ORIENTAL INSTITUTE OF

MANAGEMENT

INVESTMENT
BANKING
PROGRESS REPORT FOR FINAL
PROJECT

SUBMITTED BY:
PRATIK SHAH
MMS 2 – FINANCE / DIV – A
ROLL # 8149
15 January, 2010
 Investment Banking

Introduction:
'Investment Banking' as term suggests, is concerned with the primary function of
assisting the capital market in its function of capital intermediation, i.e., the movement
of financial resources from those who have them (the Investors), to those who need to
make use of them for generating GDP (the Issuers). Banking and financial institution
on the one hand and the capital market on the other are the two broad platforms of
institutional that investment for capital flows in economy. Therefore, it could be
inferred that investment banks are those institutions that are counterparts of banks in
the capital markets in the function of intermediation in the resource allocation.
Nevertheless, it would be unfair to conclude so, as that would confine investment
banking to very narrow sphere of its activities in the modem world of high finance.
Over the decades, backed by evolution and also fuelled by recent technologies
developments, an investment banking has transformed repeatedly to suit the needs of
the finance community and thus become one of the most vibrant and exciting segment
of financial services. Investment bankers have always enjoyed celebrity status, but at
times, they have paid the price for the price for excessive flamboyance as well.

Investment banks help companies, governments, and their agencies to raise money
by issuing and selling securities in the primary market. They assist public and private
corporations in raising funds in the capital markets (both equity and debt), as well as
in providing strategic advisory services for mergers acquisitions and other types of
financial transactions.

Meaning and Definition

What is Investment Banking?

It Provides strategic, financial and valuation advisory

services
– Use industry knowledge, expertise and contacts to advise senior
executives and boards of directors
– Identify and assess strategic opportunities
– Interpret market information and enhance shareholder value
– Provide general valuation services (e.g., segment analysis, break-
up valuations, fairness opinions)

Raise capital through the issuance of securities

– Act as intermediary between issuers and investors
– Provide access to equity and fixed income capital (e.g.,
investment grade, bank, high yield, preferred stock)
– Create specialized securities and derivatives (e.g., convertibles, trust
preferred securities, warrants)

Advise companies in merger &acquisition and restructuring

transactions
– Sell-side assignments (represent client in the sale of its company
or some of its assets)
– Buy-side assignments (represent potential acquirers and
negotiate transactions)
– Hostile take-over defense/advisory

Offer specialized products and services that satisfy the needs of

corporate and government clients
– Private equity (e.g., Merchant Banking, Real Estate, Venture
Capital, other)
– Privatization
– Monetization

Reasons to Consider a Career in Investment Banking

– Develop wide range of skills (finance, strategy, marketing, etc.)

– Team and project management
– Interact with senior management
– Deal directly with CEO/CFO and senior management
– Transactions undertaken are often high profile, company altering events
– Work with highly talented peers
– Learn from those around you
– Able to take on responsibility early
– Steep learning curve
– Industry expertise or breadth of knowledge across industries
– Can specialize in an industry (e.g., Industrials, Technology, Healthcare, etc.) or a
product group (e.g., M&A, Leveraged Finance or High Yield, Debt Capital
Markets, Equity Capital Markets, etc.) that covers many industries.
– Long-term growth in industry expected to continue
– Breadth of different types of transactions and experiences

Career Comparisons

Investment Banking vs. Sales, Trading & Research

–More team and project-oriented, longer-term assignments
–More strategic rather than market-oriented
–More exposure to valuation, accounting, tax and corporate finance
issues
Investment Banking vs. Consulting

Like consultants, investment bankers provide strategic advice

to their clients
For example,
– Investment bankers advise clients on how to survive in a changing industry
– Optimize operating and stock price performance by divesting non-core business
units
– Capitalize on synergies or unrecognized value by acquiring other companies or
assets However, unlike consultants, investment bankers also provide financial
advice to their clients
– Investment bankers present their clients with alternatives to reduce the client’s cost
of capital or to help the client obtain a stronger balance sheet.

