An investment bank is a financial institution that helps companies, governments, and other entities with their financial needs. They offer services that include helping with IPOs, raising money through bonds, advising on mergers and acquisitions, providing financial advice, trading securities, and managing assets.
Table of Contents
3 Important Functions of an Investment Bank
Helping Companies Go Public Through IPOs
Investment banks play a crucial role when a company decides to go public by offering its shares to the public for the first time.
For example, when the Indian company LIC decided to launch its IPO, investment banks like Goldman Sachs and SBI Capital were involved. These banks helped determine LIC’s value. They also decided the price range for the shares, which was between 900 and 945 rupees.
Moreover, investment banks found large investors, known as anchor investors, who committed to buying shares before they were available to the public. They also promoted the IPO to generate interest and ensure it was oversubscribed.
Assisting in Debt Raising
Another important function of investment banks is helping companies raise money by issuing bonds.
For instance, when Reliance needed to raise $4 billion, they issued bonds in the global market. Investment banks facilitated this process by connecting Reliance with international investors who were willing to buy these bonds. This was crucial because raising such a large amount of money might not have been possible in the Indian market alone. The investment banks created a strong case for why global investors should invest in Reliance, highlighting the company’s good reputation and future growth potential.
Advising on Mergers & Acquisitions
Investment banks also advise companies on mergers and acquisitions.
For example, in the merger between LTI and Mindtree, investment banks like KPMG and EY were involved. These banks provided financial advice and conducted valuations to determine the fair value of Mindtree’s shares. They ensured that Mindtree shareholders received 73 shares of the new LTI Mindtree entity for every 100 shares they owned. This process ensured that the merger was fair and beneficial for all parties involved.
Conclusion
In the world of the securities market, investment banks play a crucial role in important financial tasks. To learn about IPOs and the stock market, one must have a clear understanding of what an investment bank is and what tasks they perform. This article has covered almost all the important basics. Happy learning!
Do investment banks do trading?
Yes, investment banks do engage in trading. They buy and sell securities, such as stocks and bonds, on behalf of their clients or for their own accounts. This trading helps them make profits and provides liquidity to the financial markets. Investment banks use their expertise to trade various financial products, including equities, fixed-income securities, and derivatives. They also engage in proprietary trading, where they invest their own money to generate returns. Trading is a key function of investment banks, helping to manage risk and capitalize on market opportunities.
Do investment banks issue stocks?
No, investment banks do not issue stocks themselves. Instead, they help companies and governments issue stocks. They act as intermediaries between these entities and investors. They assist in the process of going public through Initial Public Offerings (IPOs). This includes tasks such as valuing the company, finding investors, and managing the sale of shares.
Disclaimer: This information is for educational purposes only and does not constitute financial advice. Always conduct your own research and consult with financial professionals before making investment decisions.