Top 5 Investment Banking Group Placement Questions
For those trying to land a seat within the most competitive groups at their new bank, group placement can be a deeply nerve-racking experience.
This isn't entirely irrational. Because while being in investment banking will open up many doors, it's no secret that certain groups are going to open up more doors than others. As a result, how you navigate group placement not only will have an impact on whether you'll be working with clients you find interesting, it'll also have an impact on how the early stages of your career unfold.
Many operate under the dubious assumption that group placement just involves you doing a few networking calls, giving HR a list of groups you'd be interested in joining, and then landing your first or second choice.
While group placement can work this way - especially if you're trying to land in a group that's not overly competitive - it's still a relatively risky game to play.
The reality is that group placement operates in a weird middle group between traditional networking and traditional interviews. You're going to need to casually talk with those currently in the group, but also be prepared to impress them with what you know about their sector (if it's a coverage group) and why it's such an ideal fit for you.
Additionally, if you're applying to a perennially popular group (i.e., TMT) you should be prepared for the potential of some interview style questions being thrown your way.
This catches many off guard. However, if you're in charge of handling group placement at an incredibly popular group you need to come up with ways to differentiate between those who want to join the group somehow.
More specifically, you need to be able to differentiate between candidates who are truly interested in your group and those who just want to join because it's where everyone else wants to go and appears to have the best exit opportunities.
Navigating the Group Placement Process
Every bank has a slightly different group placement process, and the most competitive groups within each bank will diverge a bit in terms of how they deal with those looking to join their group.
However, the way you should think about group placement is that it begins by groups trying to get everyone who's been given an offer (collectively) to rank them high and then the script flips and you need to start trying to convince the groups you're interested in to rank you high.
The first thing that'll happen is on roughly the same day every group will give a presentation in which they talk about how great they are. It'll be a similar slide deck to what's in the appendix of most pitches to clients -- talking about how high they rank on the (carefully curated) league tables, how experienced their MDs are, what high profile deals they've done, etc. However, most groups will include some slides covering how they think about culture (i.e., respecting protected Saturdays, having closing dinners, etc.).
After this, everyone will need to begin networking if they haven't already begun to done so beforehand. Within each groups presentation there will probably be a listing of who's managing the group placement process. However, you should not only reach out to them, but other analysts and associates in the group as well.
These networking calls can vary depending on how competitive the group is and who is managing the process. Some can be very informal and be looking almost entirely at fit. Others will be more technical and, as already mentioned, will be asking some interview style questions (these could be more difficult technicals or, most often, more broad questions on the sector and your true interest in it).
However, keep in mind that everyone you're talking to will write up a little summary on your conversation and share it with whoever is leading the selection process for the group. What this means practically is that everyone needs to be at least neutral on you after your conversation (because having someone say that you aren't a "fit" will likely sink your chances even if others were quite high on you).
Finally, as you likely already know, you'll have to send HR a listing of your top groups. You're then ranked against each group's top list of candidates and a match will be made.
Investment Banking Group Placement Questions
Below are some of the group placement questions you could get. Obviously there's a wide diversity of questions you could get, but these are just some to think about preparing for.
Also, keep in mind that you'll need to be asking "smart" questions during networking calls as well (don't ask about how bad the hours are!).
This is a question that you're guaranteed to get. Now there's obviously no objectively wrong answer here, but there is a certain way that I'd recommend framing your answer.
The first thing I'd note is that you should be humble when expressing your interest in a group, because the reality is that while you may have spent a lot of time following deals, understanding sub-sectors, etc. you still don't really understand the sector the way those in the group do.
So you always want to show a certain level of humility by framing your answer by saying something like, "While obviously I'm not an expert on [group], I've tried my best to follow deals, learn about less discussed sub-sectors, and what kind of clients are most active in the space. So while I suppose no one can say for certain if a group is right for them, I've tried my best to make the most informed decision possible."
The second thing I'd note is that you should always reference that you know how important culture is, and that's part of your rationale for joining the group. So in every call you should say that you've really enjoyed talking with everyone thus far and that while you'd likely still be interested in the group, based on their coverage, your interest has only be solidified by having such great conversations.
Your ultimate goal in answering this question should be to show humility, while also showing off that you've done your due diligence and know more than others about their sector. Further, you should make sure to reference who you've talked to while mentioning how much you've enjoyed those conversations.
This is almost a bit of a trick question. If you're trying to figure out whether or not someone is really interested in your coverage group, then their alternative group preferences should be somewhat related and definitely not just the next most prestigious groups within the bank.
For example, if you're interested in tech then you should say an alternative group you're interested in is media and communications. Alternatively, if the bank you have an offer for doesn't break down TMT into tech and media and communications, you can say alternative groups you'd be interested in would be FIG and healthcare because both will cover some tech adjacent clients (i.e., surrounding payments).
If you're trying to land in TMT, you need to know at least some of the sub-sectors and be able to speak to one or two that you find interesting (this equally applies if you're applying to a tech or media and communications group given how many distinct sub-sectors each has).
While you should always speak to what sub-sectors you really find interesting, I always recommend using this kind of question as an excuse to talk about something a bit more unique (i.e., semiconductors) as opposed to something that everyone will bring up (i.e., software). Keep in mind that no one expects you to be an expert, so don't worry about getting drilled on the economics of fabs if you bring up your interest in semiconductors.
