Investment Banks: The Interplay between Investment Banking, S&T and Research

Confidential

October 2001

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Mike Stanek – Software Research

Mike StanekManaging DirectorInfrastructure SoftwareEquity Research Coverage:BSQUARECitrix SystemsClick SoftwareGemstarInktomiLiquid AudioMicrosoftRealNetworksSeeBeyond SybaseTalarianTIBCOVitriawebMethods

#4 Ranked

#5 Ranked 

1999 All-American Team2000 All-American Team

Mike Stanek joined Lehman Brothers Equity Research in 1996 as Senior Vice President for DeskTop Applications and the Internet. Before joining Lehman, Mike was a partner at the boutique investment bank of Wessels, Arnold, and Henderson. While at Wessels, Mike was recognized by both Institutional Investor magazine 'Best of the Boutiques' research survey and ranked #1 in software in the Red Herring 'Tech 250' investor poll. He began his career on Wall Street as a portfolio manager and analyst for Mutual of Omaha Capital Management. He received his BS in Economics and Finance from the University of Nebraska. 

Recent transactions in which Mike has been involved include:

$67 millionInitial Public Offering

July 2000

$39 millionInitial Public Offering

May 2000

$119 millionFollow-on Offering

December 1999

Mike Stanek

$32 millionInitial Public Offering

June 2000

R

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Dan Myers – Semiconductor Investment Banking

Dan Myers works in Menlo Park in the Semiconductor Investment Banking practice. Prior to joining the Investment Banking Division, Dan was in research for 2 years at Lehman Brothers and 3 years at Morgan Stanley. In research, he covered semiconductor and related companies. Dan received his MBA, with Honors, from the Amos Tuck School of Business Administration at Dartmouth College in 1995. Dan also holds a degree in Computer and Systems Engineering from Rensselaer Polytechnic Institute. Prior to returning to business school, Dan worked in the semiconductor industry for more than twelve years.

Dan Myers

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Overview of an Investment Bank’s Divisions

Firm

PrivateClient

Services

EquitiesDivision

InvestmentBankingDivision

FixedIncome Division

Equity Sales & Trading

Equity ResearchFixed Income

ResearchFixed Income

Sales & Trading

__________(a) Not all investment banks have an asset management division.

Asset Management (a)

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The Life Cycle of a Company

Time Private Early Stage Middle Stage Mature

Investment Banking Financing and Advisory Products(a)

__________(a) Time frames are rough estimates for illustrative purposes. Will vary by industry and with economic cycles.

VC

PrivatePlacement

IPOFollow-on Equity

Mergers & Acquisitions

Warrants

Convertible Bonds

Stock Buy-Backs

Divestitures (Spin-offs/Carve-out)

Asset-backed Securitizations

LBOs

Fixed Income (Bonds)

Private Public

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Who Talks to Whom?Information Flow Between Investment Bank Divisions and Clients(a)

__________(a) Darker lines indicate the primary recipient of information flow from a particular position.

Sales & Trading

Capital Markets Group(Issuance)

Client

Client

Asset Manager(i.e., Fidelity)

Company(i.e., Microsoft)

Investment Banking

Research

“Chinese Wall”

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Role of ResearchEquity

Research Global Economics

Research

Provide a broad-base of fundamental, quantitative, strategic and tactical research on companies and the industries within which they compete

Forecast stock price performance and corporate financial results for companies designated within their coverage responsibility

Within the Investment Bank, equity research has two primary constituencies: equity capital markets (sales & trading) and investment banking

Provide global economic analysis for the Firm’s clients as well as the Firm’s employees in Investment Banking. Sales & Trading, and other Research departments

Analysis and forecasts across a wide range of economic data, in particular leading economic indicators

– Assess the likelihood, timing, and impact of Fed interest rate increases/cuts

Fixed IncomeResearch

Provide analytical research across a broad spectrum of corporate and Government bonds

Credit analysis of corporations, various Government entities, and sovereign states

Within the Investment Bank, fixed income research has two primary constituencies: fixed income capital markets (sales & trading) and investment banking

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Role of Investment Banking

Capital Raising Strategic Advisory

Equity financing (VC, private placement, IPO, Follow-ons)

Fixed income financing (bonds, loans, asset-backed securitization)

Convertibles (traditional, zero coupon, proprietary products, etc.)

Refinancings Warrants Other derivative structures

Acquisitions (company or assets) Sales (company or assets) Divestitures (spin-offs, equity carve-

outs) Restructuring (financial, strategic) Stock buy-backs

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Role of Sales & Trading

Equities Fixed Income

Deliver execution and liquidity to institutional investors by providing a full array of cash, financing, derivative and research products across the equity spectrum

Sale of new and existing equity securities (IPOs, follow-ons, convertibles)

Provide investment banking clients with after-market trading support for new and existing equity securities

Trade clearance and settlement

Market-making across a wide range of fixed income products and markets

Sale of new and existing fixed income securities (corporate and government bonds, high yield, etc.)

Provide after-market trading support for new and existing fixed income securities

Financing and development of asset-backed securities

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Investment Banking Division OverviewOrganization Chart

Investment Banking Division

Product Groups Industry Groups

Equity Capital Markets & Syndicate

Debt Capital Markets & Syndicate

Private Equity

Merchant Banking

Venture Capital

Industrial

High YieldPrivate

PlacementsFinancial Sponsors

Mergers & Acquisitions

Real EstateFinancial

InstitutionsHealth CareTechnology

Media/Telecom

Natural Resources

PowerConsumer /

RetailChemicals

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Equities Division OverviewOrganization Chart

Equities Division

Equity Capital Markets & Syndicate

Equity Research

Equity Capital

Convertible Bonds

Syndicate

Listed Products

Portfolio Sales

International & Emerging Markets

Derivatives

Equity Financing

OTC Products Equity Strategy

Convertible Research

Industry / Company Coverage

Equity TradingEquity Sales

DerivativesGlobal

Economics

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Fixed Income DivisionOrganization Chart

Fixed Income Division

Debt Capital Markets & Syndicate

Debt Capital Markets

High Yield Capital Markets

SyndicateSovereign Strategy

Leverage Finance

High YieldMoney Market

High YieldGlobal

Economics

Fixed Income Research

Fixed Income Sales & Trading

Foreign Exchange

Corporate Bonds

DerivativesMunicipal &

Public FinanceMortgage &

Asset-Backed

Corporate & Sovereign

BondsGovernments

Foreign Exchange