O'Brien ’15 Serves as Finance Seminar Speaker

Posted on 4/13/2018 8:57:45 AM

On April 2, 2018, the Eberly College of Business and Information Technology at Indiana University of Pennsylvania had the chance to hear from Christopher O’Brien, a leveraged finance analyst for Citizens Commercial Banking, in Daniel Lawson’s FIN 422 Seminar in Finance class.

O’Brien is a recent IUP alumnus, having just graduated in 2015 with a bachelor’s degree in finance and a minor in economics. Upon graduating, O’Brien earned the position of a middle market analyst for Citizens Bank. A year and a half later, O’Brien was promoted and moved to leveraged finance for Citizens. He has received formal training in the Citizens Commercial Training Program and the Wall Street Oasis Mergers and Acquisitions/ Leveraged Buyout Boot camp.

O'Brien Finance Seminar Speaker

After introducing himself, O’Brien provided overviews of what private equity firms are, what “leveraged buyout” means, and how capital markets operate relating to leveraged buyouts. An example of a private equity firm would be the Carlyle Group. The Carlyle Group is a company consisting primarily of former investment bankers whom create and manage funds as general partners. These kinds of firms make money by investing in private companies, taking private companies public, or by making large investments in publicly traded companies. From these activities, the firm attempts to create value, generally over the course of five years or so, before exiting the company, ideally with a positive return on its investment.

Private Equity firms typically acquire companies through what is referred to as a leveraged buyout (LBO). “Leverage” represents the amount of debt used during the transaction. This debt is not actually taken on by the private equity firm itself, but rather is placed on the balance sheet of the company being bought. The debt then allows the firms to reach higher bidding levels without risking firm capital beyond its initial investment. To better explain the situation, O’Brien used the analogy of buying a house and renting it out. The house represents the company that pays the debt, or the mortgage, on the house by using the company’s cash flow; or, in the analogy, the renters’ monthly payments. Over time the price of the house or company will increase, while the debt is being paid off by the renters’ payments or the company’s cash flows. Thus, building the owners of the house (or firm’s) equity without using personal capital to pay back debt owed.

The execution of the buyout process is usually done through the capital markets. Private equity firms reach out to investment bankers to fill the rest of the capital structure. Bank debt typically makes up the largest piece of the capital structure because of its cost relative to other options. The execution team at the bank then goes through in-depth analysis of the company to look at the strength of ownership/management, industry trends, historical performance, loan-to-value coverage, barriers to entry, and liquidity, among other pieces of raw data files. This is done to project future cash flows to predict repayment ability and valuation. This process is often quick, taking approximately two weeks with another week. If the bank determines, if need be, it could sell the company based on its enterprise value for more than the debt on the balance sheet, the deal will likely be made with a reputable private equity firm. This allows the firm to purchase the company on debt, generate equity through debt repayment via company cash flows, and exit the company at a sale for more equity than originally put into the company upon purchase.

O’Brien deals with the investment banking side that sells these companies the debt that they need at a premium, to allow this entire financial process to occur. The class did a few examples on excel spreadsheets to roleplay the position of a LBO analyst working at Citizens Bank, similar to what O’Brien could expect to be doing on any given day.

After the presentation, students made the following comments:

“Chris O'Brien gave a great description of the leveraged finance world, and since that is what I want to do with my future career I enjoyed it a lot. He is a great guy with a lot of knowledge.”
—Chris Barto, senior finance major

“Christopher O’Brien is involved with Leveraged Finance at Citizens Commercial Banking and started in 2015 with Citizens Bank. Chris gave us interesting insight on how leverage finance is used when measuring the positive or negative facets of evaluation related to determination of accepting projects. His job gives him the opportunity to learn about different markets, industries, companies, and jobs. He truly has a cool job that lets him utilize the skills and business practices learned for IUP’s Eberly College of Business.”
—Mitchell O’Shell, senior finance major

Once again on behalf of the university and its student body, the Eberly College of Business would like to express its gratitude and appreciation to Christopher O’Brien for coming to Indiana University of Pennsylvania and delivering an excellent presentation for those interested in a future career in the financial industry.

For further information about the FIN 422 Seminar Speaker Series, please contact Daniel Lawson at daniel.lawson@iup.edu.