Investment banking consists of providing advisory and management services for large and complex financial transactions and providing services related to the creation of capital for companies, organizations or governments. Two of the main activities of investment banks are underwriting debt financing and issuing equity securities, such as in an initial public offering (IPO), and advising and facilitating mergers and acquisitions (M&A) for companies. businesses, including leveraged buyouts.
In addition, investment banks provide assistance in the sale of securities and placement of shares, as well as in the management of investment and brokerage operations for corporate clients, sovereign entities or high net worth individuals (HNWI ). Investment banks are also the primary advisers, planners and managers for corporate restructuring or reorganization, such as the management of divestitures.
Typical divisions within investment banks include industry hedging groups and financial product groups. Sector Coverage Groups are established to have distinct groups within the bank, each with broad expertise in specific industries or market sectors, such as technology or healthcare. These groups develop client relationships with companies from various sectors to bring financing, equity issues or mergers and acquisitions to the bank.
An investment banking product groups focus on specific investment banking financial products, such as IPOs, mergers and acquisitions, corporate restructurings, and various types of financing. There may be separate product groups that specialize in asset finance, leasing, leveraged finance, and government finance. Product groups can be further organized according to their main activities or products. Thus, an investment bank may have product groups designated as equity capital markets, debt capital, mergers and acquisitions, sales and exchanges, asset management, and equity research.
Companies active in the investment banking industry are generally classified into three categories: high growth banks, middle market banks and boutique banks. Boutique banks are often divided into regional boutiques and elite boutique banks. Elite store-banks sometimes have more in common with bulge-bracket type banks than with regional stores. The classification of investment banks is mainly based on size; however, “size” can be a relative term in this context and can refer to the size of the bank in terms of the number of employees or offices, or the average size of M&A transactions processed by the bank. .
Regional boutique banks
The smallest investment banks, both in terms of company size and typical transaction size, are the banks called regional banks. Regional stores generally only have a handful to a few dozen employees. Due to the small size of most regional stores, they usually do not offer all the services offered by large-scale investment banks and may simply specialize in one area, such as M&A management in a particular market sector.
As the classification indicates, these banks have offices or operations that are limited or at least concentrated in a specific region of the country. Bank offices can even be limited to a single city. An example would be a Texas-based investment bank with a single office and fewer than 20 employees that strictly manages M&A transactions for companies in the oil and gas industry. Regional stores may have customers that include large companies headquartered in their region, but they more typically serve smaller businesses and organizations. They are unlikely to be involved in working with governments other than on a local or state basis. They also typically handle smaller M&A deals, in the range of $ 50 million to $ 100 million or less.
Elite Boutique Banks
Elite investment banks are generally very different from regional boutiques. Elite shops are more like big banks when it comes to the dollar value of the transactions they handle, which often exceed $ 1 billion, although they can handle smaller transactions as well. Elite stores are again more like bulge support banks in that they typically have a significant national and international presence, operating dozens of offices in multiple countries. However, they usually still don’t have the kind of global presence of a large investment bank like JPMorgan Chase & Co. (JPM).
Elite stores often resemble regional stores in that they typically do not provide a full range of investment banking services and may limit their operations to handling M&A issues. They are more likely than the regional ones to offer restructuring or asset management services.
Most elite boutique banks start out as regional boutiques and then gradually evolve into elite status by handling increasingly large successions of transactions for more prestigious clients. Some elite boutiques, such as Qatalyst Partners, are achieving rapid status in large part thanks to the investment banking reputation of the founders of the company. Examples of well-known elite investment banks are Lazard LLC, Evercore Group LLC, and Moelis & Company.
Middle market banks
Middle market investment banks are usually what the designation implies. They strike a balance between small regional investment banks and massive investment banks. Mid-market banks typically work on transactions that start around the regional level and reach near the upper-tranche level, typically ranging from around $ 50 million to around $ 500 million or more. Intermediate markets are generally also in the middle in terms of geographic reach, having a significantly larger presence than regional stores, but below the multinational reach of high growth banks.
Unlike boutique banks, middle market firms generally offer the same full range of investment banking services as large-scale banks, including equity and debt capital markets services, a full range of investment banking services. financing and asset management services, mergers and acquisitions and restructuring transactions. Some intermediary banks resemble regional shops in that they specialize in providing services to a particular industry or sector. For example, one of the most recognized middle market investment banks is KBW, an investment bank specializing in working with companies in the financial services industry. Some of the more well-known mid-market companies are Piper Sandler Companies, Cowen Group, and Houlihan Lokey.
Bulge Support Banks
Top-tier banks are the major international investment banks with easily recognizable names such as Goldman Sachs, Deutsche Bank, Credit Suisse Group AG, Morgan Stanley, and Bank of America. Top-tier companies are the most important in terms of the number of offices and employees, but also in terms of processing the largest transactions and the largest corporate clients. The overwhelming majority of clients are Fortune 500 or even Fortune 100 companies. High growth investment banks routinely deal with multi-billion dollar M&A deals, though, depending on condition economy or individual customer, a high-growth bank can sometimes manage transactions worth a few hundred million.
Each of the top-tier banks operates internationally and has a large global and national presence. Large investment banks provide their clients with a full range of investment banking services, including trading, all types of financing, asset management services, equity research and issuance, and the bread and butter of investment banking, merger and acquisition services. Most high growth banks also have commercial and retail banking divisions and generate additional income by cross-selling financial products.
One notable change after the financial crisis in the investment banking market is the number of high net worth and Fortune 500 clients who have chosen to retain the services of elite investment banking firms rather than the hottest firms.
Work in investment banking
Those interested in working in investment banking should think specifically about the type of work they wish to do before deciding to apply to a particular investment bank. Keep in mind that not all boutique banks offer all the services of mid-market and upper-end companies. So, for example, if you are primarily interested in working in a trading desk, only large companies are likely to offer this opportunity. However, if you are interested in managing M&A transactions, smaller banks generally offer a faster career path to directly manage such transactions.
Compensation for investment banks may not vary much between working for one of the largest high growth banks and working for a small elite bank. While large banks usually handle larger transactions, these transactions are few and far between smaller transactions. Additionally, smaller investment banking firms do not have the massive overhead costs of high growth banks and, as a result, typically run larger profit margins from which to reward employees. From the perspective of future career opportunities, experience in one of the leading Bulge Media Banks is usually the best on a CV, simply because of name recognition.