What is the Investment Banking Division (IBD)?
Investment Banking Division (IBD) is a particular investment bank division that provides corporate finance and advisory services. It is responsible for capital raising by the 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, hybrid markets, mergers and acquisitionsMergers And AcquisitionsMergers and acquisitions (M&A) are collaborations between two or more firms. In a merger, two or more companies functioning at the same level combine to create a new business entity. In an acquisition, a larger organization buys a smaller business entity for expansion. and different types of advisory mandates.
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IBD provides advisory on transactions and helps arrange to finance transactions and execute mergers and acquisitions. It consists of the following type of deals:
- Mergers & Acquisitions (M&A) – providing advisory services on the company’s merger, sale, or purchase. The services include building a detailed valuation of the company or division, which helps decide whether the client should go ahead with the deal, which also includes the pricing at which the deal is conducive to being 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 implements the overall strategy.
- Leveraged Finance – lending money to companies to help 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 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. 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 deals for the firms within that sector. For example, the FIG team in this division will work with clients to raise debts, IPOs, acquisitions, etc., but will only work with clients within that sector.
- On any given day, the work of the 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 bankers act as advisory to a wide range of clients for capital raising and Merger and Acquisition needs. Their clientele includes:
- Governments – This division works with the governments to raise money, trade-in securities, and buy and sell crown corporations.
- Corporations – Investment bankers work with private and public companies known as corporations to help them offer Initial Public Offering (IPO), raise 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., provide 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 to prepare research reports, advise clients, and complete 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 companies’ financial modeling, valuation work, and pitchbook support.
- Associate – An associate’s job is to manage the analystAssociate's Job Is To Manage The AnalystThe terms "analyst" and "associate" are commonly used in consulting and investment banking firms. Although both of these positions appear to be similar, the education, job requirements, and salary structure are all different. The title of associate comes with additional responsibilities than the one of analyst. As a result, an associate's pay is more than that of an analyst., do financial modeling, and draft pitchbooks.
- Vice President – The responsibility of the Vice President is to manage the associates, design 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., and go to client meetings.
- Director – The director leads the team, meets the clients, and structures the deals.
- Managing Director – He is focused solely on acquiring new clients and business for the division.
The Investment Banking Division (IBD) acts as a bridge between large enterprises and investors. They play an important role in advising businesses and governments on overcoming financial challenges and procuring finance, whether from stocks, bond issues, or derivative products.
This has been a guide to the investment banking division (IBD). Here we discuss IBD Groups, including skills required and job titles.