An Investment Banker's Guide For Managing Business Wealth
Gopal Agrawal, Managing Director and Head - Investment Banking, Edelweiss Wealth Management , 0
Investment Banking is one of the most lucrative jobs due to its dynamic and demanding nature. It presents opportunities for rapid growth for high-caliber individuals. However, at the same time it is a high-pressure and outcome driven industry wherein hard work and hustle are necessary ingredients for success.
Investment Bankers are bestowed with huge responsibilities and end up advising large companies on financial matters which have the power to completely change the course of their existence. Hence, as they say with great power comes great responsibility; same is true for Investment Bankers who are highly responsible, dedicated & committed individuals working sincerely towards serving the best interest of their clients and providing the appropriate expertise and guidance.
Behind the flashy headlines of successful & industry-changing deals is the sweat & toil of the Investment Bankers and the entire team behind the transaction. Deal-making is a very intricate and detail-oriented job with multiple factors governing the success or failure of a transaction. Hence, Investment Bankers must be adept at multi-tasking as well as have a high attention to detail in order to avoid any slip ups which can potentially cause damages worth millions or billions as well as loss of reputation!
Thus, it is essential to have the ability to stay calm and cool under pressure in order to deliver the best outcomes in the face of adversity and challenges. Investment Banking as a career demands a lot out of one’s character and is therefore also extremely lucrative and fulfilling both monetarily and from an ambition standpoint.
Brief Overview of the Business & Future Outlook
The last couple of years i.e. FY19 and FY20 were relatively muted from a deal making standpoint. M&A activity was subdued and even the capital markets did not witness high buoyancy in the wake of the NBFC crisis unfolding and multiple other factors leading up to COVID-19.
March 2020 witnessed one of the steepest falls in recent history and spread a feeling of gloom and doom in the economy. The first phase of the lockdown was an unprecedented move in history to deal with an equally unprecedent challenge of COVID-19.
However, the last 12 months have clearly showcased the indomitable spirit of the Indian economy and its ability to bounce back from any and every adversity.
There has been a historic rebound in the stock market (which is referred to as a forward-looking mirror for the economy) which signals the resilience the Indian economy has shown in dealing with this crisis. Deal flows on both the public markets & private markets side are at peak levels and it is only going to get better as the world gears towards the reality of a post-COVID world.
There are multiple encouraging signals which pave the way for enhanced capital raising from both public markets (i.e. via new companies coming in for IPOs or existing companies raising capital through follow-on offerings) and private markets wherein private equity funds are leading the charge and deploying large sums of money to back the India growth story.
FY22 has already started with a bang with bumper listings of new-age tech companies like Zomato and with PayTM, Nykaa and the likes waiting to hit the markets. This trend of upbeat economic activity shall continue albeit with certain blips & volatility. The year has also seen a number of startup companies getting to the billion-dollar valuation (Unicorns) and this is just the beginning of such Unicorns.
The pandemic has provided a huge boost to the organized sector and has helped them increase their market share rapidly. There will be continued capital requirements for these businesses to scale up and meet the increased demand. In addition to that, there is considerable potential for consolidation in many sectors where the larger players will acquire the smaller players and become even larger (we are already seeing it play out in the education sector wherein BYJUs is on an acquisition spree lately). China plus one strategy is also helping the cause and leading to increased exports from India.
Investment Banking Services
Investment Banking services can be broadly categorized into 4 types –
• Capital Market - Investment bankers assist businesses in capital raising via the stock markets in multiple ways. When a company lists on the stock exchanges (or goes public) it is known as an Initial Public Offering (IPO). Companies which are already listed can also raise further capital through various routes like Qualified Institutional Placement (QIP), Offer-for-sale (OFS) and Preferential Issue. The Investment Banker plays a pivotal role in helping the company achieve its intended outcomes by handling the entire process, bringing high-quality institutional investors, and taking care of everything from
a regulatory standpoint & liaising with the capital markets regulator Securities & Exchange Board of India (SEBI).
