The term investment banking can be confusing, as it includes both capital raising and transaction advisory services for companies. Investment banking also includes mergers, acquisitions, and divestitures, as well as debt and equity issuances. Investment banks differ from other, traditional forms of retail banking. Retail banks work with individuals and small businesses and offer checking and savings accounts, loans, and mortgages. Investment banks, on the other hand, don’t directly lend to their clients.
Investment banks play important roles in M&A transactions. The tasks they perform vary based on whether they are on the side of the company’s seller or a potential buyer.
When investment banks are working on the sell-side, or representing the seller, their main responsibility is to use their industry knowledge to help their clients set realistic expectations and plan their market strategies. Investment banks need to have a great knowledge of current industry trends so they can plan the market entry timing perfectly.
Another way they contribute is by helping companies create an investment thesis, or a summary of the reasons why the company is a good investment. They may also create marketing materials for the group.
Investment banks are also responsible for identifying and reaching out to potential buyers, holding meetings, reviewing bids, and helping choose a buyer.
Investment banks’ tasks look different on the other side of the transaction. When they support the buy-side, these groups are more concerned with analyzing potential acquisitions and finding the perfect fit for their clients. They also create a bidding strategy and assist in developing the terms of purchase.
Investment banks also help the buyer determine and find the best type of financing. When the deal is ready to be completed, they help negotiate the final terms.
Responsibilities on both sides of the deal normally look the same no matter what the size or industry of the deal. The main variations occur between public and private deals. Usually, there is a smaller market for large, public deals as they are more difficult to finance. In middle-market deals, people tend to rely more heavily on their industry connections to test the market. Public deals learn more on financial information and company data that is publicly available from press releases and other public filings.