Corporate finance and advice: M&A, loan finance and capital markets

Insights from The Gateway
Investment banking
Types of work

This side of the bank is known as the private side and also, confusingly, as the investment banking division. These two alternative names give you a clue as to what the work here is all about: providing clients with confidential advice on, and assistance with financial transactions. Corporate finance and advice mainly helps clients to raise money and to buy and sell other businesses.

What are the key areas of work here?

There are several main streams to this side of the bank's work, and those working here are likely to specialise in one of the areas below. You'll also find experts in particular industry sectors or geographical regions working here.

Mergers and acquisitions (M&A)

Bankers working in M&A advise clients involved in large corporate transactions. These are likely to be the sale and purchase of other businesses or parts of other businesses. But transactions could also include a spin-off of a section of a client's business into an independent entity, or a defence to a hostile takeover.

Bankers working here will assist their clients through the whole process of a large corporate deal. They'll formulate a strategy with their clients, deciding what kind of transaction to embark on, or assessing a potential transaction. They'll then play a significant role in the sharing and evaluation of all the information, particularly financial information, involved in this kind of transaction, which could involve valuing a company to be bought or sold (known as the "target"), or marketing it to potential purchasers. They'll be involved in bidding and negotiation processes, which are often complex and involve many different parties. Finally, they'll help to ensure that the very large sums of money involved in these deals are safely exchanged to enable the transaction agreed to actually take place.

Loan finance

Bankers working in loan finance advise clients on how to raise money from banks or other lenders, such as pension funds. The loan packages arranged could be bilateral, meaning made by one bank only, or, more likely, syndicated, which means made by a group of different banks or other parties. Loans can also be secured, meaning backed by assets, or unsecured. Loan packages made tend to be a combination of different types of debt, made on different terms by different groups of lenders, typically a combination of senior debt and junior/mezzanine debt, where senior lenders have the right to be repaid before the junior or mezzanine lenders.

Bankers here will advise borrowers on what kind of debt they should take on and then, if the deal is to be a syndicated one, will put together a "book" of lenders. Important specialised areas of loan finance include leveraged finance, where bankers assist borrowers on raising money specifically to acquire a target company, and project finance, where a loan is made to fund an infrastructure project. Bankers working here might also advise companies in financial distress on how to restructure their debt.

Capital markets

Bankers working in capital markets advise clients on how to raise money on the public markets through issuing equity, that is, shares or bonds, which are pieces of corporate debt. An important area of equity capital markets work is involvement in IPOs, initial public offerings of a company's shares in the market. Bond issues might be "straight" corporate bonds, or convertibles, which can be converted by the purchaser into shares at a later date. The banks who run these deals for clients and often guarantee the purchase of the shares or debt in the market are known as the deal's "underwriters".

Bankers working in this area will first advise the client on the best way for them to use the markets to raise the money they need. They will then undertake close analysis of the company, known as the "issuer" and the production of the detailed documents used to market the shares or bonds to potential investors. Finally, they will set the price at which the shares or bonds are offered on the market.

How do these kinds of work bring in revenue for investment banks?

The main way in which investment banks make money from these deals is through the fees that they charge for their involvement, which is often a percentage of the value of the deal. If the bank is a lender on a financing, they will also be entitled to interest payments.

Who are the key clients of this part of the bank?

Corporates: Large companies or groups of companies are likely to come to investment banks for advice on buying or selling businesses or parts of businesses, or on other kinds of corporate transaction. They will also come to investment banks to raise money, both through syndicated loans and the markets.

*Governments: *Investment banks might assist them in issuing government bonds (UK ones are known as gilts) or in making and arranging investments, for example, in infrastructure projects.

*Private equity funds: *These funds, which specialise in buying companies, reshaping them and selling them on for a profit, are significant users of investment banks' capital raising services, as their purchases will usually be funded by bank debt.

Individuals: Investment banks might occasionally assist high net worth individuals in raising capital, or in buying or selling a business.

How long do deals here take?

Deals here tend to be long-term projects, lasting anything from a few weeks for a simple bilateral loan, to three to six months for a big acquisition deal, right up to the few years it takes to put the biggest infrastructure financing projects in place.