Investment banking business involves providing consulting and management services for large and complex financial transactions, and providing services involving capital creation for companies, organizations or governments. The two main activities of investment banks are underwriting debt financing and issuing equity securities, such as initial public offerings (IPOs), and advising companies and facilitating mergers and acquisitions (M&A), including leveraged buyouts.
In addition, investment banks provide assistance in securities sales and stock placements, and handle investment and brokerage transactions for corporate clients, sovereign entities or high-net-worth individuals (HNWI). Investment banks are also the main advisers, planners and managers of corporate restructuring or restructuring (such as dealing with divestitures).
Typical sectors within an investment bank include industry coverage groups and financial products groups. The industry coverage group has set up different groups within the bank, and each group has a wealth of expertise in a specific industry or market field (such as technology or healthcare). These groups establish customer relationships with companies from all walks of life, and bring financing, stock issuance, or mergers and acquisitions to banks.
The investment bank’s product group focuses on specific investment bank financial products, such as IPOs, mergers and acquisitions, corporate restructuring, and various types of financing. There may be separate product groups specializing in asset financing, leasing, leveraged financing, and public financing. Product groups can be further organized according to their main activities or products. Therefore, investment banks may have product groups designated for equity capital markets, debt capital, mergers and acquisitions, sales and transactions, asset management, and equity research.
Companies engaged in investment banking are generally divided into three categories: large banks, middle market banks and boutique banks. Boutique banks are usually further divided into regional boutique banks and elite boutique banks. Compared with regional boutique banks, elite boutique banks sometimes have more in common with large banks. The classification of investment banks is mainly based on scale; however, in this case, “scale” can be a relative term, which can refer to the size of the bank in terms of the number of employees or offices, or the average size of M&A transactions processed by the bank.
Regional Boutique Bank
In terms of company size and typical transaction size, the smallest investment bank is the bank known as the regional boutique bank. Regional boutiques usually have only a few to dozens of employees. Since most regional boutiques are relatively small, they usually do not provide all the services provided by large investment banks, and may only focus on a single area, such as handling mergers and acquisitions in specific market areas.
As the classification implies, the offices or operations of these banks are limited or at least concentrated in specific areas of the country. The bank’s offices may even be limited to one city. An example is an investment bank located in Texas, which has only one office and less than 20 employees, and strictly handles mergers and acquisitions of companies in the oil and gas industry. Customers of regional boutiques may include large companies headquartered in their area, but they usually provide services to smaller companies and organizations. Except on a local or state basis, they are unlikely to participate in cooperation with the government. They also usually handle smaller M&A transactions, ranging in size from US$50 million to US$100 million or less.
Elite Boutique Bank
Elite boutique investment banks are usually completely different from regional boutique investment banks. Elite boutiques are closer to large banks in the dollar value of the transactions they manage, usually over $1 billion, although they may also handle some smaller transactions. Elite boutiques once again look more like large scaffold banks, because they usually have considerable national and international influence, with dozens of offices in multiple countries.However, they usually still lack the global influence of a large investment bank like JPMorgan Chase (JPM)
Elite boutiques are usually similar to regional boutiques because they usually do not provide complete investment banking services and may limit their business to dealing with merger-related issues. They are more likely to provide restructuring or asset management services than regional agencies.
Most elite boutique banks start with regional boutique banks, and then gradually become elite banks by processing successively larger and larger transactions for more prestigious customers. Some elite boutiques, such as Qatalyst Partners, benefit to a large extent from the investment banking reputation of the company’s founders. Examples of well-known elite boutique investment banks are Lazard LLC, Evercore Group LLC and Moelis & Company.
Middle market bank
Mid-market investment banks are usually what the name implies. They occupy the middle ground between smaller regional investment banking companies and huge large investment banks. Middle market banks usually engage in transactions that start at the regional level and rise to near inflationary levels, usually from about 50 million U.S. dollars to about 500 million U.S. dollars or more. In terms of geographic scope, the middle market is usually also in the middle zone. Its existence is much larger than that of regional boutiques, but it is not as large as the transnational scope of large scaffolding banks.
Different from boutique banks, middle market companies usually provide the same full range of investment banking services as large banks, including equity capital market and debt capital market services, a full set of financing and asset management services, mergers and acquisitions and restructuring transactions. Some mid-market banks are similar to regional boutiques because they specialize in providing services to specific industries or sectors. For example, one of the more well-known middle market investment banking companies is KBW, which is an investment bank that specializes in cooperation with companies in the financial services sector. Some of the more well-known mid-market companies are Piper Sandler Companies, Cowen Group, and Houlihan Lokey.
Protruding bracket bank
Bracket Banks are major international investment banking companies, and their names are easily recognizable, such as Goldman Sachs, Deutsche Bank, Credit Suisse Group, Morgan Stanley and Bank of America. In terms of the number of offices and employees, as well as handling the largest transactions and largest corporate customers, large scaffolding companies are the largest. The vast majority of customers are Fortune 500 companies, if not Fortune 100 companies. Large investment banks regularly process mergers and acquisitions worth billions of dollars, but depending on the overall economic situation or specific customers, large investment banks may sometimes process transactions worth hundreds of millions of dollars.
Every large scaffolding bank operates internationally and has great influence globally and at home. Major investment banks provide their clients with a full range of investment banking services, including transactions, various types of financing, asset management services, equity research and issuance, as well as investment banking and mergers and acquisitions services. Most large banks also have commercial and retail banking departments, and generate additional revenue through cross-selling financial products.
A significant change in the investment banking market after the financial crisis is to choose to retain the number of high-net-worth customers and Fortune 500 customers served by elite boutique investment banking, rather than large scaffolding companies.
Work in an investment bank
Those who are interested in investment banking work should specifically consider what type of work they want to engage in before deciding to apply for an investment bank. Remember, boutique banks do not provide all the services of middle markets and large scaffolding companies. So, for example, if you are primarily interested in working at a trading desk, only larger companies might offer this opportunity. However, if you are interested in processing M&A transactions, small banks usually provide a faster career path to directly manage such transactions.
Compared with the smaller elite boutique banks, the salary of an investment bank working at one of the largest large banks may not be much different. Although larger banks usually handle larger transactions, these transactions are few and far between smaller transactions. In addition, smaller investment banking companies do not have the huge administrative costs of large stent banks, so they usually manage larger profit margins to compensate employees. Looking forward to future career opportunities, experience at one of the major large banks usually looks best on a resume just because of popularity alone.