In simple terms, investment bankers efficiently match capital providers with

capital users while transactions are conceived at a “strategic” level, execution
requires detailed analysis and a thorough understanding of the financial,
accounting and tax profile of the client More immediate, visible results to your
advice – transactions executed in shorter time period and the “market” provides an
immediate opinion on your advice.
Industry Coverage

– Preparation of presentations (e.g., new business pitches, board

books)
– Comparable company /transactions analysis
– Create company profiles
– Perform industry research

Equity /Debt /Convertible Offerings

– Assemble marketing materials to win the mandate, perform

initial valuation work

– Conduct due diligence through site visits, interviews and

extensive industry research

– Draft prospectus with company management, lawyers and

accountants

– Prepare documentation for internal commitment committee

process

– Produce marketing materials for the company’s management

team to present to investors to sell the transaction

– Develop a target of likely investors and coordinate sales effort

with capital markets and sales force

– Perform final valuation work, price the offering

M&A

Valuation analysis
–Comparable company / transactions analysis
–Discounted cash flow
–LBO analysis
–Sum-of-the-parts

– Prepare marketing /presentation materials (e.g., teasers,

information memos, board books, committee memos)

– Attend management presentations / negotiate transaction

terms
 – Conduct / host due diligence sessions

– Draft /edit legal documents (e.g., exclusivity, fairness opinions,

engagement letters, purchase agreements)

– Work with product specialists (e.g., leveraged finance) to refine

capital structure issues

Winning the Mandate

–Develop strategic analysis and rationale for acquisition

–Present a thorough analysis of potential acquisition candidates to
client
–Formulate financing and capital structure to support the
acquisition.
Functional Area of an Investment Bank

Capital Markets
– Sales, Trading & Research (Equity and Fixed Income)
– Distributes new (primary) security issues to institutional
investors/clients
– Transacts blocks of previously issued (secondary) securities
through private placement or negotiation
– Maintains markets for securities already distributed
– Provides research on securities, companies, industries and
economies

Investment Management Services

– Provides investment and financial advisory services

– Focuses on high net worth individuals and mid-sized institutional
investors

Investment Banking
– Provides strategic, financial and valuation advisory services
– Raises capital through the issuance of securities
– Advises companies in merger & acquisition and restructuring
transactions
– Offers specialized products and services to meet the needs of
corporate and government clients
Who needs an investment bank?

Any firm contemplating a significant transaction can benefit from the advice of an
investment bank. Although large corporations often have sophisticated finance and
corporate development, departments provide objectivity, a valuable contact network,
allow for efficient use of client personnel, and are vitally interested in seeing the
transaction close.
Most small to medium sized companies do not have a large in-house staff, and in a
financial transaction may be at a disadvantage versus larger competitors. A quality
investment banking firm can provide the services required to initiate and execute a
major transaction, thereby empowering small to medium sized companies with
financial and transaction experience without the addition of permanent overhead, an
investment bank provides objectivity, a valuable contact network, allows for efficient
use of client personnel, and is vitally interested in seeing the transaction close.

Types of Investment Banks

Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade
for their own accounts, make markets, and advise corporations on capital markets
activities such as mergers and acquisitions.
Merchant banks were traditionally banks, which engaged in trade financing. The
modem definition, however, refers to banks that provide capital to firms in the form of
shares rather than loans. Unlike Venture capital firms, they tend not to invest in new
companies.

Investment banks provide four primary types of services:

Raising capital, advising in mergers and acquisitions, executing securities sales and
trading, and performing general advisory services. Most of the major Wall Street
firms are active in each of these categories. Smaller investment banks may
specialize in two or three of these categories.

1. Raising Capital
An investment bank can assist a firm in raising funds to achieve a variety of
objectives, such as to acquire another company, reduce its debt load, expand existing
operations, or for specific project financing. Capital can include some combination of
debt, common equity, preferred equity, and hybrid securities such as convertible debt
or debt with warrants. Although many people associate raising capital with public
stock offerings, a great deal of capital is actually raised through private placements
with institutions, specialized investment funds, and private individuals. The
investment bank will work with the client to structure the transaction to meet specific
objectives while being attractive to investors.

2. Mergers and Acquisitions

Investment banks often represent firms in mergers, acquisitions, and divestitures.
Example projects include the acquisition of a specific firm, the sale ofa company or a
subsidiary of the company, and assistance in identifying, structuring, and executing a
merger or joint venture. In each case, the investment bank should provide a thorough
analysis of the entity bought or sold, as well as a valuation range and recommended
structure.

3. Sales and Trading

These services are primarily relevant only to publicly traded firms, or firms, which
plan to go public in the near future. Specific functions include making a market in a
stock, placing new offerings, and publishing research reports.

4. General Advisory Services:

Advisory services include assignments such as strategic planning, business
valuations, assisting in financial restructurings, and providing an opinion as to the
fairness of a proposed transaction.

Some of the World's Leading Investment Banks are as under.

 ABN AMRO Bank Of America Securities

Barclays Capital Citigroup

Cazenove Citigroup

Credit Suisse Deutsche Bank

Goldman Sachs JP Morgan Chase

Merrill Lynch Morgan Stanley

SG Cowen Societe Generale

UBS AG Wachovia Securities