The key responsibilities of investment bankers in M&As include acting as an intermediary between buyers and sellers. Investment banking firms typically offer end-to-end services to facilitate complex M&A transactions between middle market and large companies.
Investment banking firms have on board highly skilled professionals specializing in the many aspects of M&A deals. These professionals have the necessary certifications, licensing, and experience for the different steps leading up to the closing.
You can rely on their expertise to assist you with fair valuations and unbiased opinions, methodical due diligence, and aggressive negotiations. They also assist with structuring the deal, public offerings, technical support, raising capital, communicating with stakeholders, and financial services.
Both the sell side and buy side of M&A deals can enlist the support and advice of investment bankers. The M&A market in Q3 2023 witnessed transactions worth $473 billion across the world.
With global business expanding across borders and competition heating up, companies need to scale quickly to maintain their market presence. And, the one way to make that happen is to acquire new startups to expand their product portfolio. M&As also enable the growth of their clientele and acquiring IP.
Larger the M&A deals, the more complex they get, which is why dealmakers must rely on professional advice. Investment bankers provide valuable target representation from the seller’s side and acquirer representation from the buyer’s side.
Read ahead for an in-depth look at this massive industry and how it assists in the seamless execution of M&As.
The Ultimate Guide To Pitch Decks
Key Responsibilities of Investment Bankers in M&As
Although the key responsibilities of investment bankers in M&As include enabling the deal, they offer other services also. Buyers and sellers retain investment bankers to get the best value from their deals. Here’s how:
Compiling Data and Data Analysis
Companies enter into different kinds of mergers like vertical, horizontal, product extension, or market extension. However, the key to success is to gather detailed information and data that can help them make the right decisions.
Many firms provide clients with research and analysis of their business vertical and equity markets. Relevant and accurate data can help them identify the right companies for mergers and acquisitions.
Identifying Targets for Acquisition
Investment bankers assist dealmakers with drawing up a list of potential companies to acquire and enter into collaborations. Dealmakers can contact them for assistance with a specific acquisition they are considering.
Or get in touch with bankers for viable options for acquiring a company to achieve specific goals and objectives. For instance, building a market presence in new locations or verticals, purchasing IP, or for acquihires to gain skill sets.
Valuations for Viable Deals
The core expertise of investment bankers is efficient valuation for both public and private agencies. Deploying complex models, they evaluate the targeted company’s current and projected financials.
When companies have complex assets and liabilities, using basic tools like multiples of EBITDA may not be effective enough to arrive at accurate reports. That’s where expert analysts are needed.
Advising the management about any potential deviations from the current metrics is a part of their responsibilities. Rely on them to calculate both fixed and variable financial components that can influence the final value of the company.
Expert financial analysts may also factor in additional variables depending on various factors. These may include the location, local or cross-border, targeted markets, and business verticals.
Thus, investment bankers inform the seller about any better valuations and deals they can expect that are more viable than the offer on the table. As a result, they can get the best price for their company.
On the flip side, they advise buyers on the suitability of the purchase per their needs and expected synergies. Identifying potential arbitrage opportunities is another of the many services investment bankers provide.
For instance, a company’s market value or the value of the shares in the open market is lower than its actual worth. In that case, the banker will scout around for opportunities that bring the best value to the buyer and seller. That’s part of the key responsibilities of investment bankers in M&As.
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Enabling Transactions as Intermediaries
Investment bankers act as intermediaries by enabling the deal and ensuring complete transparency. They also assist with fair and unbiased negotiations so both sides arrive at mutually beneficial terms and conditions.
Investment bankers work with Corporate Development to connect with C-Suite executives and owners to initiate conversations about mutually beneficial transactions. Negotiations are not just about the pricing structure.
Dealmakers must address other nuances such as working out compensation for the management, structuring the deal, and getting stakeholder approvals. As in the case of cross-border M&A deals, buyers must also communicate with labor unions and answer their queries and concerns.
Assisting with Due Diligence
Investment bankers typically facilitate multiple M&A deals which is why they have experience. They know about the key issues to look for during the due diligence process. They have expert teams on board to assist with the process.
Different professionals to oversee the regulatory and compliance issues, including lawyers and financial analysts. This expertise can prove to be invaluable in cross-border acquisitions where the buyer must comply with local laws and regulations.
Setting up secure data rooms to share confidential information, getting NDAs signed, and protecting sensitive intelligence are other services.
Financing the Acquisition
Purchasing a company involves substantial financing and most acquirers are ready with the funding when shopping for companies to buy. Investment bankers step in and facilitate deals by helping their clients arrange for funding when needed.
Selling shares, debt financing, or introducing new securities in the market are some options. Bankers determine the pricing structure of the newly issued securities, whether equity or debt. This they do by valuing the company and making a comparative analysis of the market and its conditions. They also assist by finding buyers for the securities.
Underwriting for IPOs and sales and trading are part of their services. Other strategies for sourcing funding include asset finance, public finance, restructuring, leveraged finance, structured finance & leasing. Determining the right strategies is part of the key responsibilities of investment bankers in M&As.
