Introduction to Investment Bank Services: Banking and Investment Services

Investment bankers function as intermediaries in financial transactions. Here's a more in-depth look at what they do and who needs one.

Investment bankers function as intermediaries in financial transactions. They are experienced in carrying out projects that, for most companies, take place very rarely, but are critically important.

The role of the Investment Bank

Investment banks provide four primary types of services: raising capital, advising in mergers and acquisitions, executing securities sales and trading, and performing general advisory services. Most of the major Wall Street firms are active in each of these categories. Smaller investment banks may specialize in two or three of these categories.

Raising Capital

An investment bank can assist a firm in raising funds to achieve a variety of objectives, such as to acquire another company, reduce its debt load, expand existing operations, or for specific project financing. Capital can include some combination of debt, common equity, preferred equity, and hybrid securities such as convertible debt or debt with warrants. Although many people associate raising capital with public stock offerings, a great deal of capital is actually raised through private placements with institutions, specialized investment funds, and private individuals. The investment bank will work with the client to structure the transaction to meet specific objectives while being attractive to investors.

Mergers and Acquisitions

Investment banks often represent firms in mergers, acquisitions, and divestitures. Example projects include the acquisition of a specific firm, the sale of a company or a subsidiary of the company, and assistance in identifying, structuring, and executing a merger or joint venture. In each case, the investment bank should provide a thorough analysis of the entity bought or sold, as well as a valuation range and recommended structure.

Sales and Trading

These services are primarily relevant only to publicly traded firms, or firms which plan to go public in the near future. Specific functions include making a market in a stock, placing new offerings, and publishing research reports.

General Advisory Services:

Advisory services include assignments such as strategic planning, business valuations, assisting in financial restructurings, and providing an opinion as to the fairness of a proposed transaction.

Who needs an Investment Bank?

Any firm contemplating a significant transaction can benefit from the advice of an investment bank. Although large corporations often have sophisticated finance and corporate development departments, an investment bank provides objectivity, a valuable contact network, allows for efficient use of client personnel, and is vitally interested in seeing the transaction close.

Most small to medium sized companies do not have a large in-house staff, and in a financial transaction may be at a disadvantage versus larger competitors. A quality investment banking firm can provide the services required to initiate and execute a major transaction, thereby empowering small to medium sized companies with financial and transaction experience without the addition of permanent overhead.

What to look for in an Investment Bank

Investment banking is a service business, and the client should expect top-notch service from the investment banking firm. Generally only large client firms will get this type of service from the major Wall Street investment banks; companies with less than about $100 million in revenues are better served by smaller investment banks. Some criteria to consider include:

Services Offered

For all functions except sales and trading, the services should go well beyond simply making introductions, or “brokering” a transaction. For example, most projects will include detailed industry and financial analysis, preparation of relevant documentation such as an offering memorandum or presentation to the Board of Directors, assistance with due diligence, negotiating the terms of the transaction, coordinating legal, accounting, and other advisors, and generally assisting in all phases of the project to ensure successful completion.


It extremely important to make sure that experienced, senior members of the investment banking firm will be active in the project on a day-to-day basis. Depending on the type of transaction, it may be preferable to work with an investment bank that has some background in your specific industry segment. The investment bank should have a wide network of relevant contacts, such as potential investors or companies that could be approached for acquisition.

Record of Success

Although no reputable investment bank will guarantee success, the firm must have a demonstrated record of closing transactions.

Ability to Work Quickly

Often, investment banking projects have very specific deadlines, for example when bidding on a company that is for sale. The investment bank must be willing and able to put the right people on the project and work diligently to meet critical deadlines.

Fee Structure

Generally, an investment bank will charge an initial retainer fee, which may be one-time or monthly, with the majority of the fee contingent upon successful completion of the transaction. It is important to utilize a fee structure that aligns the investment bank’s incentive with your own.

Ongoing Support

Having worked on a transaction for your company, the investment bank will be intimately familiar with your business. After the transaction, a good investment bank should become a trusted business advisor that can be called upon informally for advice and support on an ongoing basis.

Because investment banks are intermediaries, and generally not providers of capital, some executives elect to execute transactions without an investment bank in order to avoid the fees. However, an experienced, quality investment bank adds significant cant value to a transaction and can pay for its fee many times over.

The investment banker has a vested interest in making sure the transaction closes, that the project is completed in an efficient time frame, and with terms that provide maximum value to the client. At the same time, the client is able to focus on running the business, rather than on the day-to-day details of the transaction, knowing that the transaction is being handled by individuals with experience in executing similar projects.

Stephen Graham and Andrew Hamilton, Graham, Hamilton & Company, Inc. (202-296-1789)

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