Though the word ‘Investment Banker’, catches the fancy of many, however, many of us do not know what exactly does an investment banker do? Let’s simplify this with an example –
Company A wants to buy another company to help grow its sales. However, it does not know where to begin, or how much it should pay. What does it do? It approaches an Investment Banker and asks for help in shortlisting a suitable asset and arriving at an apt price. The Investment bankers run their numbers and tell A that they should buy B, and pay X amount for it. This is an example of ‘Mergers & Acquisition’ advisory, one of the key areas of work of an Investment Banker (I Banker), though of course, an Investment Banker has many other arenas to look into.
In layman terms, Investment Banking is a sort of financial consultancy, although of a very specialized type. Their roles and responsibilities encompass the following –
Investment Bankers mainly do two types of things:
1. Advise companies on mergers and acquisitions.
I Bankers help their clients to:
– identify potential targets
– provide valuations for the assets and help buy them at the best possible price;
– or in the case of selling, help find a suitable buyer at a great price
– evaluate the merger proposals
– seal the financial deal by helping them acquiring company to seek funds
– prepare valuation models
2. Advise companies on raising large amounts of capital. This could again be via two ways:
· raise money by issuing and selling the company’s shares. You may have heard of IPOs (Initial Public Offerings) and FOs (Follow On offerings. These are forms of raising money via the equity route
·raise money by issuing debt in the form of bonds or other similar interest bearing products
Apart from these popular functions of I Bankers, they also provide
3. Corporate Broking Services
Help their clients hedge risk with the help of complex derivative products and serve as country, industry or product (as in equity, debt or derivatives) experts to their clients.
4. Equity Research
Determine the attractiveness of an equity and accordingly guide the investors.
In short, their financial advisory services spans across risk management, research and assistance in asset management.