The closing formalities of M&A deals involve several different aspects and meticulous assessment of the terms and conditions. Dealmakers need expert M&A advisors to ensure they account for risks, contingencies, and covenants that laypersons are unaware of.
Several legal documents and agreements are involved, including asset purchase agreements, principal transaction documents, and Intellectual Property Assignment Agreements. The Affidavit of Lost Stock Certificate, Certificate of Merger (DE): Corporations, and Certificate of Merger (DE): LLCs are other paperwork.
The legal teams at investment banker agencies also assist with drawing up the closing certificate and secretary’s certificate. Acquiring the board and shareholder consent by following the protocols and procedures is part of their job description.
Integration of the Companies Post Merger
Investment bankers provide end-to-end assistance with mergers right up to the integration of the two companies. You can rely on them for guidance with managing the integration and achieving synergies.
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Sell-Side Investment Banking Key Responsibilities
Investment bankers perform functions on both, the buy-side and sell-side of the M&A transaction. Here’s how:
- Drafting a compelling pitch deck for the company by including all the relevant metrics and financial projections. Accuracy and diligence are needed for this step.
- Compiling marketing materials including the Information or Selling Memorandum to present the company with compelling key points.
- Working with the company to improve its saleability and market presence as a viable option for acquisition.
- Determining the opportune time when sellers should make an exit is critical for getting the best price for the company. Investment bankers make that happen since they have their finger on the pulse of the industry.
- Advising the management on the best channels for selling the company, whether through an industry sale, private equity, or management buyout.
- Conducting a thorough valuation per industry trends and other variables.
- Identifying potential buyers not just in the company’s industry but also in horizontal and vertical sectors. Investment bankers have extensive networks of industry contacts.
- Inviting bids by organizing a bidding process from interested buyers, reviewing them, and selecting the best offer.
- Proving information to buyers via secure channels like an online diligence “data room” and liaisoning between the parties. Open lines of communication help in the due diligence.
- Negotiating terms and conditions between the buyers and sellers by enabling an efficient flow of information.
- Drawing up legally accurate documents and paperwork to facilitate the closing procedures.
Buy-Side Investment Banking Key Responsibilities
Key responsibilities of investment bankers in M&As on the buyer’s side include:
- Identifying the company’s goals from the transaction and getting in-depth information into the suitable companies to achieve these goals.
- Compiling information about recent transactions in the industry to learn more about the ongoing pricing structure. This information helps acquirers gauge the possible price they’ll pay.
- Reaching out to targeted companies, brokers, and other agencies to assess their interest in the transaction.
- Conducting valuations of the companies of interested targets and contacting other investment banking agencies working on sell-side acquisitions.
- Assessing if the target is a suitable fit and the potential quantified synergies.
- Drafting a bidding strategy and proposed terms of purchase, while arriving at an offer the seller cannot refuse.
- Negotiating between the two companies and assisting in arriving at agreements.
- Assisting the acquiring company in conducting meticulous due diligence to identify potential risks and contingencies to prep for. Working out if they can overcome the risks and liabilities is also part of the process.
- Conducting a detailed analysis of the buying company’s capital structure to devise a financing strategy. If needed, investment bankers assist acquirers in raising the funding for the purchase.
- Ensuring the relevant paperwork is in order and the deal meets all regulatory compliances.
Investment Bankers Are Market Makers
Investment bankers are often referred to as market makers because they do a lot more than facilitate M&A deals. Aside from working with acquirers and sellers who approach them, they also take the initiative to make deals happen.
Expert analysts study the industry and reach out to companies suggesting they enter into mergers or acquisitions. These transactions may have strategic advantages for both parties. Recommendations from reputable investment bankers may interest them to move forward with the deal.
Aside from aligning the different moving parts of an M&A transaction, investment bankers help with IPOs. They help sellers with drafting marketing materials to position their companies as viable options to prospective investors.
Next, the banks conduct detailed valuations and reach out to investors. The key difference is that in IPOs, several buyers are targeted. The company’s shares enter the market by being distributed via the bank’s sales desk.
Sellers may work with multiple investment bankers to leverage more investor contact. That’s how they hope to complete the IPO successfully with the maximum sale and distribution.
How Investment Bankers Make Money
Investment banks collect fees only on completed transactions by way of a commission. This amount depends on the type and size of the M&A transaction. Some agencies may also require a retainer or an engagement fee as this amount is called. However, the final fee is dependent on the deal’s value.
Deals in the small to mid-market sectors earn bankers commissions calculated per the Lehman or double Lehman formula. According to this model, bankers receive 10% of the first million.
Alternatively, they may use the Aligned Method to determine the fee which is more of an incentive. This model earns the bank 1.75% of the first fifty million of the deal’s value.
Investment Bankers vs. M&A Advisors
The key responsibilities of investment bankers in M&As are all about ensuring that deals progress without snags. Dealmakers can rely on their teams for assistance with the different aspects of mergers and acquisitions.
On the flip side, M&A advisors provide you with a wealth of expertise specific to the industry where you work. Their services are fluid and individualized and provide complete value to the deal. If you’re looking for one-on-one services and business development with funding options, an M&A advisor would be your go-to professional.
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