ECM

Finance Careers – Equity Capital Markets (ECM)

In Investment Banking by Gaurav SharmaUpdated On:

1. What is Equity Capital Markets (ECM)?

The Equity Capital Markets team advises clients on the issuance of equity or equity linked products and assists in the execution and syndication of such an issuance. Equity issuance can take the form of Initial Public Offerings (IPOs), follow-on offerings (FPOs), private placements, convertible bonds and so on.

There are multiple roles within ECM itself with senior level executives spending more time on origination while the mid-level staff focuses on the execution with the help of junior level analysts and associates. Just like in debt capital markets, there might be a few people working on the syndication part.

2. Job Description

In equity capital markets, you spend your days either pitching for new business or executing existing mandates. I have divided and grouped ECM analyst/ associate tasks into those two buckets.

2.1. Origination

  • Everything begins at the origination stage where you must assist any client engagement initiatives by preparing marketing pitches, presentations or any such analysis that may be required to win a new mandate.
  • For the first few years, you will be spending a lot of time designing and structuring these presentations after analyzing the supporting data.
  • Origination efforts require close coordination with several other teams including client coverage, mergers and acquisition, leveraged finance, debt capital markets, equity derivatives, sales and trading and so on. We are talking from a cross-sell perspective here.
  • You must be aware of the trends in the sectors that you usually cover, and this includes coming up with opportunities to pitch to prospective clients. This sort of work usually starts at the VP/ AD level, but it never hurts to get a head start.
  • ECM professionals play an advisory role and after assessing a company’s suitability for an equity transaction, they must advise them on the challenges and advantages of executing such a transaction.

2.2. Execution

  • You work closely with the client and other internal teams assisting you to meet all the requirements for listing, structuring, documentation, compliance, accounting, governance, tax implications, controls and implementation etc.
  • Many ECM mandates also involve a series of roadshows. A roadshow is essentially a sales pitch made to potential investors by the deal executor/ underwriter. You go around town and attempt to convince large institutional investors to invest in whatever issuance you are working on. The success of the IPO is closely linked to how effective the roadshow has been in generating interest from investors in investing in said IPO or equity transaction.
  • You would likely assist with performing due diligence and this might involve external third-party coordination as well.
  • ECM teams have to work closely with the internal legal team or transaction lawyers and it always helps to have a strong understanding of the local legal and regulatory environment.
  • Relationship management with investors like banks, brokers, credit funds, hedge funds etc. is another integral part of the job.
  • Post transaction support might also be offered to companies who don’t have the expertise in-house to make the transition.

3. Qualifications and Skills

ECM focuses on large equity transactions that are supported by solid analytical work and strategic level business judgement.

A rock-solid grasp on equities and equity derivatives – A deep understanding of equities and the primary and secondary market for equities is essential. You must fully understand how any equity transaction can add value to a company, why such a transaction should be undertaken, and how you would structure, price and execute such a deal. You will spend the first few years understanding all of these aspects and would be expected to have a fair understanding of things at the associate level.

Some ECM transactions are more complex than others and require the use of derivatives in order to maximize value for the client. Some of the larger banks do in fact have dedicated teams handing some of the more complex transactions requiring specialized structured solutions.

Industry experience – Sectoral experience is always nice to have in any corporate and investment banking role. Most teams usually cover just a few sectors that they have cut their teeth on before or have built up contacts in over the years. Furthermore, some banks naturally have strong presence in certain sectors while being weak in others. If you have some kind of deal experience in those sectors, then that is always a valuable asset to have.

This experience becomes more and more valuable as you move up the chain of command. The type of mandates that you will get for your business unit will be based on the amount of experience that you have in your sector. Keep in mind that you would be competing with other banks for mandates and your reputation and ability to deliver results is what is going to win you mandates.

Stakeholder management – Relationship management is also important for ECM. You would not only be liaising with the client but dozens of other stakeholders including investment banks, brokers, hedge funds, lawyers, marketing teams, other product and coverage groups and so on. At the senior levels, you will be responsible for originating business and that will require you to build a good reputation and a solid rapport with companies in your sector.

Ability to handle complexity – An ECM transaction can be quite complex. It is not a regular flow business that you can just power through based on some set processes. Transactions are almost always bespoke with a lot of unknown variables and extra complications. The appetite of investors and markets also has to be gauged and this can make timing an additional moving part in an already complex mandate.

