Introduction to Investment Banking Activities

As financial institutions, investment banks provide assistance to companies that want to raise capital through securities. In addition, they offer a variety of services to corporations including guidance for mergers and acquisitions, stocks and bonds, venture capitals, private placements and so on. Below is a brief overview of the services provided by investment banks.

Mergers and Acquisitions (M&A)

Mergers and acquisitions are a major part of the corporate finance industry. Mergers and acquisitions involve bringing two separate companies together to form one larger company. These mergers or acquisitions are a result of a series of changes that take place for the companies in question. The goal of a merger or acquisition is to combine resources in order to provide better goods and services to consumers.

While mergers and acquisitions involve the sale and purchase of companies, the two are different. A merger involves two businesses joining together to become one larger company. In the case of a merger, both entities are equals in the planning and operating process. An acquisition, on the other hand, involves one company buying out another. This means that the operations of the company being purchased may not continue. Therefore, an acquisition may be a more hostile situation compared to a merger, where the companies all share a common goal.

Stocks and Bonds

Investment banks help corporations raise capital through securities such as stocks and bonds. Stocks are types of investments where the stock holder has a share in the company. Stocks fluctuate in quantity as well as value and can be bought, traded, and sold. Bonds on the other hand are debt securities issued by corporations or government agencies. Generally, the holder is entitled to repayment of the principal they have invested in the bonds plus the interest.

Venture Capital

Venture capital is private equity capital that comes from high net worth individuals and is handled by investment banks. Venture capitals are provided for high-risk and high growth companies. The investor in the company often expects a return on the money by selling shares in the company to the public or through the sale of the company. Venture capital investments come in three different types including early-stage financing, second-stage financing and third-stage financing.

Private Placements

A private placement is another method of raising capital and is handled by Investment Banks. Securities are sold to a small number of investors and are usually designated for high-net worth individuals. Investors are generally large banks, mutual funds, pension funds or insurance companies. Private placements include stocks, shares of common or preferred stock, or other types of membership interests.