• Private Equity – These are specialized firms who are in the business of providing growth capital to businesses or acquiring businesses, running them, and turning them around and eventually selling them/exiting from them either to another private equity firm or to a strategic (typically a corporate firm in either the same industry or an allied industry). Capital raising activity from Private Equity (PE) funds constitutes a large part of the services offered by Investment Banking firms. Investment Bankers act as the perfect platform for introducing high potential companies to PE funds who are keen on investing in businesses and helping them grow further
• Mergers and Acquisition (M&A) – Investment Bankers advice and assist their corporate clients to pursue inorganic growth strategies by merging with or acquiring other firms in order to achieve high growth & scale for their businesses. Investment Bankers also assist promoters in selling their non-core business and/or assets to prospective strategic/ private equity buyers.
• Debt Services – Credit/debt is like an essential fuel for any business to grow and function smoothly. Debt raising activities can take multiple forms both on the public markets (wherein corporates float bonds in the debt markets for investors to invest in) and private markets wherein debt is raised via bank consortiums at lucrative rates. While debt markets in India are at a relatively nascent stage vis-à-vis developed markets globally. However, it is evolving rapidly and will constitute the next big opportunity. Investment Bankers provide debt raising service on both public and private markets side.
Investment Bankers have strong relationships with most of the companies and stay updated on the future & outlook of the businesses. Due to the deep relationships built on the back of immense trust, the Investment Banker is tasked with the job of providing invaluable expert advice on various strategies a firm might be contemplating. The services provided are tailor-made to suit the client’s specific needs and can range from running a full sale process or taking the company public to helping raise debt for a new expansion plan or project.
The ability to offer a wide variety of services makes a full-service investment bank much more sought after vis-à-vis its peers. There are banks which only provide specialized boutique services like M&A and restructuring advisory and no services on the capital market or debt markets side. Whereas Investment Banks like Edelweiss Investment Banking are full-service investment banks offering all the services and thus not only can cover a larger spectrum of clients at any given point in time but also offer the best suited product according to the client need at the given point.
Determinants of Success in Investment Banking
Investment Banking at the core is a relationship-based business wherein the people forming part of a particular Investment Banking team are the pivotal factors determining its success. Having a pool of high-quality individuals who not only bring years of experience & expertise with them but are also well-established & networked in the business community is a crucial step for any Investment Bank’s success.
Deal making is a rare event in any corporate’s lifecycle. Large corporates might engage in M&A or fund-raising activity once every 3-5 years whereas mid & small corporates will probably only engage in such activities once in a lifetime. Hence, due to the sheer importance of such services in any company’s lifecycle, the selection of an Investment Bank is based on multiple factors like services offered, credible track record, expertise in areas where the client needs intervention and above all a deep sense of trust.
The hallmarks of a successful Investment Bank are its successful track record and the quality & authenticity of the advice it provides to prospective clients. Investment Bankers not only have to be highly knowledgeable individuals but also showcase the highest standards of ethics when dealing with clients to be able to garner their respect & trust which itself will serve as the foundation for winning future business.
Future of Investment Banking
In the US and Europe on average at least 50 percent of the companies are owned by private equity. This is where I think India is far behind as India majority are owned by Promoters/ families and the businesses have been passed from generations to family members without changing ownership ship. While a promoter will complete a transaction once in 20-year, private equity firms will handle a much larger volume of transaction in the same time period say at least 5-6 times , which would increase the share size of transactions and hence investment banking market in India. Private equity industry has grown in size and scale in the last 20 years from only 10 odd private equity firms to 200+ firms currently.
Private Equity firms constitute the largest portion of any Investment Bank’s business, and they are a recurring client for most Investment Banks. Their development and penetration into the Indian economy is a key indicator of the growth of the Indian Investment Banking industry as the two are interlinked.
Investment banking is one of those businesses which require a huge amount of patience and passion. A person with some of these qualities should really opt for investment banking. For investment bankers, word of mouth and clients with successful investment banking experience are the most important factors for growth.
