Investment banking coverage refers to the practice of investment banks organizing bankers by industry sectors and assigning them to cover specific companies and industries. This allows bankers to develop expertise in certain industries and build strong relationships with companies in those sectors. Coverage bankers serve as the main points of contact between their investment bank and client companies. Their responsibilities include identifying business opportunities, advising on strategic decisions, and winning mandates for investment banking transactions.
Having dedicated coverage teams for various industries is a key part of the investment banking business model at most large banks like Goldman Sachs and Morgan Stanley. The depth of a bank’s coverage capabilities in a particular sector can be a competitive advantage when pitching for new deals. Coverage teams often work closely with product specialists in areas like M&A, equity capital markets and debt capital markets to execute transactions and provide full-service financial advice to clients.
Industry coverage helps bankers specialize and build expertise
At major investment banks, the investment banking division is typically organized into industry coverage groups and product groups.
Industry groups include teams covering sectors like technology, healthcare, financial institutions, consumer/retail, industrials, and more. Bankers specialize in a particular industry group and focus on covering a subset of companies within that industry.
For example, a banker in the technology coverage group may be assigned to cover software companies or semiconductor companies. By focusing on specific industries, bankers develop an in-depth understanding of sector trends, competitive dynamics, regulations, and other industry-specific issues. This allows them to provide more tailored and insightful advice to clients.
Over time, bankers also build up strong relationships and networks within their sectors. They get to know key executives and decision makers at major corporations. This helps them get an inside track on potential deals and win new business for their bank.
Coverage teams are the salesforce and client relationship managers
The primary role of coverage bankers is to be the face of the investment bank in dealing with clients in their assigned sectors. Coverage teams have several key responsibilities:
– Business development – Identifying potential new clients, pitching for business, securing mandates for deals and other advisory work. Coverage bankers spend a lot of time in meetings, on calls, at industry conferences, networking and developing relationships.
– Account management – Serving as the day-to-day point of contact for existing client companies. Addressing questions, providing market updates and maintaining strong working relationships.
– Advising clients – Providing strategic recommendations around M&A, IPOs, debt issuance and other major corporate decisions and transactions. While not doing detailed transaction execution, coverage advises on deal logic and positioning.
– Coordinating execution – Working with product teams internally to staff and execute mandates obtained from clients. This requires close collaboration with M&A, ECM, DCM and other product bankers.
So in essence, coverage teams function as relationship managers and source generators for the investment bank. They prospect for new business and pass that business to product specialists for execution.
Coverage and product teams work closely together
While coverage bankers focus on client relationships and sector expertise, product specialists in areas like M&A and capital markets provide the skills needed to actually execute transactions and deals. There is a lot of coordination required between these teams.
The full lifecycle of an investment banking deal often involves the following workflow between coverage and product teams:
1. Coverage bankers identify an opportunity with a client and pitch the bank’s capabilities.
2. If they win the mandate, coverage starts strategizing with the client while looping in the appropriate product teams.
3. The right mix of coverage bankers and product specialists will form a deal team to work on the specific transaction.
4. Product bankers take the lead on financial modeling, due diligence, documentation, investor marketing and other aspects of execution.
5. Coverage continues engaging the client and providing industry insights and strategic advice.
6. After successful transaction close, the coverage team maintains the key ongoing relationship with the client for future opportunities.
This division of labor allows both specialists and relationship bankers to add value through deal origination and execution. The coverage-product partnership is a cornerstone of the investment banking model at most major banks.
In conclusion, investment banking coverage teams specialize by industry sector and cultivate deep client relationships. Coverage bankers have expertise in their sectors and originate new business. They partner with product teams to provide clients full-service capabilities in financial transactions and advisory work.