M&A 101: What Investment Bankers do in Mergers and Acquisitions

One of our vice presidents, Giovanna Burns, spoke with Pitchbook about the basics of investment banking. Giovanna plays an essential role in transaction execution and supports Meridian Capital’s business development initiatives. She has provided advisory services to middle-market companies across various industries on transactions including buy-side and sell-side engagements, IPOs, debt issuances and growth equity raises. See some of her Q&A below.

“As a banker working on middle-market transactions, you get to see and manage a greater part of the overall process.”

Giovanna Burns, Vice President
Meridian Capital

PitchBook: What is investment banking? How does it differ from other forms of banking?

Giovanna: “Investment banking” is a broad term that encompasses capital raising and strategic transaction advisory services for companies. It includes debt and equity issuances, private placements of capital and advisory on strategic transactions such as mergers, acquisitions and divestitures. That means we’re different than other forms of banking because we don’t act as a depository, and we don’t directly lend to or invest capital in our clients.

By contrast, a retail bank serves individual consumers and small businesses, typically through the bank’s branch locations and online services with checking and savings accounts, mortgages, auto loans, safe-deposit boxes and cashier’s checks. Meanwhile, corporate banking (sometimes also referred to as commercial banking) largely resembles retail banking, with a corporate bank’s customers being medium to large businesses. A primary function of corporate banks is to provide business loans. Beyond loans, a corporate bank may offer other capabilities geared toward handling the day-to-day financial concerns of corporations, such as treasury management, foreign currency exchange and retirement plan services.

PitchBook: What roles do investment banks play in M&A transactions? How do those services differ from, say, work on an IPO?

Giovanna: The roles of the investment bank will differ depending on whether the bank is representing the seller of a company (“sell-side”) or advising a prospective acquirer (“buy-side”).

On a sell-side engagement, the investment bank’s responsibilities include:

• Keeping our fingers on the pulse of industry M&A trends to set valuation expectations for client companies and helping them plan their timing and go-to-market strategies
• Deploying our knowledge of the client and its industry to craft a set of key points that form a compelling investment thesis—then assembling marketing materials such as the “Information Memorandum” to convey these points
• Identifying and contacting potential buyers, managing information flow and holding strategic discussions with interested parties
• Establishing a formal bid process for the company, reviewing bids and helping select a buyer
• Setting up an online diligence “data room” and serving as the primary liaison between the buyer (and/or its advisors) and seller during due diligence
• Helping negotiate the final terms of the deal

On a buy-side engagement, the investment bank’s responsibilities include:

• Evaluating the potential target and its industry to set a preliminary valuation
• Assessing the strategic fit of a potential target with the client; identifying and, to the extent that it’s possible, quantifying synergy opportunities
• Crafting a bidding strategy and helping draft proposed terms of purchase
• Identifying potential issues in the diligence process and following up accordingly
• Analyzing the buyer’s capital structure to determine the correct transaction financing; helping the buyer find financing
• Helping negotiate the final terms of the deal

On an IPO, the investment bank’s responsibilities are very similar to those on a sell-side M&A transaction, insofar as it’s responsible for positioning the company to prospective investors, drafting marketing materials, conducting investor outreach and determining a reasonable valuation. However, instead of appealing to only one buyer, there are several buyers, so a “road show” is conducted, where management meets with and presents to several potential investors.

Extensive buyer-seller negotiations characteristic of an M&A transaction don’t happen as part of an IPO. There’s also the extra step of the shares entering the market—they need to be distributed through the bank’s sales desk. IPO candidates will often enroll more than one bank to complete the actual sales and distribution portion of the IPO process, thereby leveraging more investor relationships.

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