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.