In the current covid era, the opportunity for mergers and acquisitions is galore. Also, a lot of startups and small businesses are established. Large finance companies establish a separate banking division to help companies in finance transactions, risk management and mergers and acquisitions.
The special division of financial institutions established for this purpose is called investment banking. The services offered by this special investment arm include securities underwriting, mobilizing capital, sales and trading, mergers and acquisitions, and commercial and retail banking.
Fee for services and advice
The investment banking arm earns a small fee and commissions from companies for its advice and banking and financial services. Bringing a new security issue to the public for investment through an offering is called underwriting. An underwriter offers a price guarantee for certain securities of the company for a fee. As a result, the issuer of the securities receives guaranteed money while an underwriter assumes a certain risk. The securities offered include IPO, bonds, and stocks.
Investment banks act as an intermediary between the public, who will buy the securities, and the companies that issue the securities. Therefore, the companies hire investment banks to generate funds by issuing new bonds and retiring the old bonds or to finance a new project or acquire another company.
The companies can seek the advice of Joseph Stone Capital to assist in assessing the risk and value of the business to price, sell, or underwrite the new bonds. The investment banking division will also assist you in underwriting the securities such as stocks through a secondary market or IPO.
The underwriter ensures that bonds or stocks are purchased by institutional investors like Pension Funds or Mutual Funds. In the nutshell, the investment banks purchase the new securities at a negotiated price from a company and sell them to investors. Therefore, the companies get the capital from investment banks even before the securities are sold to the investing public. The investment banks then resell the securities to the general public and institutional investors. Therefore, investment banks facilitate the trading of securities and benefit from the spread.
Advisory services for M&A
Investment banks generate significant income from M&A (Merger and Acquisition) activities. They charge a higher fee for M&A compared to underwriting the securities. The acquisition targets are galore in the current Covid pandemic.
The investment bank identifies the targets for acquisition and computes its actual value for takeover. It then advises the acquirer to buy at the right price and boost its product scope, services, and revenues. They conduct due diligence before offering sell or buy advice for a company by analyzing the present and future financial earnings, targets financial information, and expected synergies on the takeover.
The investment banks prepare the necessary documentation for M&A and issue of the securities. It also negotiates employment agreements, the composition of the management, and board of directors, merger and reorganization agreements, and legal documentation. Therefore, your company can seek the services of Joseph Stone Capital for all these activities for a reasonable fee. The proposals need to be approved by the board of directors, shareholders and submit a regulatory filing to complete mergers and acquisitions.