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Investment banking is an exciting career option for MBA graduates. Learn how to prepare yourself for the technical as well as not so technical aspects of this career, including forex.
Gain a clearer understanding of the market, and the deals that are taking place through tools and data that are centered on workflows to support your DCM workflow. Discover new opportunities to accelerate deal flow.
Investment Banking
Investment banking is an important service that assists large companies, organizations and governments with their investment plans. It includes underwriting new securities, assisting in sales of securities, and helping to arrange for mergers and acquisitions (M&A). It is usually a division within a large financial institution but can also be a separate business unit.
Investment banks assist companies in raising capital through the issuance of stocks or bonds. They help maximize revenue, price the offerings correctly and navigate regulations. Investment bankers also act as intermediaries when a company is selling shares to the public through an initial public offering (IPO).
Research is one of the most important functions of investment banks. The research department reviews and evaluates companies and their prospects. It then publishes reports that include buy, hold, or sell recommendations. The reports help the firm’s sales and trading groups make informed trades on behalf of clients. This generates income for the bank.
Investment banks provide debt and equity research in addition to the stock market. This research covers industries, sectors and individual companies to provide a global perspective to clients.
Regulatory changes and shifting market dynamics are forcing investment banks to shed non-critical services and redesign their operational platforms. They need to prioritize client-centricity, disruptive technologies, and workforce and workplace evolution, while leveraging data and analytics to deliver differentiated insight and added value.
Investment banks require a robust platform in order to create and manage complex financial models, and to perform complex analyses. They must also have a deep understanding of their clients’ short- and long-term goals, industry dynamics, and global markets to make sound recommendations.
A successful investment banking company requires leadership that is exemplary at the top. Hiring the right executive is crucial to the growth and success your business.
Mergers & Acquisitions
Mergers and Acquisitions (M&As) are transactions where the ownership of an organization or company is transferred to another. A company can buy and absorb another business entity or make a tender for its stock. M&A, or mergers and acquisitions, is a major part of corporate finance. It is also the domain of expertise for investment banking.
Most M&A deals involve a larger company purchasing and absorbing a smaller firm. The goal is to create synergies by combining the resources and capabilities of two companies into a stronger, more competitive, bigger business. Common rationales include achieving economies of size, gaining access to new markets or clients, increasing market share, improving product quality and innovation, or gaining access to more customers.
The term M&A also refers to the process of valuing a target firm. The valuation methods include discounted cash flow analysis (DCA), comparable company analysis (CCA) and capital expenditure analysis. Valuation is critical to M&A because the acquiring firm must pay a fair price for the target. A deal that is not in the best interest of both firms’ shareholders will be the result of a bad valuation.
A common M&A tactic is to acquire a public shell firm, which has few or no assets and thus is worth very little. In this type of transaction, a private firm with a promising future gains management control of the shell firm in exchange for a small amount of its own stock. This is a type of reverse takeover, and is very popular with entrepreneurs who want their companies to be listed publicly quickly.
There are numerous challenges and disruptions impacting the global investment banking industry, notably falling equity prices, liquidity stress, evolving financial regulations, client democratization, pricing pressure, remote working arrangements and technology advances. These forces are forcing the investment banking industry to move towards a bifurcation into two broker archetypes – client capturers or flow players.
Debt Capital Markets
The debt capital market is where companies can sell bonds to raise money. These funds are used to fund acquisitions or projects. The investors, which are typically other companies or governments, earn interest on their investment for a fixed period of time. In the world of investment banking, debt securities are considered to be a lower-risk form of investing than equity markets.
The DCM divisions of investment banks facilitate the creation and sale of these tradable debt securities. Like their counterparts in the Equity Capital Markets (ECM) group, they work with a variety of clients and industry verticals to create the right financing solution for them. Because of this, DCM teams tend to have a hybrid nature that is somewhere between sales & trading and investment banking.
DCM teams have strict controls in order to prevent the exchange of private information which could potentially affect stock prices. This is known as Price Sensitive Information (PSI) and must be handled carefully in order to avoid violating regulations. DCM groups at investment bank are known to do this in order to keep regulators happy.
Equity Capital Markets
The equity capital markets are a network of financial channels and institutions that assist businesses in raising funds by issuing share. This involves issuing new shares to grow the business or existing shares are sold via marketed equity offerings (MEOs), private placements and second trading. ECM teams can also be involved in issuing debt-linked securities such as convertible bonds.
Unlike the debt capital markets teams, which often focus on execution and book building, ECM teams typically focus on origination and providing advice to clients. They will also provide indicative numbers on pricing and timing, as well as how the market might react to future issuances. Origination teams are also split into industry verticals such as oil & gas or healthcare to allow them to target specific investors.
An IPO is when a privately held company offers its shares publicly on stock exchanges for the first time. This creates a foundation of liquidity for the firm and can be used to repay debt, make acquisitions or remove working capital constraints. It’s a major event for a public company, and ECM professionals need to prepare well.
ECM groups are heavily involved in maintaining relationships with clients, and executing current mandates. Junior-level employees are usually more focused on execution, while senior employees spend most of their time on creation.
ECM groups are in a great position to take advantage of the economic recovery by bringing deals to the market. They can do this through a variety of methods including accelerated placements, convertible bonds and scrip dividends.
Research is a well-known role in investment banking and one of the most exciting for new graduates. It’s where you get to tell a story about companies and help them raise capital from their peers. Analysts will usually focus on a few industries, such as technology or healthcare.
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