Investment banking is an important part of the financial services industry that provides various business services to corporations, governments, and financial institutions. The major business services of investment banks include raising capital through underwriting equity and debt issuances, advising on mergers and acquisitions (M&A), facilitating corporate restructurings, market making, and providing ancillary services. Understanding the key business services of investment banks gives insights into their critical role in global financial markets and the economy.
In capital raising, investment banks help companies raise funds through initial public offerings (IPOs), follow-on offerings, and private placements of equity, debt and hybrid instruments. This allows companies to finance expansions, acquisitions, and other investments. Investment banks leverage their distribution networks and connections with institutional investors to ensure successful issuances.
For M&A transactions, investment banks provide financial advisory services, perform valuation analysis, negotiate terms, and structure deals on behalf of clients. Their expertise and deal execution capabilities are crucial for the high volume of global M&A activities. Investment banks also frequently advise on divestitures, spin-offs, joint ventures and other corporate restructuring activities.
Additionally, investment banks facilitate trading and market making in secondary markets for issued securities. Many also operate proprietary trading desks that trade on their own accounts. Investment banks produce equity research reports and ratings on public companies that are widely used by institutional investors. They provide prime brokerage services to hedge funds and help private equity firms raise capital and advise on deals.
In summary, business services like underwriting, M&A advisory, market making, and ancillary services are central to how investment banks function and generate revenues.
Underwriting and distribution are key investment banking business services
A primary business service of investment banks is underwriting the issuance of new securities for clients and distributing them to investors. This includes initial public offerings (IPOs) where private companies first list publicly, follow-on equity offerings by public companies raising additional capital, and debt issuances.
Investment banks leverage their extensive syndicate networks and connections with institutional investors like mutual funds, pension funds and insurance companies to market and distribute securities issuances. They provide access to capital markets that companies may not be able to access directly on their own.
Underwriting involves guaranteeing the sale of newly issued securities at a set price to the issuer. Investment banks put their capital at risk if securities fail to sell. They conduct due diligence on the issuer and perform valuation analysis to determine appropriate issue sizes and pricing.
Overall, the capital raising business lines generate substantial revenues for investment banks through underwriting fees and selling concessions. Equity underwriting produces higher margins compared to debt issuances. However, debt underwriting volumes are generally much higher.
Based on their strong distribution capabilities and capital commitment, investment banks are entrenched as the top underwriters for IPOs and follow-on equity and debt offerings globally.
M&A advisory is a key investment banking service driving deal activities
The mergers and acquisitions (M&A) advisory business is another major service line of investment banks. They offer financial advisory services to corporations and private equity firms on buying and selling businesses.
Investment banks help assess potential targets, perform valuation analysis, develop bidding strategies, negotiate terms, and structure transactions. Independent advisory mandates allow investment banks to give unbiased recommendations to advance client interests.
The investment banking M&A team leverages quantitative analysis as well as their extensive industry knowledge and relationships to identify potential synergies and navigate deals. They maintain close communication with clients throughout the process to provide insights and advice on options.
Successful execution of M&A deals relies heavily on the skills and reputation of advising investment banks. Their expertise and relationships generate significant repeat business and revenues from advisory fees based on deal sizes.
Globally, M&A activities drive hundreds of billions in deal value every year across all major industries. Leading investment banks like Goldman Sachs, Morgan Stanley and JPMorgan sit atop the rankings by M&A advisory deal volume.
Investment banking business services like underwriting, distribution, M&A advisory, market making, and research are critical to global capital markets and corporations.