Understanding the
investment banking process
The investment banking process has been a crucial element in
the development of industry and commerce for hundreds of years
but it still remains a rather mysterious process to people
outside the leading investment banking houses and the largest
corporations who are continually involved in these
transactions.
The most visible segment of this process
is the actual investing of funds and the raising of capital but
these are really the final stages in the process; a great deal
of work has already been done before reaching the point of
share issuing and buying. Investment banks provide assistance
to their clients all along this long road leading to trading on
the stock market, corporate mergers and takeovers.
The investment banking process starts with analysis of a
business’s financial performance and operations. What can be
done to improve the state of a business challenged by a
succession of disappointing reports? Is now a good time to
raise funds to invest in the introduction of technological
improvements or perhaps a major competitor is ripe for
takeover?
In addition to examining the state of the company, external
market conditions need to be taken into account. Supposing that
selling off the company seems to be the best option in current
circumstance, investigation needs to be made into potential
buyers. The investment bank can make inquires to see if private
equity groups or maybe foreign investors might be interested in
this investment opportunity.
Subsequent steps in the investment banking process include
putting out tentative feelers to test interest in purchasing
this company or the possibilities of buying out a competitor —
whatever the case may be.
The next stages involve the initiating contacts with
investors or purchasers. Vital information needs to be
exchanged between the interested parties and written bids and
memorandums drawn up. The bank’s investment analysts help the
company managers make sense of the competing offers they might
receive and their advice and assistance can be crucial to
deciding between the various investment options under
discussion.
The final stages of closing the deal are frequently the most
difficult and tense ones to handle. Typically there are going
to be many additional requests for highly detailed information
on a company’s financial state and its future prospect. There
might be demands for renegotiating elements of the proposed
deal, in particular pressures for changes to the price
previously agreed upon. Legal issues also need to be fully
closed before the deal can be considered satisfactorily
concluded and everyone can breath a sigh of relief before
moving on to the next challenge.
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