Data handling and analytical skills- You will need to work with a very large amount of data and must have advanced proficiency with platforms like FactSet, CapitalIQ, Bloomberg, Microsoft Office etc. As an analyst, you will spend the majority of your time working on financial analysis and modelling tools and the better you are with them, the easier it will be for you and the faster you will be able to deliver results.

This in turn can lead to better performance when viewed from the perspective of your seniors and better hours for you. Now that’s what I call a win-win situation!

Timing is everything – ECM transactions are highly susceptible to changes in the market. It is not uncommon for companies to shelf their equity placements when the markets turn south. The ability to survive in such a dynamic environment requires a deep understanding of the equity markets and an unmatched ability to deliver results in an adverse business environment.

Soft Skills – Communication skills and ECM are even more important as you will be working on marketing not only to your clients but also to investors. Roadshows can have a significant impact on the success of an equity offering and this is an ideal opportunity for sales-oriented professionals to really shine.

Your attention to detail also needs to be impeccable as any mistakes can not only jeopardize the transaction, but also cause serious legal trouble.

4. How to get into ECM?

Building your CV for equity capital markets requires a well-balanced combination of deal experience, academics and analytical skills.

Like always, focus first and foremost on any relevant work experience that you have. If you are applying for an entry level role, it is unlikely that you would have a lot of ECM experience beforehand. Relevant experience in this case would also include equity transactions of any sort or any large deals that you worked on. Even though the nature of the deals that you worked on previously might be different from what ECM teams do, the experience of working on a large mandate for a sizeable corporation does have a lot of things in common across banking. Either way, make the best of what to have.

In terms of analytical skills, focus on your experience in public company valuations and other such equity linked projects and assignments. Experience with financial data platforms like Bloomberg will also be of value.

4.1. Academics and Internships

Being a graduate from an Ivy League university, Oxbridge or equivalent will help your cause. Even more important are your grades and being a consistent performer throughout your academics is almost a mandatory requirement. The competition is fierce but not as stiff as something you will see for a highly sought after private equity role.

If you undertook an internship in equity capital markets or any related investment banking role, then make sure to fully capitalize on that. Even a small internship will help you steer the conversation towards it and give you the opportunity to speak about something that you are totally familiar with.

In terms of certifications, there’s nothing that is absolutely mandatory but a CFA would be nice to have as it does cover a lot of aspects of equity markets and derivatives. But mostly it’s about the recognition it provides.

Series 7, 63, 79 may be required in the United States, in addition to any others. Usually, this would be mentioned in the requirements section of the job that you are applying for.

4.2. Courses & Certifications

ECM is a rewarding but difficult career to break into. The difficulty results from the sheer number of candidates that are gunning for the same openings. You really need to add some extra value to your CV to get a shortlist. You need an online course/ certification that provides you:

  1. A working knowledge of the technical aspects of how capital markets actually work.
  2. An understanding of market instruments as well as how IPO’s work.
  3. Showcases your commitment to, and interest in, capital markets. While also giving you an opportunity to steer the conversation towards what you know.
  4. Enhances your personal brand and increase your chances of a shortlist.

Based on these criteria, here are the best courses and certifications for ECM roles:

Best Investment Banking Courses ranked by Bankers (2020)

4.3. Resume Review & Interview Prep

ECM is ever popular and one of the better IB roles, in my opinion. Apparently, many others seem to agree as evidenced by the very high applicant to hires ratio. So you need every bit of help you can get.

Your first and biggest hurdle will be to get past the CV shortlisting phase. You need some heavy hitting bullet point son your CV to achieve this. Here are my top recommendations for professional services that will help you do just that:

Best Resume Writing Services – Investment Banking & Finance

5. Salary and Bonus

The fixed salary for ECM analysts and associates is on par with their DCM and M&A counterparts. Analysts can expect roughly USD 100K in fixed compensation with a variable component of around 50% on top of that. This obviously varies based on your location, the size of the bank that you’re working for and the performance of the team and business unit.

At the associate level, expect a higher salary of around USD 150K plus a variable component ranging from 50% to 120% based on performance. While the fixed component is on par with M&A, it is in the variable component that you see some variation with M&A units paying an appreciably larger bonus to their analysts and associates.

Beyond the associate level, salaries are highly dynamic based on how well you execute the deal pipeline and how much revenue you generated for the business unit. High performing associate directors and directors can pull in several hundred grand and even touch seven figures.

