Wed. Jun 7th, 2023

investment banking process

The Investment Banking Process

Investment bankers provide services that enable companies to raise capital through stock issuance. This process often proves more cost-effective than selling securities directly to investors.

Investment banking processes involve several functions, such as sales and trading, financial research and underwriting. Read on to gain more insight into each of these responsibilities and more!

Mergers & Acquisitions

Mergers and acquisitions (M&As) are an integral component of investment banking services, serving to find companies which will assist an existing one in expanding or strengthening operations. This involves finding suitable partners, negotiating an acceptable deal, and creating legal documents which facilitate successful transaction.

Investment banks typically collaborate with both buyers and sellers during the mergers & acquisitions (M&A) process, providing advice and expertise regarding which deals would best benefit each firm as well as managing any regulatory issues that may arise during this process.

Due diligence involves reviewing a target’s financial information, examining historical and projected results, identifying any synergies or potential synergies and assessing operations to assess whether entering into an agreement would benefit both parties involved. This process typically is undertaken by a dedicated team of bankers.

The team will make recommendations to their client about how and what to expect from the merger, as well as providing guidance for financing it.

An established company may wish to acquire a smaller firm in order to break into new markets, such as cancer treatment. An investment bank’s knowledge can assist them in making the correct choice; as they possess industry and product insight that could narrow their search for potential partners.

One reason a company might hire an investment banker is for planning to go public or sell shares of their stock. This requires more in-depth buyer-seller negotiations and valuation processes involving more complex deals; generally speaking, more information will be required regarding corporate strategy, financial performance and regulatory matters from an investment banker in these instances.

IPOs are another source of revenue for investment banks, with the former often providing greater returns than boutique or middle market firms. While an IPO may prove profitable for larger banks such as Moelis & Company, boutique firms and middle market firms often see less return from it.

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Equity & Debt Raising

When companies require additional capital, they turn to investment bankers for assistance in raising it. Investment bankers evaluate the company, underwrite new securities, and then sell them off to potential investors.

Financial analysts evaluate a company’s financial statements and operating performance, which are vital elements in raising debt or equity funding. Furthermore, they assess if it can afford issuing the amount of debt it needs – if so, by how much.

Once a company has raised sufficient capital, they can use it for expansion or acquisitions of other companies to expand their business. Investment banking firms work alongside the company management in taking all the necessary steps to maximize growth potential while decreasing risk.

Investment bankers also conduct thorough market analyses to identify companies with competitive advantages that may be acquired or merged by other firms, helping clients make attractive offers to acquire those firms.

Bankers help their client prepare an offering memorandum and offer documents compliant with securities laws that provide registered investors a full understanding of its operations and finances.

This step is critical as it ensures compliance with securities laws and ensures all investors are treated fairly. Furthermore, this reassures investors that cash flows will meet obligations while supporting expansion of the company.

Equity financing may be difficult to obtain, but it can be an excellent way of funding the growth of your company. Investors tend to favor companies with high growth potential that are still relatively unknown compared with established entities.

Equity financing comes with some drawbacks. One is that investors in your company own part of it and may attempt to exert influence over how it’s run; if this becomes unsuitable for any reason they can even remove you as leader if they no longer wish to participate.

Debt raising can be the more cost-effective and time-efficient option when raising smaller sums of money, while being significantly less risky for both investors and entrepreneurs.


Valuation is a critical aspect of investment banking. It helps analysts decide whether a company is worth buying or selling, as well as helping investors determine whether a stock is undervalued or overvalued.

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Analysts utilize valuation services for various purposes, including recruiting new investors, purchasing or inheriting companies and selling off assets or portions thereof. Although the valuation process is quantitative in nature, subjective inputs and assumptions may also play a part in producing results.

There are three primary approaches to valuing an asset or company: market valuation, discounted cash flow analysis and relative valuation. Each method produces different results and may be useful in different circumstances.

One of the key takeaways from valuation is that it isn’t an exact science; rather it is a subjective exercise which will reflect each analyst’s preconceptions about a company and their individual viewpoint on its future development.

As such, it is crucial for analysts to be cognizant of these elements prior to initiating the valuation process. Doing so allows them to either address any biases they bring into play or offer more objective perspectives about a company’s future development.

One key takeaway about valuation is that it can rapidly shift over time as new information or economic events force analysts to revise their models. Therefore, analysts must remain up-to-date with developments in their field and revise valuations accordingly.

Analysts typically rely on discounted cash flow models when valuing firms, which attempts to link future cashflows of a firm with an appropriate discount rate that varies based on various factors like risk level and expected growth in cashflows.


Consulting services provided through investment banking encompass a comprehensive set of activities designed to assist clients with making vital financial decisions, including helping companies raise capital, providing guidance on mergers and acquisitions transactions, as well as creating financial models to aid decision making processes.

Consulting services are typically hired to address specific problems or build strategies. In addition, these consultants offer training and mentoring so their clients can implement the strategies recommended.

These consultants may also assist companies that are searching for or have recently been acquired, by offering advice and setting fair prices for them. They may suggest ways to market and price your company appropriately.

Investment banking deals typically consist of two primary forms: competitive bids and negotiated transactions. Companies either issue blocks of their securities for sale to the highest bidder or negotiate directly with an investment banker to purchase it.

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As part of this process, an investment banker may charge the company an underwriting spread fee to cover their costs such as accountant fees and printing expenses associated with the transaction.

Initial Public Offering (IPO). Under an IPO deal, companies issue stock to the public through investment banks who then market those securities; the firm that sells these stocks receives a portion of the sales as compensation from this transaction.

Apart from their financial benefits, IPOs involve several other tasks that call on investment banker expertise – these could include finding an ideal target company, creating marketing materials for the IPO campaign and conducting investor outreach; concluding an accurate valuation for your IPO; or finding an investor.

An investment banker’s role in an effective initial public offering (IPO) involves working closely with company management and designing pitch deck and sale materials that will attract prospective investors. They may be asked to conduct an assessment based on current and past industry trends as well as conducting valuation of the business.

Investment banks typically employ teams of analysts that conduct industry-related research. Furthermore, many have dedicated trading desks that trade stocks and securities on behalf of clients. Analysts may specialize in specific sectors like technology or healthcare if desired. Analysts may also be trained in providing advice regarding credit risk mitigation, fixed income securities or macroeconomics as part of their duties.

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.