What is Investment Banking Division (IBD)?
Investment Banking Division (IBD) is a particular division of the investment bank which provides corporate finance and advisory services. It is responsible for capital raising by underwriterUnderwriterThe underwriters take the financial risk of their client in return of a financial fee. Market Makers like financial institution and large banks ensure that there is enough amount of liquidity in the market by ensuring that enough trading volume is there., debt and hybrid markets as well as mergers and acquisitionsMergers And AcquisitionsA merger and acquisitions (M&A) agreement refers to an agreement between two existing companies to merge into a new company, or the purchase of one company by another, which is done generally to benefit from the synergy between the companies, expand research capacity, expand operations into new segments, and increase shareholder value, among other things. and different types of advisory mandates.
IBD provides advisory on transactions and helps arrange to finance for transactions and execute mergers and acquisitions. It consists of the following type of deals:
- Mergers & Acquisitions (M&A) – providing advisory services on merger, sale or purchase of the company. The services include building a detailed valuation of the company or division which helps in taking the decision whether the client should go ahead with the deal, which also includes the pricing at which the deal is conducive to be closed. Apart from all these the M&A division of the investment banking arm also provides expertise in structuring the various financial transactions involved in the overall merger and acquisition deal and also effectively implement the overall strategy.
- Leveraged Finance – lending money to companies to help in the financing of acquisitionsFinancing Of AcquisitionsFinancing an acquisition is the process in which a company planning to buy another company looks for funding through debt, equity, preferred equity or one of the many alternative methods available..
- Equity Capital Market – providing advice on equity and equity derived products like shares, options, futures etc.
- Debt Capital Markets – providing valuable advice on raising and structuring of debt to finance acquisitions.
- Restructuring – improving the overall structures of a company to make it more profitable in the long run.
Investment Banking Division Groups
- IBD can be further subdivided into different groups among which the most common ones are- Technology Media and Telecommunication (TMT), Financial Institution Groups (FIG), Energy, Mining, Healthcare, Industrials, and Real Estate.
- It carries out all different kinds of deals for the firms within that sector. For example, the FIG team in this division will with clients for raising debts, IPOs, acquisitions etc, but will only work with clients within that particular sector.
- On any given day, the work of Investment Banking Division includes advising a company on the cross-border merger, structuring the initial public offering of a subsidiary, refinancingRefinancingRefinancing is defined as taking a new debt obligation in exchange for an ongoing debt obligation. In other words, it is merely an act of replacing an ongoing debt obligation with a further debt obligation concerning specific terms and conditions like interest rates tenure. an outstanding bond and many more.
- Some investment banks are well known for being good in particular sectors like Goldman Sachs TMT (Technology Media and Telecommunication), Morgan Stanley M&A (Merger and Acquisition) and Bank of America LevFinLevFinLeveraged finance is the process by which a company raises funds through debt instruments or from outside the entity rather than through equity. It usually has a fixed periodic repayment schedule and an agreed-upon interest rate..
Investment Banking Clients
Investment banker’s act as advisory to a wide range of clients for capital raising and Merger and Acquisition needs. Their clientele includes:
- Governments – This division work with the governments to raise money, trade in securities and buying and selling of crown corporations.
- Corporations – Investment bankers work with private and public companies known as corporations to help them in offering Initial Public Offering (IPO), raising additional capital for business growth, making acquisitionsMaking AcquisitionsAcquisition refers to the strategic move of one company buying another company by acquiring major stakes of the firm. Usually, companies acquire an existing business to share its customer base, operations and market presence. It is one of the popular ways of business expansion., providing research and general corporate finance advice etc.
- Institutions – IBD works closely with institutional investors Institutional InvestorsInstitutional investors are entities that pool money from a variety of investors and individuals to create a large sum that is then handed to investment managers who invest it in a variety of assets, shares, and securities. Banks, NBFCs, mutual funds, pension funds, and hedge funds are all examples. who manage other people’s money (known as institutions) to help them trade in securities and provide detailed financial research.
Investment Banking Division – Skills Required
Investment bankers who work in the IBD require a lot of financial modeling, valuation and excel skills for preparation of research reports, advising clients and completion of deals. The major skills required are mentioned as follows:
- Business valuation
- Financial modelingFinancial ModelingFinancial modeling refers to the use of excel-based models to reflect a company's projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact.
- Pitchbooks and Presentations
- Transaction Documents
- Relationship management
- Negotiation skills
- Sales and Business development.
There is a particular job hierarchy within the IBD. The most common job titles starting from junior to the senior position are as follows:
- Analyst – An analyst focuses exclusively on financial modeling, valuation work of companies, and pitchbook support.
- Associate – An associate’s job is to manage the analyst, doing financial modeling and also drafting pitchbooks.
- Vice President – The responsibility of Vice President is to manage the associates, designing pitch booksPitch BooksPitch Book is an information layout or presentation used by investment banks, business brokers, corporate firms, and others to provide potential investors with the firm's main attributes and valuation analysis, which helps them decide whether or not to invest in the client's business. A pitch book is also known as Confidential Information Memorandum, which is used by the firm's sales department to help them sell products and services to a client. as well as going for client meetings.
- Director – The director leads the team, meets the clients and structures the deals.
- Managing Director – He is focussed solely on acquiring new clients and business for the division.
The Investment Banking Division (IBD) acts as a bridge between the large enterprises and the investors where they play an important role in advising businesses and governments on how to overcome financial challenges and procure finance, whether it is from stocks, bond issues or derivative products.
This has been a guide to what is Investment Banking Division (IBD)? Here we discuss IBD Groups, including skills required and job titles.