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The Ultimate Guide to Investment Banking M&A

We all know investment banking plays a pivotal role in our economy; consequently, it is essential for M&A practitioners on both the buy side and the sell side to understand the world of M&A investment bankers.

What is Investment Banking in M&A?

Investment bankers are known for raising capital. Investment banking in mergers and acquisitions is branch of the financial industry that not only helps to raise capital, but also negotiate and execute deals.

Investment bankers are a key part of mergers and acquisitions (M&A) because they work to determine the appropriate value of the companies involved in the merger or acquisition. In this case, the banker represents either the sell side or the buy side.

However, investment bankers also participate in deal sourcing where they will research the market and initiate a conversation with companies, proposing potential deals. Here, investment bankers often work closely with Corporate Development teams.

In both cases, as the bankers work to predict values of companies, they spend a great amount of time looking at how these values might shift (for the better or worse) by producing financial models based on different variables.

Read more how investment banking data rooms help to proceed this.

What is the Role of Investment Bankers in M&A?

M&A investment banking is often considered a dream job for investment bankers - an illustrious position highlighted in TV and film. These high-powered men and women advise and negotiate deals that transform companies and influence the economy.

For investment bankers representing the sell-side, main role responsibilities include:

  • Closely studying and tracking trends in M&A in order to assist the seller with its timing and overall strategy
  • Pinpointing appropriate potential buyers
  • Contacting potential buyers and acting as the liaison between the two parties 
  • Creating a bidding process
  • Selecting a buyer
  • Participating in due diligence
  • Negotiating the deal 

For investment bankers representing the buy-side, main role responsibilities include: 

  • Determining the value of potential targets
  • Examining synergies
  • Developing a bid
  • Negotiating the deal

Read more about how to choose virtual data room for investment banking sell and buy-side deals.

What is the Investment Banking M&A Process?

The following is an overview of the M&A process from an investment banker’s perspective:

  1. Develop an acquisition/exit strategy
  2. Connect to the buyer or seller
  3. Conduct a valuation analysis
  4. Begin negotiations
  5. Assist with due diligence
  6. Lead the closing and settlement of final terms

Let's take a closer look:

  1. Develop an acquisition/exit strategy. This includes M&A criteria, analysis of M&A trends, and appropriate targets/acquirers. This may be done for a specific company, or the investment bankers may begin the process and then reach out to prospective buyers/sellers.
  2. Connect to the buyer or seller. Investment bankers often work with Corporate Development to get through gatekeepers and begin a meaningful conversation with the C-suite executives or owners on the other side of the deal.
  3. Conduct a valuation analysis. Once a connection has been made between companies and both parties have chosen to continue down the M&A road together, the investment banker will continue to evaluate prospective targets. 
  4. Begin negotiations. If working for the buy-side, the investment banker will help the buyer develop and deliver an appropriate offer.
  5. Assist with due diligence. During diligence, investment bankers continue to dive deeply into the financials and often will serve as one of the major sources of communication between the buy-side and the sell-side. 
  6. Lead the closing and settlement of final terms. Investment bankers are largely responsible for negotiating the final terms of the deal.
investment banking m&a process

Are the Process Differ from Sell-Side and Buy-side?

Buy-side investment bankers must raise capital for their clients and help them determine what to buy. On the sell-side, investment bankers generate interest from potential buyers and help create an appealing purchase for the buyer. 

What are the Typical Activities Investment Bankers Do Every Day?

Investment bankers work long hours, often logging close to 100 hours a week, and while no two days may be the same, there are some common tasks these bankers engage in. The job requires strong organizational, analytical, and mathematical skills, as well as robust social skills.

Analysts assist senior level bankers with a variety of tasks, such as creating pitches, models and valuations. Additionally, investment bankers will participate in M&A transaction calls on both the buy-side and the sell-side. 

Finally, when the deal moves along, the investment bankers help negotiate the terms of the deal.

Read also about The Current State Of Investment Banking Culture.

What are the Salaries of Investment Bankers?

Investment bankers are often synonymous with high paychecks. Specifically, at the top banks, M&A investment bankers make approximately $100,000 in entry-level positions.

The average range for first year analysts is $70,000-$150,000, with the top banks most likely raising this average. After a few years, analysts typically fall into the range of $125,000-$150,000.

Associates, on the other hand, tend to fall into higher pay ranges, with first year associates often making close to $200,000 and possibly up to $300,000 or $400,000. As associates put in more and more years, some sources have them making close to $500,000 a year. Finally, vice presidents and partners inch closer to, and sometimes above, the million dollar mark.

How Do Investment Bankers Determine Their Fees?

Investment banking fees have quite a few variables. At the broadest level, the fee will depend on the type and size of the deal. In addition, some investment bankers require a retainer (also known in the industry as an “engagement fee”). The percentage the banker walks away with at the end of the deal greatly depends on the size of the deal.

According to investmentbank.com, mid to lower market deals should expect to pay their investment bankers based on the Lehman or double Lehman formula (for even smaller deals), which states the bankers will receive 10% of the first million.

The Aligned Method is another way fees are determined. Some believe this method provides more of an incentive for the banker to negotiate the best possible deal. This scale has the investment banker earning 1.75% of the first fifty million

Software for Investment Banking M&A

Virtual data rooms (VDRs) are a tool most investment bankers use when working on deals, and, in some cases, they may be responsible for the set-up of the VDR; however, investment bankers interested in simplifying and streamlining their M&A process will select a platform that is not only a VDR, but is also equipped with project management software.

investment banking virtual data room

Virtual data rooms (VDRs) are a tool most investment bankers use when working on deals, and, in some cases, they may be responsible for the set-up of the VDR; however, investment bankers interested in simplifying and  streamlining their M&A process will select a platform that is not only a VDR, but is also equipped with project management software. 

virtual data room sign-up
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