Closing the Deal – Project Management and Investment Banking

(this blog is excerpted from a book I am currently writing)



The idea for this book came from a recent civil trial in which I was an expert witness, testifying about the ‘standards of care and practice’ among investment banks attempting to close a financing.  In researching the subject, I realized that while there is an extensive literature on project management, it is written largely in the context of IT projects, engineering projects, or from the perspective of organizational management theory, but rarely from the perspective of investment banking.   Yet I maintain that while project management, as a generic skill set and discipline, has some similar elements regardless of the subject matter, there are enough unique elements about investment banking that justify a separate book on that discipline.


Investment Banking:

‘Investment banking’ is a specific form of banking related to the creation or generation of capital for other companies or entities.   Investment banks (usually referred to as IB’s) are the intermediary, the middle person, between those entities with funds to invest (for example: individuals, hedge funds, pension funds, insurance companies, venture capital funds) and those entities in need of capital (for example: start-up entrepreneurs, corporations engaged in growth or an acquisition, local governments planning a capital project).   Unlike commercial banks, IB’s (in most cases) do not use their own capital, but instead are engaged to find the needed capital from investors. Examples of investment banking situations include: a start-up corporation raising new equity capital among private investors for growth, a corporation purchasing another company, a mature corporation going public through an Initial Public Offering (IPO), a company gaining debt capital from a lender such as a bank or a finance company, and a local government obtaining the capital to build a project, such as a school district issuing bonds to build a new high school.   In each of these cases, an IB is retained by the client to raise the necessary capital within a specified time period.  



The term “closing” refers to the culmination of the financing process, when all of the parties gather together to complete final negotiations, sign all documents, and wire-transfer the funds.


A “project” is a series of related tasks, that together have several common features:

1)  Projects are finite in time, with a defined starting point and a defined ending (in most case signified by the closing defined above); a financing process can take as little as a couple of weeks or as long as six-eight months, but in any case, it will have a defined end point;

2)  Investment banking projects are not an end to itself, but a means toward a broader end;  the intent of a financing transaction is to generate capital for general corporate purposes, including corporate growth and a capital building campaign;

3)  There is typically a time urgency to a project; the broader purpose towards which the financing transaction is aimed has to be completed within a specified time period; without the financing, the corporate purpose cannot be accomplished, and that creates a strong incentive to complete the financing transaction, the project, as soon as possible;

4)  There are multiple entities involved in a project.  In the case of an investment banking transaction, these include the borrower (or corporation or obligor), one or more investment groups, accountants, consultants, engineers, trustee banks, issuers (in the case of bonds), and for each entity, their legal counsel;  even a project that is entirely internal to a company (not usually relevant in a financing transaction) will still have multiple stakeholders and parties of interest.

5)   Project management is a set of skills and practices distinct from on-going process management.  As an example, managing a hotel is a process of on-going daily management, but financing the construction of that hotel is an example of a specific financing project management, with a defined starting and ending point, and a significant degree of time pressure, involving a large number of outside parties.   


Requirements for a Successful Project Management:

There are five general elements of ‘standards of care and practice’ for a reasonably competent investment bank to follow, equating to generally accepted principals of project management:


  1. Team management of the financing process:  

The project team that works on a financing engagement is a large, diverse grouping of various professionals from many companies, with one common purpose:  to ensure the successful completion of the intended financing. These groups and companies include, among others, the issuer, the borrower, the trustee bank, credit enhancement providers, engineers and construction managers, accountants, consultants, and all of the law firms that represent each of these participants.   It is critical, for a financing to be completed on-time, that one entity manages this process and the team, and accepts the ultimate responsibility for the continued pursuit of the project. In almost all cases, the most logical entity to take on that role is the IB. It is the IB that ultimately creates the funding mechanism, by marrying together the party that needs funds with the parties that have funds to invest, and it is the IB that ultimately has responsibility for funding the transaction.  Very few, if any, of the other participants in the financing project have the level of overall knowledge and insights, the client relationship, or the financial market involvement that the IB has. IB’s use terms like ‘quarterback’, ‘trail boss’ and ‘ramrod’ to signify the central coordinating importance of their role.


