How Can An Investment Banker Help Individuals or Firms?
Why do firms need investment bankers?
Engaging an investment banker may not be the daily job of an entrepreneur. Also, this involvement may seem fairly alien or unclear to many companies. When a business owner:
- Receives unsolicited yet attractive company buying offers, or
- Plans to sell a company, or
- Wants to raise capital, or
- Plans business expansion or transition, or
- Moves from owner-operator to non-owner management, or
- Thinks of a succession plan…
… they would need an investment banking firm to advise them financially and help them land the best possible deal.
Picture an investment banker as an attorney. Just as you approach one to guide you in legal matters, you need an investment banking company to sail you through the ocean of financial transactions.
How can investment banks help businesses?
A] Help raise capital:
Picture the scenario — You want to raise capital for an oncoming project and need support. An investment banking company will use sophisticated financial models to assess your company’s earning potential, management team’s strength and the best price of your company’s shares. It will leverage this information to recommend to you any of the following ways to raise capital.
- Selling stock
Also known as equity financing, you could either approach your friends and family, investors, or raise an initial public offering (IPO). Suppose you decide to raise money by launching an IPO then the investment banker will play a pivotal role throughout this process, right from putting together the prospectus for potential investors to IPO pricing.
- Selling bond
The investment banking firm will determine how much to compensate borrowers by looking at the prevailing interest rates for similarly rated businesses. The cost of the bond will be paid from the revenue earned through the new project.
- Arranging private placements
If you wish to raise money swiftly, easily and with fewer regulations then the investment banking company will advise you to issue your securities to less than 50 persons or a single institutional investor. This mode exempts you from registering the placement with the Securities and Exchange Board of India (SEBI) and can be structured to meet your needs.
B] Underwrite deals:
In underwriting, an investment banking company will buy a certain number of bonds/stocks from the issuers at a previously discussed price and then sell them to the public or institutional buyers through an exchange. The sale of the shares happens at a markup to generate profit for their employers.
C] Negotiate mergers and acquisitions:
Herein, an investment banking firm will help companies arrive at the most appropriate price during mergers and acquisitions. So, if you are looking to purchase another entity, it will advise your management team on that company’s valuation and the process to structure the deal favourably.
Hem Securities Ltd. is India’s leading and most awarded SEBI-registered Cat-I merchant banker with 40+ years of experience in the equity markets. We are an investment banking company in India with a presence in 112 cities, a portfolio of 200+ successful deals across SMEs and start-ups and a network of 125K retail and institutional investors. Trust us to partner with you in growing your dream business. Consult us today.
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