Years after the global financial crisis the banking industry has once again become the most sought after career amongst graduates all over the world. In particular is investment banking, which is considered one of the most demanding and rewarding industries in the financial services domain. Investment banking is itself a very broad term; many people think that investment banking is only restricted to mergers and acquisitions but there is much more involved. Here are the various dimensions of investment banking.
Project Finance – Investment banks help companies finance their projects and capex plans. This is known as project financing which forms a major operation of any investment bank in the Asian market. The bank can also arrange funds for financing the acquisition of new assets or machinery, also known as equipment financing.
Fund Raising – Investment banks also assist in fund raising for companies and non-banking financial institutions (NBFC). This is done through primary and secondary markets by the way of IPO (also known as merchant banking). The banks act as underwriters in case any issues go unsubscribed.
Private Equity – Ultimately, this is equity raised privately. Sometimes a company is too small to go for an IPO and wants to raise equity through private routes which is most commonly seen in the case of start-up firms. Different venture capitals and fund houses invest in private equity deals, with the bank acting as an intermediary.
Debt Syndication – Sometimes when there are large amount of money involved in raising capital it is not possible for a single investment bank to arrange credit facility. In this case one or more investment banks come into play and join hands to raise a larger amount of debt, also known as consortium.
Structured Finance – These are hybrid finance products similar to Collateral Debt Obligations (CDO). Structured finance generally deals by big and multinational investment banks to finance any activity through non-traditional debt products which contain characteristics of one of more debt instruments.
Cross-Border Transactions – Many big investment banks who have exposure to international and offshore banking units assist large corporates in cross border transactions. This involves one party which is situated beyond the territorial limits of the country. It can be a deal of external borrowing, an acquisition of a company which is looking to expand beyond its local limits, or any other offshore deals.
Mergers & Acquisitions – M&A is booming and hot these days and is one of the major advisory services that a bank provides to its clients. A merger is two companies coming together to reach a common goal. Acquisitions are done to acquire an existing business unit in order to expand a company globally or into different territories. Investment banks advise clients and look for potential buyers and sellers in assisting an M&A deal.
Management Buyouts – Investment banks also help their clients in management buyout deals in which the management of a company becomes the owner. Investment banks ultimately assist the management in buying out the company. Banks play a hands-on role in these deals which is very seldom prevalent in the industry and are rarely seen and experienced.
Fair Opinion – Sometimes banks also help other companies who are already liaising with their lead bank on a particular deal but want a third party opinion. Investment banks, or financial services institutions, provide fair opinions to the company on whether the deal is expensive or cheap, and what is the right price to buy a particular firm or an asset.