Investment banking in Canada, explained

What bankers do, how a deal runs from pitch to close, the six kinds of firm that make up the Canadian market, and what makes Bay Street different from Wall Street.

What an investment bank does

An investment bank is a company's outside adviser for its biggest financial decisions. When a company wants to buy a competitor, sell itself, raise money to build a mine, refinance its debt or fend off an unwanted bid, it hires bankers to run the process: value the business, find buyers or investors, negotiate terms and get the deal closed. Pension funds, private equity firms and governments hire banks for the same reasons.

The work falls into a few kinds of deal. These are kinds of work, not teams: who does each one depends on how the firm is organised, which the next section covers.

Mergers & acquisitions (M&A): The advisory work: helping a company sell itself or a division (sell-side), buy another business (buy-side), merge with a peer, or respond to a takeover bid. Banks also give fairness opinions and advise special committees of independent directors. Fees are mostly paid only if the deal closes. Don't confuse the work with the team. At a bank with groups, most M&A is done by the industry coverage groups, and a separate M&A product group of specialists runs the valuation, negotiation and execution alongside them. At a boutique, the whole team does M&A, with no M&A group at all. So "I want to do M&A" can mean joining the M&A group at a large bank, or any coverage group or boutique, since they all work on M&A deals.
Equity capital markets (ECM): Raising money by selling shares: initial public offerings (IPOs), follow-on offerings by companies already listed, and private placements. In Canada many of these are bought deals, explained below.
Debt capital markets (DCM): Raising money through bonds for companies, banks, provinces and municipalities. The Canadian bond market is smaller than the U.S. one, so large issuers often borrow in U.S. dollars too.
Leveraged finance: Arranging loans and high-yield bonds for companies carrying more debt, most often to fund private equity buyouts.
Restructuring: Advising a company, or its lenders, when the business can no longer carry its debt. Canadian restructurings often run through the CCAA (the Companies' Creditors Arrangement Act).
Coverage: Bankers who own the relationships with companies in one industry, follow everything happening in it, and bring in mandates for the product teams to execute.

How banks get paid

Banks earn advisory fees on M&A, usually a small percentage of the deal value paid mostly at closing, and underwriting fees on financings, a percentage of the money raised that is split among the banks in the syndicate. Because fees depend on deals closing, revenue moves with markets: a strong year for mining equity or energy M&A shows up directly in a Canadian bank's results.

In Canada there is a third, quieter driver: lending. The Big Six lend to nearly every large Canadian company through their corporate banking arms, and companies tend to reward the banks that lend to them with advisory and underwriting work. That is a large part of why the Big Six appear on so many domestic deals.

How a deal runs

A sell-side M&A process, where a bank sells a company for its owner, shows what the work looks like day to day:

1Pitch. Bankers meet the company's leadership with a pitch book: what the business might be worth, who might buy it, and why their bank should run the sale.
2Preparation. Once hired, the team builds a financial model, writes a confidential information memorandum (CIM) describing the business, and draws up a list of potential buyers.
3Marketing. Bankers contact buyers, sign confidentiality agreements and collect first-round, non-binding bids.
4Diligence. A shortlist of buyers gets access to a virtual data room and management presentations, then submits final bids with a marked-up purchase agreement.
5Negotiation and signing. The bank helps negotiate price and terms. For a public company, the board often receives a fairness opinion before it signs.
6Approvals and closing. A Canadian public deal usually needs a shareholder vote and court approval (a plan of arrangement), plus competition and sometimes foreign-investment approval, before it closes weeks or months later.

Financings move faster. A bought deal can be agreed overnight and announced the next morning, with the bankers selling the shares to institutional investors within days.

Who does what on a deal team

Analyst: The entry-level role, usually straight out of undergrad. Builds models, comparable-company and precedent-transaction analyses, pitch book pages and diligence materials.
Associate: Often a promoted analyst. Checks the analysts' work, runs day-to-day execution and is the main contact for the client's working team.
Vice President: Manages the process and the team, and drafts the key documents and messages.
Director and Managing Director: Win the business, own the client relationships, negotiate on the client's behalf and answer for the outcome.

Who the players are

Canadian investment banking is concentrated, and the firms fall into six groups. BSO arranges them as a ladder, roughly in order of how hard a junior seat is to get. Most people do not start at the top: they land a first role a rung or two down and use it to climb. The ladder is BSO's reading of the market, not a ranking any firm publishes.

The global banks

Goldman Sachs, J.P. Morgan, Morgan Stanley, Bank of America, Citi, Barclays, UBS, Wells Fargo and Macquarie keep investment banking teams in Canada, mostly in Toronto with some in Calgary. The teams are small, and many are a single coverage team rather than a set of industry groups: Goldman Sachs runs one team called Canadian Diversified, J.P. Morgan has Canadian Diversified plus a Natural Resources group, and Morgan Stanley runs one Canada team. They win the largest, often cross-border, mandates and work hand in hand with their U.S. product and industry teams. A few global banks, including the French banks and MUFG, keep Canadian desks too small to have any student route.

The global advisory houses

Evercore, Rothschild & Co., Jefferies, Mizuho | Greenhill and Tudor, Pickering, Holt & Co. are fee-driven firms that do not lend from their own balance sheet. In Canada they are a handful of senior bankers doing mostly M&A and board-level advice: Evercore's Canadian business sits in its Strategic Advisory (M&A) group, and TPH runs one energy-only team in Calgary. They sit beside the global banks for selectivity, but they are a different kind of seat, and they hire very few juniors here each year.

