IB 101

What is investment banking?

Investment banking is one of the most well-known industries within financial services among students looking to break into finance. To understand what an IB firm does, think of them as real estate brokers for companies. They help companies with strategy and capital advisory, including buying or selling stakes in other companies and raising funds through equity or debt. IB firms earn the bulk of their fees by getting a share of the deal amount (could vary from 0.5% to 3% depending on deal size and complexity). Fee is generally subject to successful deal closure and the company meeting its objectives.

Types of IB mandates

Sell-side mandates

What are IB firms selling? – Equity in the client’s business. It could either be by way of sale to the public markets or private players (think PE firms). They could also be advising companies on merger with existing players or acquisition of the client company by another player. To summarise, sell side mandates could include the following–

• IPO mandate for raising primary capital in the business or secondary exit to existing shareholders by offering shares for sale to the public
• Debt raise from capital markets – Offering debt instrument to large institutions or retail public
• M&A mandate – Strategic sale to another player in the market (more common when promoters are seeking a full exit from the business) either by way of acquisition by another company or through a merger with another company
• Fundraise – Mandate seeking financial investors who will provide fresh equity to fuel growth. Typical investors would include private equity funds or large family offices.

Buy-side mandates

What are IB firms helping companies buy? – The clients of the firm are seeking to buy equity (partial or complete) in other businesses in India or abroad. The IB firm will advise their clients on potential targets that can be considered and also help on ascertaining valuation and negotiating deal terms.