  1. Individual Responsibility of a senior person:   

It is essential that the IB managing the financing project delegate responsibility for this management to one senior individual, with the competence, responsibility and authority to ensure its successful completion.  While the IB retains the control and responsibility for the financing, it almost always works best when a single senior officer is assigned the responsibility to manage the internal processes at the IB, while at the same time the IB has to maintain oversight of the team manager and maintain overall responsibility. 


  1. Maintaining a rigorous project process and schedule:   

It is an axiom in investment banking that ‘time kills all deals”.   A financing project is vulnerable to changes in circumstances, including, to name some factors, changes in financial market conditions, changes in the regulatory and legal environment, increases in estimated project costs, and reduced project feasibility.  Financing projects that are delayed run the risk of a reduced likelihood of closing, or increased costs. This point reinforces the central importance of the role of the IB as project manager. It is incumbent on the IB to establish a rigorous but realistic schedule to move from project start to closing, and to continually monitor this schedule, adjusting where necessary but doing it best to maintain the schedule.  “Scheduling is an essential element of the planning process”.

Part of this reasonable ‘standard of care and practice’ is to develop and follow a carefully choreographed process by which the financing project moves from initial idea through review and approval to final closing.   This process, often documented in a Project Evaluation and Review Technique (PERT) chart, shows each of the steps necessary to reach closing, the estimated time involved in each step, the interrelationships and dependencies between the various steps and tasks, and the assigned responsibility for each step.   Many of these project steps are iterative, and some of them happen simultaneously. This again emphasizes the importance of a careful and rigorous planning process, defined in a timetable. A well-managed IB will have a Standard Operating Procedures manual, or something of a similar name, that lists the specific tasks that need to be accomplished, including, for example, Credit Committee review and approval.


  1. Competent, professional and timely advice:  

Financing projects are inherently very intricate, requiring extensive knowledge and analysis.  It is rare that any issuer or borrower has sufficient knowledge of finance and law to successfully accomplish transactions on their own.  Rather, issuers and borrowers almost always must fully rely on the competent, professional and timely advice of the IB, as well as the other consultants and vendors involved in the project, who work under the management and direction of the IB.  Part of this advice is the analysis and presentation of the various options for structuring the proposed financing, and all of the implications of these options, including advantages and disadvantages, costs and benefits.


  1.   Extensive due diligence process:

As investment bankers on a complex financing project, a critical element of the banker’s responsibility is conducting an extensive process of due-diligence and disclosure.  As the primary expert on financings in the project team, and as a representative of the issuer and the interface between the issuer and the investor, it is the responsibility of the banker to take the lead role in guiding the due-diligence process, and in ensuring a high level of disclosure to all parties in the transaction.  When there is post-closing litigation (and usually it is post-default), the key issue being litigated usually focuses on a failure of sufficient due-diligence and an abdication of the requirement of disclosure.


  1. Transparent communications:  

A project of this level of complexity and timing urgency requires effective team management, and a critical element of this management is continuous transparent communications among all parties, including the Borrower, under the leadership of the IB.  Communicating changes in the project parameters, market conditions, timetable, and legal and regulatory requirements, requires clarity, timeliness and transparency. It is a typical and reasonable ‘standard’, for example, to schedule regular conference phone calls among the key participants, under the direction and leadership of the Project Team manager, to review progress, address problems, and recommend actions.  



The concept of “standards of care and practice”, a term commonly used within investment banking, is another way of referring to the requirements of effective project management.   The ideas within the literature and study of project management can be applied very appropriately to the practice of investment banking; a competent investment banker is one who successfully followed the principals of project management discussed above.