If you're looking for a breakdown of what sub-sectors exist, be sure to check out the TMT investment banking primer (or, if you're particularly interested in media, there's also the media investment banking primer). Within the TMT guides we dig much deeper into sub-sectors if you want to get more granular.
This is pretty straight forward. Just like when you're preparing for an interview, you should know some recent deals that the group has done (or, at the very least, some notable deals that have occurred in the sector you're interested in).
Just like in an interview you should be able to provide a two or three minute overview that covers the parties involved, who advised each side of the transaction, what the strategic rationale was, and what the value of the deal was.
What do you think of the market right now? What clients do you think will be active over the coming year?
This is another one of those questions that is relatively open ended, so it represents a great way to differentiate between those interested in a group.
The first thing you should do is make sure you're disaggregating what's happening in public markets and what's happening to M&A deal volume.
For example, so far this year tech has been routed in the public markets for several reasons, and this has translated into cooling tech M&A deal flow. However, there's reason to believe that with multiples being compressed that tech M&A could bounce back even if the current rout persists.
Before getting into that, let's cover the two major reasons why we're seeing a large shift in tech valuations currently.
The first reason is due to rapidly rising yields as the market prices in the Fed moving aggressively to raise rates to cool inflation, which has the result of raising the discount rate which obviously impacts growth equities that have most of their value coming from cash flows that are far into the future.
The second reason is that what underpins the hefty valuations of almost all tech stocks - whether they're large cap or not - is the expectation of future growth. This is particularly true of those tech stocks that are currently unprofitable, but are gobbling up market share and are viewed as being able to turn profitable once they cool overhead costs. However, what we're currently seeing are cooling tech earnings expectations, which shouldn't be too surprising after the last few quarters saw major tech companies posting either lackluster growth, lackluster earnings, or both (i.e., Facebook last quarter, Netflix and Amazon this quarter).
Moving on to the deal flow side of the equation, I've pulled the latest FactSet deal values for Q1 across sectors.
As you'd expect, tech has seen the sharpest decline and it has been substantial. However, by deal volume (not value) tech deals have dropped more modestly from 1,117 in Q1 2021 to 997 in Q1 2022. Further, there were still more tech deals done by volume than any other sector and, as you can see above, only FIG saw a higher aggregate level of deal value.
So while there's undoubtably a tech rout taking place - which has hammered notable funds like Tiger Global, which has seen a 44% drop so far this year - this hasn't fully translated into deal flow.
The obvious question - which you could be asked separately as a group placement question - is why hasn't the pain in public markets translated into a seizing up of all tech M&A activity?
The answer is really two fold.
First, even though large cap tech has seen sharp declines in their share prices across the board, many of them are still incredibly profitable with large cash balances. As they continue to search for growth, they have the balance sheet capacity, irrespective of where their equity price is trading, to go do acquisitions if they think they'll help spur growth or give them a new market to enter. In fact, they have an incentive to go out and do deals to try to bolster growth if the opportunity presents itself.
Second, for tech-focused private equity funds (i.e., Thoma Bravo) that raised large amounts over the past few years, they still need to go do deals and suppressed multiples only make their targets more enticing. For example, Thoma Bravo recently acquired Anaplan for $10.7b.
Keep in mind that for these tech-focused private equity funds they'll be looking not for high-growth, pre-revenue companies (the way some of the large tech companies may), but rather for companies (most likely in the software space) that have reasonably good cash flow.
For example, we recently saw Brookfield buyout CDK for $6.4b in an all cash deal (CDK provides software for auto dealerships). Further, we're also seeing battles brewing over public companies like Zendesk that have rejected multiple buyout offers after seeing their stock slump down in early 2022 (it's stock is currently being kept elevated on the assumption they'll eventually be bought out -- although the multiple looks rich today given how much tech overall has continued to slide).
So while it's unlikely that TMT M&A will reach the record breaking levels of 2021 - as we're already in quite a hole to start the year - there's no reason to think that activity will grind to a halt. There's lots of cash on the sidelines, and suddenly a lot of enticing targets (whether for strategics or sponsors) are going to be able to be bought at a significant discount to where they were a year ago.
As mentioned at the outset, the group placement process can be nerve-racking. What you should try to be do is learn as much about your sector of interest as you can and be able to speak for one to two minutes on major themes, major deals, and major trends.
Further, you should have a reasonably granular understanding of the sub-sectors involved. While no one expects you to be an expert, you want to show that you aren't just interested in tech, for example, because you follow the large cap names.
As also mentioned at the outset, group placement tends to operate in a weird middle ground between networking and traditional interviews (especially at the most popular groups). So keep in mind that you always want to let the person you're speaking to lead the conversation; if it seems like they just want to talk and see if you're the right cultural fit, then just go with it.
If you're particularly interested in TMT and are looking for more traditional interview questions, then we've put together a list of TMT interview questions. There are also the TMT guides that are an attempt to provide a Q&A style introduction to tech, media, and telecom banking and dig into their sub-sectors and how to think about them (there are also separate guides on more difficult accounting and valuation questions that you may like too).