Investment Banking 101

Overview

What do investment banks do?

Investment and corporate banking encompasses the services banks provide to large organizations—corporations, institutions, and governments—focused on complex financial needs. Key services provided include:

• M&A Advisory: Advising clients on mergers, acquisitions, divestitures, and other strategic transactions.

• Capital Raising: Helping companies raise capital through equity or debt issuance in the capital markets.

• Lending: Providing direct financing solutions, including revolving credit facilities, term loans, and working capital lines.

Broadly speaking, investment banking focuses on advisory and capital markets activity—such as M&A, IPOs, or debt financings—while corporate banking is oriented around lending, credit facilities, cash management, and relationship coverage. Together, these functions are often bundled into one integrated platform at major financial institutions to offer comprehensive, strategic financial solutions to clients.

Industry vs. product groups

Within the investment banks, teams are generally divided into industry groups and product groups, each with distinct roles.

Industry Groups, sometimes called coverage teams, cover clients within a specific sector—such as Technology, Healthcare, Financial Institutions, or Energy. Their primary responsibilities include relationship management, sector coverage, and ongoing strategic dialogue with executives. Industry bankers develop deep expertise in the trends, players, and valuation dynamics of their sector and serve as the bank’s front-line interface with clients. Coverage bankers are client-facing and act as the “front door” to the bank.

Product Groups are transaction-focused teams specializing in specific financial products or services, such as M&A advisory, equity capital markets (ECM), debt capital markets (DCM), leveraged finance (LevFin), or restructuring. Product bankers are brought into deals by industry groups when a client needs a specific solution or is undertaking a major transaction. While industry groups manage the client relationship, product groups deliver the technical execution and subject-matter depth.

This dual-coverage model enables banks to offer clients both relationship continuity and product excellence. For example, a healthcare company looking to raise capital via an IPO would be covered by the Healthcare industry group, but the transaction would be executed by the ECM product group. If that same company later pursued a strategic acquisition, the M&A product team would be engaged to structure and negotiate the deal.

Clients served

Investment & corporate banks serve a diverse range of clients, each with distinct objectives and service requirements:

Large Corporations

Publicly traded and private companies are the core client base. Their needs span strategic M&A advisory, debt and equity capital raising, liability management, and day-to-day corporate banking services such as credit facilities and treasury operations. These clients often require long-term relationship coverage to support their financing strategy across economic cycles.

Financial Sponsors

These include private equity firms, venture capital funds, and infrastructure investors. Their engagements with banks tend to be transaction-focused—centered on leveraged buyouts (LBOs), add-on acquisitions, dividend recaps, and eventual exits via M&A or IPO. They also require financing solutions (e.g., acquisition debt) and capital markets access for their portfolio companies. Relationship coverage is often managed through a dedicated Financial Sponsors Group (FSG).

Institutional Investors

Pension funds, mutual funds, hedge funds, insurance companies, and sovereign wealth funds participate in capital market transactions as buyers of equity or fixed-income products. For banks, these clients are critical distribution partners during IPOs, bond offerings, and private placements. While not typically advisory clients, they are key to a bank’s syndication and sales capabilities.

Governmental and Supranational Entities

Sovereign governments, public sector agencies, and multilateral institutions like the World Bank or EBRD have unique funding and advisory needs. Services may include sovereign bond issuance, infrastructure financing, privatization advisory, and macroeconomic risk management. Banks may also help design and structure large-scale public-private partnership (PPP) transactions.

Family Offices and Ultra-High-Net-Worth Individuals

These clients engage banks for direct investment opportunities, private capital raises, estate and succession planning, or monetization events (e.g., company sales). While smaller in deal volume, these clients often require bespoke structuring, confidentiality, and long-term trust-based relationships. Their needs typically blur the lines between investment banking, wealth management, and private banking.

Financial Institutions

Banks, insurers, broker-dealers, and asset managers are themselves frequent clients. Their needs can include capital advisory (e.g., raising Tier 1 capital), regulatory compliance, M&A, and balance sheet optimization. Transactions involving these clients often require deep sector knowledge and careful handling of regulatory sensitivities.

