Investment Banking:

Merger Acquisition
Self Study

By: Ankit Bhatnagar

MBM -104

Investment Banking
An investment bank is a financial institution that

assists individuals, corporations and governments in

raising capital for companies and advising them on
financing and merger alternatives. Capital essentially
means money.
Companies need cash in order to grow and expand
their businesses; investment banks sell securities to
public investors in order to raise this cash. These
securities can come in the form of stocks or bonds.

The Top ten largest global investment banks

Rank
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Company
J.P. Morgan
Bank of America Merrill Lynch
Goldman Sachs
Morgan Stanley
Credit Suisse
Deutsche Bank
Citi Bank
Barclays Capital
UBS
BNP Paribas

Commercial Bank vs. Investment Bank

Commercial Bank
A commercial bank is licensed to take deposits

the funds that are paid into current (checking) and

deposit (savings) accounts by its customers.
To protect the funds of depositors. Another is to
safeguard the stability of the financial system,
which is vitally important for the economy as a
whole.
The commercial bank generates a profit by paying
depositors a lower interest rate than the bank
charges on loans.

Investment Bank
An investment bank does not have an inventory of

cash deposits to lend as a commercial bank does

An investment bank acts as an intermediary,
matching sellers of stocks and bonds with buyers of
stocks and bonds
If a company needs capital, it may get a loan from a
bank, or it may ask an investment bank to sell
equity or debt (stocks or bonds).
Investment-bank must spend considerable time
finding investors in order to obtain capital for its
client.

IB: Merger and Acquisitions

Acquisition

When a larger company takes over another

(smaller firm) and clearly becomes the new owner,

the purchase is typically called an acquisition.
In most cases the target company ceases to exist
post-transaction (from a legal point of view) and the
acquiring corporation swallows its business. The
stock of the acquiring company continues to be
traded.

IB: Merger and Acquisitions

Merger

A merger occurs when two companies, often roughly

of the same size, combine to create a new company.

Such a situation is often called a merger of equals.
Both companies stocks are tendered (or given up),
and new company stock is issued in its place. For
example, both Chrysler and Daimler-Benz ceased to
exist when their firms merged, and a new combined
company, DaimlerChrysler was created.

Merger & Acquisitions Advisory service

In Investment bank, Merger & Acquisition advising

can be highly profitable, and there are possibilities

for many types of transactions.
A small private companys owner/manager wishes to
sell out for cash and retire.
A big public firm aims to buy a competitor through a
stock swap.
Merger & Acquisition Advisors come directly from
the corporate finance departments of investment
banks.

Merger & Acquisitions advisory service

Unlike public offerings, merger transactions do not

directly involve salespeople, traders or research

analysts.
Research analysts in particular can play an
important role in blessing the merger. In
particular, Merger & Acquisition advisory falls onto
the laps of Merger & Acquisition specialists and fits
into one of either two buckets seller representation
or buyer representation (also called target
representation and acquirer representation).

Merger & Acquisitions Boom and Bust

Mergers and acquisitions advisory was, for most of

the late 1990s and early 2000s a leading source of

revenue for the global investment banking industry
In 2000 the worlds volume of Merger &
Acquisitions activity totalled almost $3.5 trillion
Business dipped in 2001, and in 2002 deal volume
was down to $1.2 trillion worldwide.

Merger & Acquisitions Boom and Bust

Market picked up in 2004 as a strong global

economy , low interest rates and thriving stock prices

raised confidence and spurred deal making
Merger & Acquisition activity was up to $2.7 trillion
by 2005, and both Europe and the US saw 30 to 40
per cent increases in volume.
Deals kept going through 2006, peaking in mid2007.

Merger & Acquisitions Boom and Bust

Notable feature of the mid-2000s Merger &

Acquisitions boom was the major part played by

financial purchasers, including some multibilliondollar deals.
The global recession that nearly destroyed banks in
2008 took a big toll on mergers and acquisitions
Without access to cheap, plentiful credit, potential
buyers were less likely to buy. Embattled companies
made less-attractive targets. And in a climate of no
confidence, few CEOs wanted to take on any
unnecessary risk. As a result, banks Merger &
Acquisitions revenues dwindled

Merger & Acquisitions Boom and Bust

The worlds Investment-bankers did just $2.6 billion

of Merger & Acquisitions business in the first three

months of 2009
The peak of $8 billion in the fourth quarter of 2007.
When the Market stables
65 acquisitions in 2011 valued in excess of $7.3
billion.

Last 5 Years Merger and acquisition data

Year

Acquisitions

Value in $ Billion

2011

65

7.3

2010

105

10.6

2009

52

17

2008

66

5.7

2007

58

19.9

2006

57

10.7

Year Vs Acquisition

Year Vs Value in $ Billion

Year Vs. Acquisition : $ Billion

65 acquisitions in 2011 valued of $7.3 Billion

Investment Banking : Merger and Acquisition

Q&A

Investment Banking : Merger and Acquisition

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