air travel growth, airline profitability and the need for upgrades and replacements .
Transportation: UPS, FedEx, Deutsche Post and Union Pacific are representative companies in this segment . Transportation companies benefit from economic growth and global trade but they can be negatively impacted by lower growth expectations, falling trade volumes and higher oil prices .
Final Thoughts
In industrials investment banking teams are organized into industry and product groups to focus on specific deal types within industries or across sectors . Industrials bankers handle a mix of pitching, deal execution and various tasks such as research and client management .
The industrials sector involves diverse verticals including capital goods, aerospace & defense and transportation . Each vertical has unique characteristics and key drivers that impact performance and deal activity .
Industrials companies are often cyclical and sensitive to economic conditions . Understanding customer profiles, supply chains, upgrade cycles, distribution networks, production costs, barriers to entry and competition is critical in order to analyze these companies .
Investment banks with strong balance sheets and expertise in industrials often lead league tables with firms like BAML, JPM, C and CS being prominent players . Boutique firms and specialized groups within other firms also shine in this sector .
Overall industrials investment banking requires a deep understanding of industry dynamics, financial modeling skills and the ability to navigate complex transactions within a cyclical and economically sensitive sector .