2. Offering

Investment & corporate banks offer a range of financial services that support clients across their strategic, operational, and financing needs. These offerings fall into three primary categories:

M&A Advisory

Mergers & Acquisitions (M&A) advisory is a core service offered by investment banks, helping clients evaluate, structure, and execute strategic transactions such as buying, selling, or merging companies. These transactions are often complex, high-stakes, and time-sensitive—requiring both financial expertise and deep sector knowledge.

Investment bankers act as advisors throughout the entire deal lifecycle, from early strategic discussions to post-transaction execution. They provide guidance on valuation, deal structuring, negotiation strategy, and navigating regulatory requirements.

M&A mandates typically fall into two categories: sell-side or buy-side advisory,

In a sell-side mandate, the bank is hired by a company or its shareholders to run a sale process. The goal is to maximize value while maintaining confidentiality and process discipline. Key responsibilities include:

• Preparing marketing materials (e.g., teaser, CIM)

• Identifying and approaching potential buyers

• Managing the bid process and data room

• Negotiating final terms and facilitating closing

Sell-side processes can be competitive (e.g., auctions) or exclusive, depending on the client’s goals.

In a buy-side engagement, the bank advises a client—typically a corporation or financial sponsor—on acquiring a target company. The focus is on strategic fit, deal valuation, risk assessment, and successful integration. Responsibilities include:

• Identifying and screening acquisition targets

• Assessing valuation and synergies

• Supporting due diligence and transaction structuring

• Negotiating price and terms with the seller

Buy-side processes often involve fewer counterparties but require significant analytical depth and close coordination with the client.

In addition to traditional buy- and sell-side roles, investment banks also advise on:

• Corporate Divestitures: Selling non-core business units or assets

• Spin-Offs & Carve-Outs: Structuring stand-alone entities from larger businesses

• Joint Ventures & Strategic Alliances: Advising on partnerships and equity-sharing agreements

• Takeover Defense: Helping public companies respond to hostile or unsolicited offers

Capital Markets Financing

Capital markets financing involves helping clients raise funds from institutional investors through the issuance of equity or debt securities. Investment banks act as underwriters and advisors—structuring the offering, marketing it to investors, pricing it appropriately, and managing regulatory requirements.

As underwriters, banks typically assume responsibility for distributing the securities to the market. This may be done under a:

• Firm Commitment, where the bank guarantees the proceeds by purchasing the entire issuance up front, or

• Best Efforts basis, where the bank markets the securities without committing to a specific raise amount.

The bank’s responsibilities include:

• Advising on optimal structure, size, and timing

• Conducting due diligence and preparing regulatory filings (e.g., prospectus or offering memorandum)

• Coordinating investor outreach through roadshows or confidential meetings

• Allocating securities and providing aftermarket support (e.g., price stabilization)

This function is essential for companies seeking to finance growth, acquisitions, working capital, or balance sheet optimization. Capital markets activities are typically handled by specialized product groups within the investment banking division—such as Equity Capital Markets (ECM), Debt Capital Markets (DCM) and Leveraged Finance (LevFin):

Equity Capital Markets (ECM)

The Equity Capital Markets group advises clients on raising capital through the issuance of equity instruments. This includes:

• Initial Public Offerings (IPOs): Supporting companies going public for the first time by preparing financial disclosures, determining valuation, coordinating investor outreach, and listing the shares on a stock exchange.

• Follow-On Offerings: Helping already-public companies raise additional equity capital by issuing new shares.

• Block Trades & Accelerated Offerings: Assisting large shareholders (e.g., private equity sponsors or founders) in selling shares quickly, often with minimal market disruption.

• Convertible & Hybrid Instruments: Structuring securities that blend equity and debt features, such as convertible bonds or preferred shares.

• Private Placements: Raising equity from a select group of institutional investors without a public listing.

ECM bankers act as a bridge between issuers and institutional investors, advising on timing, pricing, investor sentiment, and regulatory requirements.

