An Overview of Investment Banking

Investment banking is a particular banking division that deals with processes involving the creation of capital for governments, companies, and other entities. It is a special banking segment that aims to assist both individuals and organizations in providing financial and consultancy services. Activities within the investment banking sector include underwriting equity securities and new debt for different corporation types. This process helps in the swift sale of securities, facilitating mergers and reorganizations, and ultimately broker business dealings between private entities and organizations.

Investment banks conduct processes related to investment banking. Investment banks and the Investment Banking Division (IBD) of a bank are often seen as the same concept, but they are different. A standard investment bank offers diverse services such as sales and trading, asset management, retail banking, and commercial banking. On the other hand, the Investment Banking Division of a bank only provides mergers and acquisitions (M&A) and underwriting.

Underwriting is an investment process involving banks’ capital for clients (corporations and organizations). The capital is usually obtained from investors in debt securities and equity. Underwriting advisory services have three specific phases, which include planning, assessing the timing, issue structure, and demand for the issue.

The first stage, planning, involves the identification of investor themes and getting an insight into the investor’s demands. The second stage, timing, and demand involve the cognizance of specific factors such as current market condition, investor experience, current newsflow, and others. The third stage, issue structure, involves making decisions relating to the structure of an offering.

Mergers and Acquisitions (M&A) is a key term under investment banking. Bankers involved in the M&A, investment banking sector offer financial advice to companies on selling to buyers, acquiring small businesses (targets), and selling or acquiring certain assets or divisions from other organizations. Sell-side M&A deals and buy-side M&A deals are two main groups within M&A. The first category, sell-side deals, involves the provision of advice to companies that want to sell their entire company or only one branch. On the other hand, buy-side deals entail investment bankers advising companies that want to buy or get another division, asset, or company.

As stated earlier, investment bankers have three main clients: governments, corporations, and institutions. Investment banks help the government raise funds, trade stocks, and deal with transactions related to the purchasing and sale of crown corporations.

Investment bankers also support private and public corporations by publicizing them (IPOs) to source additional capital, which helps in expanding businesses. They also help make acquisitions, sell business divisions, investigate financial processes related to such organizations, and provide general financial advice.

Lastly, investment banks work with other institutional investors who handles money to help in commercial dealings related to securities and offer research services. Investment banks also aid private equity firms in acquiring portfolio companies and selling such positions to strategic buyers or through IPOs.

To work in the investment banking sector, one needs to learn specific skills such as business valuation, which involves using several evaluation methods such as precedent transactions. Another important skill to learn is relationship management, which involves working closely with customers to ensure a successful wrap-up of a business deal.

Jerry Cain — Experienced Managing Director at Slate Asset Management