The Finance Connection at UCSB What is Management Consulting? February 16

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