Tue. May 30th, 2023

investment banking overview

Investment Banking Overview

Investment banks help companies and governments raise money from investors by selling them’securities’ (such as shares or bonds) that can be repaid with interest.

They also represent clients in mergers and acquisitions, and offer financial advisory services. Industry realignment should create opportunities for investment banks to drive toward higher levels of return; however, they likely will need to retool their business models and operational platforms.

Corporate Finance

Corporate finance is a specialized field that helps companies to strengthen their financial status and increase the value of their business. It involves a variety of aspects, including strategic financial planning, the analysis of financial statements, and the sourcing of funds.

Investment banking is a type of banking service that focuses on the sale of securities. It also includes other financial services, such as market-making and mergers and acquisitions advice. In many cases, these services are regulated by the Securities and Exchange Commission (SEC).

The primary difference between corporate finance and investment banking is that the former is a sub-division of the latter. This is because corporate finance is a broader concept, while investment banking is an explicitly financed area of work.

However, both fields have a lot in common and can be incredibly lucrative for professionals looking to develop their careers. This makes it a good idea to consider the differences between them before making a decision about whether or not to pursue a career in one of these areas.

First of all, while investment banking is generally a high-pressure and demanding field, corporate financing is not quite as competitive. Moreover, many professionals find that working hours are more manageable with this profession, allowing them to have a better work-life balance.

Another key distinction is that investment banking requires a degree in financial analysis, while corporate financing jobs do not require such a degree. This can help make the job more appealing to professionals with a bachelor’s degree in an applicable subject.

The most important difference between these two fields is that investment banking deals with the issue of securities, while corporate finance mainly focuses on helping clients maximize their equity by way of mergers and acquisitions. These are the most prominent ways that large companies seek to maximise returns for their shareholders.

Mergers & Acquisitions

Mergers are when companies acquire each other, typically for financial or strategic reasons. Investment banks can help make these deals happen. They also work on merger integration, which can add or destroy value after the deal is completed.

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A company may be looking to expand its reach in a particular market or product line, and consider acquiring another business in order to get a foothold. For example, a pharmaceuticals firm like Bristol-Myers Squibb might decide to buy Celgene to enter the cancer treatment space.

An investment banker works with the client to develop an acquisition strategy, which involves analyzing the company’s target markets and competitors, as well as determining whether it makes sense for the company to sell or acquire a business. It also includes developing a target list of potential buyers and reaching out to them.

The banker will prepare a “teaser” document, which contains the key highlights of the target’s business and the investment rationale for the company’s purchase. This will give the target company a better idea of the value it could expect to receive for its shares.

Once a target is identified, the banker works with management to negotiate a purchase agreement with the buyer. This can include working out financing arrangements and negotiating a price.

A typical sell-side M&A deal involves a few bidders, which the banker reaches out to and solicits their valuation quotes. The banker then presents the quote to the seller’s management, and a consensus is reached about the best price.

Mergers are a major part of the job of investment bankers, and the fees are usually fairly significant. These fees are primarily earned from a success fee, which is based on the company’s equity value.

Capital Raising

Raising capital for a company is a process of finding investors to fund the business and help it grow. It can be done through debt or equity financing options.

There are a variety of reasons that a company might want to raise capital, including mergers and acquisitions, reorganization, and expansion. The right time for a company to raise funds depends on the specific needs of the business.

Banks are a common source of debt funding. They typically provide loans at low-interest rates and do not require any involvement from the company. This is a good option for startups that lack credit history or are not established enough to qualify for equity raises with other investors.

Alternatively, companies can raise capital through venture capital firms. These are institutions that can invest more money than angel investors and can offer higher returns on investment.

Private debt is another popular source of funding. It provides companies with low-interest loans that can be converted into equity once they reach a certain maturity.

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These investors can be family offices, high net worth individuals, and hedge funds. Some require majority ownership and control, while others provide equity in exchange for minority ownership.

For both types of capital raising, investment banks prepare documents that show the company is able to pay back the funds with interest or achieve a return on the investment. These documents include offering memorandums for equity capital and offering statements and offering circulars for debt financing. They also present the business plan, financials, and projected cash flows for the targeted period. The key is to be clear about the purpose of the raise and present accurate information about your company’s operations and finances.

Equity Research

Equity research is a part of investment banking that helps investors make decisions on their investments. It involves researching companies, industries, and market sectors. It also includes predicting future price movements and developing models that can help portfolio managers better manage their risk.

In this career, an analyst’s job is to provide the best possible analysis of a company. This can include analyzing its financial statements, performing a valuation (either using DCF or a sum of parts), evaluating its competitive environment, and more.

A typical equity research team typically has a head of equities and a few senior analysts. These analysts are responsible for covering a large number of stocks in various sectors. They are supported by a couple of junior analysts, who cover a smaller set of stocks.

This industry also requires an extensive amount of writing, including lengthy reports that initiate coverage on new companies, periodic updates (quarterly results), and special notes. These reports have to be published at a certain schedule, so that the team can keep up with all the companies in their coverage universe.

Another important aspect of the job is forecasting quarterly data. This requires a combination of top-down and bottom-up techniques, which analyze the industry first, then work down to revenue.

For example, if a company is in the mining industry, it would first look at its market size, growth rates, and competition, then determine its pricing, and finally forecast its revenue. This method allows the analyst to find potential companies that are undervalued or overvalued, depending on how the valuation is calculated.

As with any profession in capital markets, equity research is a people-facing and network-dependent career. It can be a very gratifying and exciting career, but it requires exceptional knowledge of corporate finance and capital markets.

Sales & Trading

Sales & trading is one of the most lucrative and dynamic divisions in an investment bank. It involves pitching clients for buying or selling securities such as stocks, bonds and derivatives. Traders in this division buy and sell these financial instruments on behalf of clients such as hedge funds, asset managers and pension funds.

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The primary goal of sales people is to convince outside investors that the investment firm they work for offers superior trading services. This is why it’s important for them to have an understanding of the capital markets, and they need to know how to use market information.

Another way that traders earn money is by acting as agents for the client’s trades. This is done by submitting the client’s trade orders to the exchange (stocks, futures or certain derivatives). Agency trades are generally considered as the least risky types of trades.

In addition, it is a great way for traders to learn about the different market structures and how they work. This is a critical skill that they will need for other areas of their careers such as equity research or in a hedge fund.

Managing directors in sales and trading are responsible for ensuring that the clients they represent have access to the best possible services. Their duties include meeting with clients and helping them develop their investment strategies. They also provide support during deal negotiations and closing.

Both sales and trading in investment banking offer tremendous income potential, but both require a high level of effort to succeed. These professionals usually work long hours that go well beyond market trading times, and they may need to spend a lot of time searching for new potential investors. This is because many of these investors have busy professional lives during the day, and they may not be able to attend regular meetings with sales and trading employees.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.