Monday, November 7, 2011
Nicholas Center Blog
For the first November edition of our "Current Topics in Finance" class, the Nicholas Center was lucky to be visited by Fred Johnson, Managing Director at Middle Market Invesetment Bank William Blair. Fred completed his undergraduate work at the University of Wisconsin, and had high praise for the city of Madison - he was happy to be back, and we were equally thrilled to be hosting him! The focus of our session was the equity market, an area that Fred is very familiar with through his work at William Blair.
As a student who is interested in an investment banking career myself, getting to hear about a day in the life of an industry executive was a real privilege. A major part of Fred's role is working in PIPE, that is, Private Investment in Public Equity. Although most of us students are less familiar with PIPE as a financing mechanism for public companies, Fred shed light on the fact that this is growing in popularity for companies wanting to issue equity, especially because there is a lower regulatory burden using this method compared to a more traditional secondary equity offering.
In addition to hearing about Fred's on-the-job responsibilities, he also gave us a substantial overview about the valuation methodologies that bankers use for equity securities. As one could imagine, there is never one correct answer when approaching the question of how to value a company, but Fred spent time going through the pros and cons of the mainstream equity valuation methods.
One of the most useful features of our "Current Topics" sessions has been the ability to pick up "nuggets" of salient industry knowledge, and Fred shared several with us. In the academic world, it's easy to get wrapped up in the technicalities of equity valuation, but one of Fred's points that stuck with me is that Supply and Demand are the forces that really drive equity valuation (and often, these are not in lockstep with fundamentals). Another excellent point was that there tends to be a material liquidity difference between large cap and small cap equities, so the market tends to be more efficient at valuing larger companies than it does at valuing smaller ones.
Hearing Fred speak to our class reinforced my interest in investment banking as a career. It was a pleasure to have him, and hopefully we will be lucky enough to have him again!