• Private Equity – These are specialized firms who are in the business of providing growth capital to businesses or acquiring businesses, running them, and turning them around and eventually selling them/exiting from them either to another private equity firm or to a strategic (typically a corporate firm in either the same industry or an allied industry). Capital raising activity from Private Equity (PE) funds constitutes a large part of the services offered by Investment Banking firms. Investment Bankers act as the perfect platform for introducing high potential companies to PE funds who are keen on investing in businesses and helping them grow further
• Mergers and Acquisition (M&A) – Investment Bankers advice and assist their corporate clients to pursue inorganic growth strategies by merging with or acquiring other firms in order to achieve high growth & scale for their businesses. Investment Bankers also assist promoters in selling their non-core business and/or assets to prospective strategic/ private equity buyers.
• Debt Services – Credit/debt is like an essential fuel for any business to grow and function smoothly. Debt raising activities can take multiple forms both on the public markets (wherein corporates float bonds in the debt markets for investors to invest in) and private markets wherein debt is raised via bank consortiums at lucrative rates. While debt markets in India are at a relatively nascent stage vis-à-vis developed markets globally. However, it is evolving rapidly and will constitute the next big opportunity. Investment Bankers provide debt raising service on both public and private markets side.
Investment Bankers have strong relationships with most of the companies and stay updated on the future & outlook of the businesses. Due to the deep relationships built on the back of immense trust, the Investment Banker is tasked with the job of providing invaluable expert advice on various strategies a firm might be contemplating. The services provided are tailor-made to suit the client’s specific needs and can range from running a full sale process or taking the company public to helping raise debt for a new expansion plan or project.
The ability to offer a wide variety of services makes a full-service investment bank much more sought after vis-à-vis its peers. There are banks which only provide specialized boutique services like M&A and restructuring advisory and no services on the capital market or debt markets side. Whereas Investment Banks like Edelweiss Investment Banking are full-service investment banks offering all the services and thus not only can cover a larger spectrum of clients at any given point in time but also offer the best suited product according to the client need at the given point.
Investment banking is one of those businesses which require characteristics like a steely resolve, ability to hustle, a never-give-up attitude and a huge amount of passion & patience. Individuals who enjoy thriving in pressure situations should ideally opt for Investment Banking roles.
Determinants of Success in Investment Banking
Investment Banking at the core is a relationship-based business wherein the people forming part of a particular Investment Banking team are the pivotal factors determining its success. Having a pool of high-quality individuals who not only bring years of experience & expertise with them but are also well-established & networked in the business community is a crucial step for any Investment Bank’s success.
Deal making is a rare event in any corporate’s lifecycle. Large corporates might engage in M&A or fund-raising activity once every 3-5 years whereas mid & small corporates will probably only engage in such activities once in a lifetime. Hence, due to the sheer importance of such services in any company’s lifecycle, the selection of an Investment Bank is based on multiple factors like services offered, credible track record, expertise in areas where the client needs intervention and above all a deep sense of trust.
The hallmarks of a successful Investment Bank are its successful track record and the quality & authenticity of the advice it provides to prospective clients. Investment Bankers not only have to be highly knowledgeable individuals but also showcase the highest standards of ethics when dealing with clients to be able to garner their respect & trust which itself will serve as the foundation for winning future business.
Future of Investment Banking
In the US and Europe on average at least 50 percent of the companies are owned by private equity. This is where I think India is far behind as India majority are owned by Promoters/ families and the businesses have been passed from generations to family members without changing ownership ship. While a promoter will complete a transaction once in 20-year, private equity firms will handle a much larger volume of transaction in the same time period say at least 5-6 times , which would increase the share size of transactions and hence investment banking market in India. Private equity industry has grown in size and scale in the last 20 years from only 10 odd private equity firms to 200+ firms currently.
Private Equity firms constitute the largest portion of any Investment Bank’s business, and they are a recurring client for most Investment Banks. Their development and penetration into the Indian economy is a key indicator of the growth of the Indian Investment Banking industry as the two are interlinked.
Investment banking is one of those businesses which require a huge amount of patience and passion. A person with some of these qualities should really opt for investment banking. For investment bankers, word of mouth and clients with successful investment banking experience are the most important factors for growth.