10 Key Concepts To Understands In Investment Banking
The global investment banking market is poised to cross $137 billion by 2025. For outsiders, investment banking can be glamorous as well as enigmatic. Being an investment banker is highly demanding, intensely competitive and extremely rewarding. You must be aware of different terms such as FX Structured Products, if you want to be a successful investment professional.
However, to have a deeper understanding of this space, we will explain ten key concepts:
Table of Contents
Investment banking tombstone
An investment banking tombstone is a customised memento that commemorates the closing of a deal. It’s highly coveted by investment banking professionals and often displayed in their offices. The higher the number of tombstones, the higher the number of transactions in which an investment banker has participated. However, when print media thrived, an investment banking tombstone was a bland advertisement used to announce a deal. These advertisements were published to fulfil regulatory requirements. An investment banking tombstone was made of simple black coloured text without any visual embellishments.
IPO (Initial Public Offering)
Companies often turn towards the public to raise finance through Initial Public Offering. Investment banks can help the companies come out with their IPO by preparing the prospectus and being the lead banker for the IPO. Such a role would include pitching the IPO to HNIs and private placement to ensure the IPO’s subscription.
Equity trading and analysis
Investment banks also indulge in equity trading for their clients, although the value of transactions is generally higher. Apart from trading, investment banks also provide buy-side and sell-side services to their clients to allow them to take advantage of their analytical skills.
Investment banking companies provide advisory services to their clients for various transactions and their execution. Such transactions could include essential services such as due diligence in various sectors, raising funds, intellectual property services, etc. Through their advisory services, investment banks allow their clients to take advantage of their expertise.
Multinational companies often indulge in transactions that are cross border and might last for more than a financial year. Such transactions often result in currency risk for the companies. Through the usage of derivatives, the risk can be mitigated or transferred to other parties. Investment banks offer such hedging transactions to their clients and provide risk management services.
The raising of finance is often a tricky transaction for a company. Debt finance or equity finance requires various parties’ contribution to ensure that the necessary transaction goes through. To avoid embarrassment and to ensure that the necessary finance is raised, investment banks offer underwriting services. Underwriting ensures that if finance is not raised through the regular routes, the investment banks will provide the remaining balance.
Traditional banking services include standard services such as those provided by commercial banks, such as taking on deposits and providing loans to the consumers. Many investment banks also offer such services as part of their overall foray into the financial service sector.
Mergers and Acquisitions
M&A transactions are the main services often provided by Investment banking companies. Investment banks are involved from beginning to end in the M&A transactions, including bringing the parties together, due diligence, and negotiation of the transaction. Often investment banks are also involved in post-transaction transition services to ensure proper completion of the transaction.
One of the key points to any M&A transaction is the valuation at which the transaction is executed. The valuation would further result in the transfer of the consideration between the two parties to the deal. The structuring of the deal would often depend on such valuation. Since the companies would have various assets on their books, including intangible assets, the valuation plays a crucial role in completing any deal.
Bulge Bracket Banks
Bulge bracket banks are the top investment banks with the best investment banking tombstones to their name. The best investment banks of the world fall into this category based on the services provided and the transactions executed.
Investment banks have become a key component of the financial services industry. The rise in the number of transactions being conducted and the complication of the transactions has raised the importance of investment banks.