Investment banks specialize in complex financial transactions, including facilitating mergers and acquisitions (M&A). Listed below are some of the responsibilities of an investment bank in an M&A.
1. Valuation. Investment banks evaluate the value of a possible acquisition and help both parties agree on a fair price. They create financial models to capture the fixed and variable financial components that factor into the valuation.
2. Sell-side or buy-side work. An investment bank can represent either a potential acquirer, a potential seller, or both in the case of a merger. An investment bank performs what is known as a buy-side work, wherein they study the market to find a desirable company that best suits the strategic goals of the firm that it represents. On the other hand, a company may approach an investment bank to conduct a sell-side work and look for a buyer who is willing to purchase an entire company or part of it.
3. Financing. Should a potential buyer require funds to acquire a company, investment banks can act as an intermediary in selling securities or raising debt financing. Through valuation, investment banks can determine the best price of new shares and find investors who will buy the newly issued bonds or equities.