Debt Capital Markets (DCM)

The Debt Capital Markets team focuses on raising capital through fixed-income instruments. These bankers work with companies and government entities to issue bonds, loans, or other forms of debt financing. Typical services include:

• Investment Grade Bonds: Structuring and distributing long-term debt for clients with strong credit ratings.

• Medium-Term Notes (MTNs) and Commercial Paper: Facilitating short-term or rolling debt instruments for liquidity management.

• Sovereign & Municipal Bond Offerings: Helping governments and public entities access debt markets to fund infrastructure or public projects.

• Thematic Bonds: Structuring ESG, sustainability-linked, or green bonds aligned with environmental and social impact goals.

DCM bankers advise on maturity, structure, credit ratings, and pricing, often working closely with internal credit teams and rating agencies.

Leveraged Finance (LevFin)

Leveraged Finance is a specialized function within capital markets that focuses on non-investment-grade (i.e., higher risk) issuers. It supports companies—often backed by private equity sponsors—that require debt financing for:

• Leveraged Buyouts (LBOs): Structuring debt packages to support private equity-led acquisitions.

• Acquisition Financing: Raising capital to fund strategic purchases or mergers.

• Dividend Recapitalizations: Raising debt to pay dividends to shareholders, often used by sponsors.

• Debt Refinancings or Amend-and-Extend Transactions: Modifying or replacing existing capital structures.

LevFin bankers structure high-yield bonds and leveraged loans, balancing investor demand with the borrower’s constraints. Their work is highly technical and modeling-intensive, often involving multiple tranches of debt and credit enhancements.

Corporate banking

Corporate banking is the division within a financial institution responsible for delivering lending and banking services to large corporations, financial institutions, and government entities. It operates within the investment bank’s broader platform and plays a critical role in supporting long-term client relationships through the use of the bank’s balance sheet.

The division supports recurring client needs—such as financing, liquidity management, and international trade—while also contributing to event-driven transactions like M&A or recapitalizations.

Corporate bankers are deeply involved in:

• Origination and structuring of loans

• Credit underwriting and risk assessment

• Syndication of large-scale facilities

• Relationship management with client treasury teams

Unlike commercial banking (focused on individuals and small businesses), or investment banking (focused on advisory and capital raising), corporate banking centers on direct credit provision, working capital support, and transaction banking for institutional-scale clients. It serves both as a standalone business unit and as a strategic enabler of broader investment banking activity.

Corporate banks offer a suite of credit and financing solutions designed to meet the ongoing capital needs of large institutions. These products form the foundation of the bank’s relationship with clients, providing flexible access to liquidity, supporting strategic transactions, and enabling day-to-day operations. Below are the key instruments that make up a typical corporate banking toolkit

Revolving Credit Facilities (Revolvers)

A revolver functions like a corporate credit card. It allows clients to draw, repay, and re-draw funds up to a set limit as needed. While often undrawn, banks must fully commit the capital, exposing them to contingent credit risk.

• Fees: Include a spread over a benchmark (e.g., SOFR), utilization fees on drawn amounts, commitment fees on undrawn portions, and upfront structuring fees.

• Use Case: Working capital needs, seasonal liquidity, or as a backstop for capital markets access.

Term Loans Term loans are lump-sum loans disbursed at closing and repaid over a fixed period. Unlike revolvers, term loans generate stronger returns for the bank because the full amount is drawn and interest-bearing.

• Use Case: Funding for acquisitions, capex, refinancing, or general corporate purposes.

Bridge Financing

Bridge loans provide interim funding, typically in M&A contexts, until permanent financing is arranged via bond or equity markets.

• Attractiveness: High fees and short duration.

• Structure: Includes commitment fees, upfront funding fees, and drawn margin—with pricing often escalating the longer the facility is outstanding.

Letters of Credit Letters of credit (LCs) guarantee payments to counterparties, substituting the bank’s credit for that of the borrower. Common in international trade and project execution.

• Standby LCs: Guarantee payments if the client defaults.

• Performance LCs: Ensure obligations under a contract are fulfilled.

Cash Management and Trade Finance These services support daily operations and global commerce. Offerings include:

• Domestic and cross-border payments

• Treasury and liquidity optimization

• Receivables/payables management

• Import/export financing