Investment Banking

What is Investment Banking?

The term 'Investment Banking' is often heard, especially among those interested in pursuing a career on Wall Street. But what does it actually mean to be an Investment Banker?

Investment Bankers are essentially financial advisors. Their clients can be companies (both private and public companies), governments, or institutions (including Private Equity firms and institutional firms that manage other people's money). The job of an Investment Banker typically covers two key areas:

Mergers & Acquisitions (M&A): Assisting and advising companies in the structuring and negotiation of a merger or acquisition. Banks use their extensive network to find opportunities and help negotiate on their client's behalf. Bankers can advise on both sides of M&A transactions, representing either the company doing the acquiring (the 'buy-side') or the company being sold (the 'sell-side').

Underwriting: Raising capital through selling stocks or bonds to investors on behalf of corporations or other entities (e.g. an Initial Public Offering). Businesses need money to operate and bankers serve as intermediaries between investors who have money to invest and corporations. They raise money by marketing the company to investors.

Investment Banking Key Responsibilities & Skills

Financial modeling: Building financial models, such as a Discounted Cash Flow Analysis to evaluate different business ventures
Pitchbooks and Presentations: Building pitchbooks and PowerPoint presentations from scratch to pitch ideas to prospective clients and win new business
Analytical Thinking: Presenting detailed analyses of companies and investment plans to clients
Relationship-management: Maintaining strong relationships with existing clients by making sure they are satisfied with the services being provided
Communication: Presenting ideas, data, and analyses clearly and concisely
Negotiation: Assisting in the negotiation process between buyers and sellers in a transaction in order to help clients maximize value creation

Who are the Main Players in Investment Banking?

There are two types of Investment Banks: Bulge Brackets, which are large, multi-national investment banks that cover most, if not all, industries and provide majority of all Investment Banking services, and Boutiques, which gained legitimacy during and after the financial crisis and mostly offer only advisory services. Some Boutiques specialize in a particular deal type (also called 'product'), such as M&A or Restructuring (helping a company make significant changes to its financial or operational structure, typically because it is under financial distress), while others specialize in a particular industry group, such as Technology or Healthcare.