The Big Six

RBC Capital Markets, TD Securities, BMO Capital Markets, Scotiabank, CIBC Capital Markets and National Bank are the capital markets arms of Canada's six largest banks. They lead most domestic M&A, equity and debt deals, have the largest teams and the full range of industry and product groups, and run offices in Toronto, Calgary, Vancouver and Montreal. Five are headquartered in Toronto; National Bank is headquartered in Montreal and leads in Quebec. They are also the largest student employers in Canadian banking.

The leading Canadian independents and dealers

Two kinds of firm share this rung. Dealers underwrite as well as advise, mostly for small and mid-sized companies: Canaccord Genuity, Desjardins, Stifel Canada, Raymond James, ATB Cormark, iA Capital Markets, Paradigm, Ventum and Haywood, plus sector specialists such as Peters & Co. (energy), SCP Resource Finance (mining) and Bloom Burton (healthcare). Independent advisers focus on M&A, special committee and capital-raising advice: INFOR Financial, Origin Merchant Partners, Fort Capital, Blair Franklin, Sequeira Partners and Agentis Capital. Teams are smaller than at the Big Six, and juniors often get more responsibility earlier.

The Big Four and corporate finance deal advisory

The deal practices of KPMG, Deloitte, PwC and EY, alongside Alvarez & Marsal, BDO, MNP, Grant Thornton, Richter and RSM, run corporate finance (mid-market M&A, often for founder- and family-owned businesses), transaction services (financial due diligence), valuations and restructuring. Every one of those is real deal work and counts as finance experience on a resume. These practices are among the larger graduate employers in Canadian finance, they take co-op students from first year, and they are one of the most common bridges into banking and private equity.

Boutiques and small-cap dealers

Smaller advisory firms and dealers such as Research Capital, Beacon Securities, Clarus Securities, Red Cloud, Maxit Capital, Morrison Park Advisors and Oaklins Canada. Many have only a few bankers and work as one team. This is where a large share of first finance roles come from, and some, such as Herculean Group and Left Lane Associates, are realistic for students with no finance experience at all.

Every firm here has a BSO profile with its groups or focus sectors, deals, people and live roles. Browse them by type on the Firms page.

Groups, or one team

Only firms big enough to staff separate teams have real industry and product groups: the Big Six, the larger dealers such as Canaccord, Stifel, Raymond James and Peters & Co., the global banks' Canadian teams (often just one) and the accounting firms' deal practices. Most boutiques work as one generalist team. The sectors listed on their websites are where they look for deals, not desks you can ask to join. The Groups and offices primer explains the difference and why it matters when you apply.

What makes Canada different

A smaller market. Canadian equity and bond markets are a fraction of the U.S. size, so deals are smaller, and the largest Canadian companies often raise money in U.S. dollars or list on both the TSX and a U.S. exchange.
Resources matter more. Mining and energy are a far larger share of Canadian deal activity than of U.S. activity. The TSX and TSX Venture Exchange list more mining companies than any other exchange group, which is why mining and energy teams are among the most prominent at Canadian banks.
Bought deals. The underwriters agree to buy an entire share offering at a fixed price before marketing it, and carry the risk that it doesn't sell. It is a common way for Canadian companies to raise equity quickly.
Plans of arrangement. Most Canadian public-company takeovers are completed through a court-supervised plan of arrangement, which usually needs two-thirds of the shareholder votes cast, rather than a U.S.-style tender offer.
Foreign-investment and competition review. Large foreign acquisitions of Canadian businesses can need approval under the Investment Canada Act, including national security review, alongside Competition Act review.
IFRS, not U.S. GAAP. Canadian public companies report under international accounting standards, which changes some technical interview answers (see Canadian technicals).
A cross-border market. Many large Canadian deals involve a U.S. buyer, seller or investor base, which is why the global banks and advisory houses keep teams in Toronto and Calgary.

What the job is like

Analyst programs usually run two to three years before promotion to associate. The hours are long, the work is detail-heavy, and deadlines are set by clients and markets. The return is fast learning: within a year, analysts can value a company, build a model from scratch and follow how a deal is negotiated. Pay is set in Canadian dollars and is generally below New York levels. Many people move after a few years to private equity, a pension fund's investment team or corporate development, as the buy-side primer explains.

Words you'll hear

Mandate: A formal engagement by a client to advise on a deal or run a financing.
League tables: Rankings of banks by the value or number of deals they worked on in a period.
Syndicate: The group of banks that underwrite and sell an offering together, led by one or more bookrunners.
Pitch book: The presentation bankers use to win a mandate or put ideas to a client.
Fairness opinion: A bank's opinion that the price in a deal is fair to shareholders from a financial point of view.
Bay Street: Shorthand for Toronto's financial district, and for Canadian finance generally.

Toronto is the centre of Canadian banking, with the largest teams at almost every firm. Calgary (energy), Vancouver (mining) and Montreal (Quebec companies, often in French) host smaller offices with clear specialties. The next primer, Groups and offices, explains how teams are organised and what each city does.

Written by Bay Street Oracle for students exploring Canadian finance. General information, not career or investment advice.