- December 9, 2020
- Posted by: Kabir
- Category:BLOG, Events
Speaker: Anurag Agarwal, CFA, Managing Director, Corporate Finance & Capital Market India
Moderator: Biharilal Deora, CFA, Director, Abakkus Asset Manager LLP
Contributed By: Jyoti Soni, CFA, Member, Public Awareness Committee- CFA Society India
What is Investment Banking
In layman’s terms, investment banking includes all kinds of securities trading, research, broking, corporate finance advisory and transaction advisory in a non-distinguished manner. However, the main role of investment bankers is to serve the corporates who need capital and strategic M&A advisory. Investment bankers work on private or material non-public information of companies shared by their management. There is a Chinese wall between the investment bankers and other divisions in an organization like brokers, traders, research, who serve the investors and funds. Divisions on the other side of the Chinese wall work on the publicly available information.
Investment Banking Services
A typical investment bank has following product teams which are focused on a particular sector like Real Estate, Consumer and Retail, Financial Service, Technology, Oil & Gas, Infrastructure, Healthcare and Pharma, Hospitality, Chemicals, etc.:
- Equity Services:
- Initial Public offerings
- Right issue
- Qualified Institutional Placement (QIP)
- Overseas IPO
- Equity linked Products and Services:
- Convertible bonds
- Exchangeable bonds
- Convertible preference shares
- Debt Financing Services
- USD Bonds, Offshore RMB bonds and Euro bonds, etc.
- Senior and subordinated bonds, perpetual bonds, preference shares, etc.
- M&A Services
- Cross Border M&A
- Strategic Advisory
- Derivative Services
- Customized Derivative services
- Financial Services
- Margin Financing
- M&A Financing
Tasks of Investment Bankers
Tasks of Investment bankers can be divided two major parts: First is Deal Origination and second is Deal Execution. Both are equally important. One can work on deal origination only after years of rich experience in deal execution. Deal execution requires sector expertise, strong business acumen, understanding of client requirement, and strong relationship with clients.
Deal execution broadly includes three things: (i) documentation for investor pitch, marketing and pricing (ii) regulatory compliance and related work, and (iii) coordinating with all intermediaries such as lawyers, valuers, investors, due diligence partners etc. for execution of deal.
Role of Investment Banker includes:
Capital Market deal:
- Provide structure and review the placement document and other legal document
- Perform business due diligence
- Ensure offer compliance with regional distribution requirement in multiple jurisdiction
- Assisting the company in coordination of working parties / other intermediaries
- Structure terms and conditions with the legal counsel
- Provide support on all market related matters
- Conduct detailed premarketing of the issue
- Organize roadshows and investor meetings for the management
- Manage the book building process
- Pricing allocation settlement and closing
- Post issue support
Private Placement: Generally, it takes place pre-listing. Process is more stringent for unlisted then listed company. Key activities:
- Collateral Preparation and initial outreach: Preparation of teaser, pitch book, financial model. Initial outreach to suitable investors and assessing their feedback.
- Information exchange and management meeting: Preparing data room and conducting initial diligence to collect investor information. Coordinating for management meeting and passing required information to investor.
- Due-diligence/ Term sheet: coordinating and supporting extensive due diligence activities, preparation of valuation and term sheet.
- Transaction closure: Facilitate conditions precedent required post due diligence. Final negotiation and shareholders’ agreement preparation.
- First, Assessment phase is the most critical, where an investment banker should be able to judge that company A should acquire company B for reason of consolidation benefits, like new market reach, IP, new products and services, inorganic expansion. Conduct the internal meeting and discuss the assessment. After being fully convinced on the idea of amalgamation, one should only reach out to the subject company management or PE fund.
- Second, Execution phase, where an investment banker should reach out to target company management and advisor. This process requires high level of confidentiality. Next is coordinating and assisting for due diligence and required documentation.
- Last, closure requires resolving all the integration issues, carrying out shareholders, court and regulatory approvals and filings.
Investment Banking – Indian Industry and Roles
Indian investment banking industry has many dominant multinational and Indian banks. Multinational banks are more active in sizeable inbound and outbound transactions. Therefore, multinational banks have a major share in M&A transactions. Few of the multinational players present in India are CLSA, Bank of America Merrill Lynch, Barclays, BNP Paribus, Citibank, Credit Suisse, Deutsche Bank, JP Morgan, Morgan Stanley, etc. Big Indian banks like Axis, ICICI, SBI, Kotak, and HDFC bank have their investment banking divisions actively working for PSUs and private sectors clients. The industry has evolved and flourished with hundreds of boutique investment banks serving few clients.
Youngsters after graduating from streams like B.Com or B.Tech can join as an analyst. An analyst typically works for 3-4 years and then pursues masters or advance certifications like MBA and CFA. Next in hierarchy after analysts are associates and senior associates, who handle more responsibility of deal execution and deliveries. Responsibility of deal origination typically starts at the level of director. An investment banker typically takes around 13-15 years in career progression from analyst to executive director. For Managing Director, one should become a sector specialist and head the P&L responsibility of that division. Topmost in the hierarchy is the country head, who is responsible for all the activities of an investment bank in a country.
Qualification and Skill Requirement
MBA, CA, CFA and MS Finance qualifications are the most revered for a career in investment banking. Generally, investment banks hire from reputed colleges for junior roles. One should have strong work ethics, qualitative as well as quantitative skills, communication and time management skills, capable of working long hours and managing work pressure. In a nutshell, one has to be smart and diligent.
How CFA Program is helpful for Investment Banking Career
CFA curriculum provides exposure to International Accounting Standards, financial analysis, corporate finance, valuation and different asset classes. It is one of the most respected designations globally and considered to be the gold standard in the field of investment analysis. CFA qualification is desirable for an investment banker given the financial knowledge that comes with it.