A bake-off in investment banking refers to an intense competition that takes place among different investment banks when a company decides to sell a business unit or asset. The company will invite multiple investment banks to pitch their qualifications and services in helping execute the sale. These bake-offs put extreme pressure on banking teams to rapidly analyze the asset, construct persuasive presentations, and scramble to accommodate tight deadlines from clients. Bake-offs are dreaded by many junior bankers due to their demanding workloads and high pressure, often requiring cancelling vacations and working consecutive all-nighters. However, winning a bake-off also brings prestige and further business from clients.
Bake-offs create intense competition between investment banks bidding on client business
When a company decides to pursue selling an asset or business unit, whether due to poor performance or a shift in corporate strategy, it will tap the services of an investment bank to advise on the deal and facilitate the sale process. The company will invite several top investment banks to pitch for the business in what is known as a bake-off. These bake-offs spark intense competition between the banks as they analyze financial data in depth, construct persuasive presentations demonstrating their expertise, and formulate strategies to get the best price for the sale. Teams work around the clock to meet tight deadlines imposed by prospective clients who want to assess all proposals simultaneously before selecting an advisor. The bank that wins the bake-off gets to lead the deal, bringing in sizeable fees and the potential for more business from the client down the road.
Bake-offs place extreme pressure on junior bankers and ruin vacations
While partners and senior bankers participate in client pitches, much of the grunt work falls on the shoulders of junior investment bankers. Associates and analysts find themselves scrambling to scrub data, build complex financial models, draft slide decks, and fact check everything, all under immense time pressures. Teams can find themselves working 15-20 hour days non-stop leading up to a bake-off, cancelling any personal plans and vacations that happen to fall during that period. The hours are long, the work is tedious, and the pressure is intense, leading to high anxiety and burnout. Many junior banker horror stories center around having to nearly kill themselves preparing for a bake-off pitch that their bank ends up losing anyway. The allure of winning prestige and claiming fees helps offset some of the pain.
Succeeding in bake-offs brings prestige and future business
As awful as bake-offs can be for a bank’s junior employees, they are high stakes situations. Winning a competitive bake-off to advise on a major sale brings prestige and credibility to the bank, solidifying its status as a top tier advisor. In addition, corporate clients tend to lean on bankers they have existing relationships with for future deals and financial needs. So surviving the crucible of a bake-off can lead to a valuable long-term client. Of course, losing a bake-off after working consecutive 20 hour days is a painful blow. But the potential rewards help explain why bankers are willing to sacrifice so much for even the chance to win new business.
Bake-offs in investment banking spur intense competition between banks bidding for client business. The long hours, tight deadlines, and high pressure make them brutal for junior bankers, but bringing in lucrative deals and credible clients drives banks to push their employees to extremes.