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Equity & Bonds :

Increasing the level of debt in a firm's capital structure presents many benefits. Most
importantly, since interest payments are tax deductible debt is considered the
cheaper form of financing (you should commit this to memory). Issuing bonds has
further advantages in that the equity positions of current shareholders does not
become diluted and because debt holders have first dibs on the firm's assets in case
of bankruptcy. This is also why bondholders require a smaller return on their
2. Investments banking and commercial banking differs in a few ways. The
investment banking does not involve any deposits. There are a few other minor
differences but this is the major difference between these two types of banking.
3. Types of Investment Banking:
Investment banking has two main branches. One of them involves the exchange of
securities with cash. Securities may also be exchanged with securities. This branch
may also involve promoting some securities. The other branch mainly works with
different kinds of funds, pension, hedge, mutual etc. these two are the sell and buy
sides of the investment banking. Some investment banks specialises in the buying
side while others specialise in the selling side. Some firms specialises in both the
components of investment banking.
4. Core or traditional investment banking, which can be further broken down into:
(a) underwriting services, which consist in assisting rms raising capital on
nancial markets and (b) advisory services, which consist in assisting rms in
transactions such as mergers, acquisitions, debt restructuring, etc
5. Trading and brokerage: it consists in purchasing and selling securities by using
the banks money (proprietary trading) or on behalf of clients (brokerage).
5. Asset management: it is a very heterogeneous area itself. Generally speaking, it
consists in managing investors money. It can be broken down into two main
categories: (a) traditional asset management (i.e., open end mutual funds) and
(b) alternative asset management, which includes real estate funds, hedge funds,
private equity funds, and any other vehicle investing in alternative asset classes
These services are labeled underwriting because investment banks actually
purchase securities from the issuer and then resale them to the market.
The role of the investment bank itself is strictly related to the price-setting
On average bonds are much easier to price relative to equity. One of the reasons explaining why
bonds are easier to price relative tostocks is related to credit ratings, which are opinions about the
creditworthiness of a rm (or its debt securities) expressed by independent and reputed agencies.
In a M&A deal, for example, they collect and process information about the companies involved in
the transaction, provide an opinion about the price payable, suggest the best way to structure the
deal, assist their clients in the negotiations, etc.

One plus one makes three: this equation is the special alchemy of a merger or
anacquisition. The key principle behind buying a company is to create shareholder
value over and above that of the sum of the two companies. Two companies
together are more valuable than two separate companies - at least, that's the
reasoning behind M&A.
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new
owner, the purchase is called an acquisition. From a legal point of view, the target
company ceases to exist, the buyer "swallows" the business and the buyer's stock
continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about
the same size, agree to go forward as a single new company rather than remain
separately owned and operated. This kind of action is more precisely referred to as
a "merger of equals." Both companies' stocks are surrendered and new company
stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased
to exist when the two firms merged, and a new company, DaimlerChrysler, was

Private Equity :
Within the private equity industry it is possible to classify two main areas: (a)venture capital (VC)
and (b) buy-out.The key feature dening VC is expected rapid internal growth of the backed
companies: that is proceeds are used to build new business, not to acquire existing business. The
VC industry can be further broken down into: (a) early-stage, (b) expansion-stage, and (c) late-stage