6. A Normal Day in ECM

An ECM analyst or associate lives and dies by the deal pipeline. ECM is a transactional business and the current pipeline determines how much time you will spend poring over documents and hammering out specifics of the transaction. With a healthy deal pipeline, expect to spend a lot of time doing the related activities mentioned in the job description section.

When the pipeline is a bit lighter, the focus shifts towards origination efforts. You would likely begin your day by analyzing the equities market and general business environment by reading newspapers and participating in research briefings or team meetings. This would be followed by discussions on probable equity transactions and if it makes sense to pitch some deal to a client.

The pitching process involves determining the value proposition for your client and then trying to convince them to go through with that transaction. Junior analysts and associates only help in preparing this marketing material for the director and MD level executives who would be performing the actual pitch.

6.1. Work Hours

The hours in equity capital markets are highly dependent on the current pipeline. If you have a lot of deals in the pipeline or a very major transaction that is underway, then you could easily spend 15+ hours in the office. However, the usual day is closer to 12 hours and the high stress environment usually only occurs for a few weeks in the year. This of course is dependent on the bank as well since some see a lot more deal activity than others.

You usually start early, like in any equity related role. Reading and digesting the material events of the preceding day is usually a smart idea before you begin work. So expect to do some light reading early in the morning before you head out to work.

7. ECM vs DCM vs M&A

7.1. Salary, Hours and Exit Options

In terms of work life balance, quality of work and hours, ECM is close to DCM and both are much better than M&A. However, this means that your M&A colleagues get slightly better bonuses to compensate. Exit options are also slightly more plentiful for M&A analysts and associates as the analysis they perform is much broader in scope for the most part.

That is not to say that the exit options for ECM are limited. With a good understanding of equities and industries you can move to many roles dealing with equity derivatives, trading, coverage, research, investments and so on.

7.2. Quality of Work

ECM and DCM work is usually more strategic and requires a high level understanding of the business as well as a good understanding of the markets. This market focus appeals to a lot of professionals and the strategic level analysis can be a welcome change from the mind-numbing number crunching that you would perform otherwise.

8. Career Path and Progression

8.1. Organic Growth

Some bankers consider the exit options in capital markets to be more limited than in M&A. While that is indeed true, I would argue that there is less need to really exit from capital markets as they offer a very healthy balance of compensation, quality of work and work life balance. When you’re having fun and being generously paid, you tend to stick around.

The natural career progression in ECM look something like this:

Analyst: You start off as an analyst and most of your time is spent doing tasks for others. You would be assisting associates, directors, VPs and managing directors with whatever they need done at any given point in time. This includes things like working on models, preparing pitchbooks, collecting and processing data and so on.

Associate: If you have an MBA or some other relevant master’s degree, then you would likely start at the associate level (you can obviously get promoted from analyst to associate as well). An associate does slightly more qualitative work than an analyst and takes some initiative to process the projects and deals that the team is working on. This is where things start to get interesting.

Associate Director/ VP and beyond: This is the level where you start to take some ownership at the client level as well. You may not have enough of a rapport with the client to originate deals of your own yet, but you will play an instrumental part in executing existing mandates. Directors and managing directors are the ones who originate transactions and talk strategy with the clients while also leading all internal teams and the overall business unit.

8.2. Exit Options

ECM professionals do have some options to move into roles which are linked to equity products. This depends somewhat on what sort of experience you have. For example, if you have a thorough understanding of equity derivatives then you can probably find a place in a hedge fund or some similar setup which is involved in the trade of equity derivatives.

Another possibility is to shift between the various roles in capital markets. You could shift your focus from equity to debt if you find that suits you better. You could also focus more on the syndication side although these rules are few and far between.

Lastly, ECM advisory is also viable option where you can work with an existing firm or if you have the reputation, create your own setup and advise clients on their equity transactions and walk them through it.

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About the Author

Gaurav Sharma

Gaurav started his career as a Corporate and Investment Banking intern at Citi in 2009 and eventually ended up as an Associate Director at Standard Chartered Bank’s Wholesale Banking division a few years later. By 2016, Gaurav was consulting FinTech start-ups in London with product development in the institutional banking space. He also advises mid-market Private Equity/ Asset Management firms and Banks in North America and Europe with investments in the financial services and FinTech sector. Gaurav writes on topics ranging from European Union banking regulations and FinTech to Blockchain startups and the inevitable rise of our AI overlords! He has an Engineering degree in Computer Science and an MBA with a double major in Finance and Marketing. He is also a Certified Financial Risk Manager.