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Investment Banks aren't like regular banks. They provide a whole other range of services and products. This article tries to explain that and give some sort of understanding as to investment banks. Typically investment bank sell and issue securities such as derivatives and commodities as well as provide advice for situations such as mergers. An investment bank has three types of offices and these are known as the front office, middle office and back office. The frort offices concerns the products and dealing with the public. The middle office looks at risk management, compliance and due diligence. It tries to make sure that everything is as it should be as the bank isn't at too much risk. It is the link between the front office and back office. The back office looks after the operations side of things. An investment bank can range in size from tiny little things to huge multi national entities that are worth trillions of dollars. An investment banker sometimes has a conflict of interest as he or she bests wants to serve the client but they also want to have the banks best interests at heart. Sometimes the two aren't one and the same and because of that a client should always be a little be wary of the advice given to them and take it with a grain of salt.
Mergers and Acquisitions Investment Banking by the Numbers Artville by Tom Spence S elling a company is tough. Raising money for a company is even tougher, given the current economic climate. Sometimes situations develop outside of the financial advisor’s control that impair the perceived worth of a particular enterprise. While some transactions derail due to external market forces, others often go bad because the client’s perspectives weren’t fully explored and understood at the onset of the engagement. Understanding each client’s unique perspectives increases both the likelihood of closing the early stage entrepreneur. Baby Boomers are likelier to be transaction and gaining the client’s satisfaction with its advisor’s performance. more conservative in securing funding for their new venture, Our investment banking practice consists of traditional merger and while the Generation X crowd tends to be more willing to acquisition services as well as raising private equity for emerging growth look at creative financing options that can entail more risk. companies. The process of selling a business is somewhat similar to raising The process of securing growth funding is relatively money for a startup: each involves a great deal of due diligence to gain straightforward—get enough capital to run the business intimate knowledge of the company and its industry; each involves a highly smoothly while giving up the least amount of equity owner- passionate owner or entrepreneur who places the good of the company ship. Sounds simple, right? Enter the perspective equation. above personal desires; and each engagement entails a great deal of ups and An early stage entrepreneur often thinks that his or her sheer downs that present the owner/entrepreneur with a roller-coaster of emotions. passion and the novelty of the concept alone are enough to Though the processes are similar for these separate investment banking sell the opportunity to an investor. In funding early stage activities, the owner/entrepreneur’s perspectives in each arena can often deals, investors often back their money with people they differ significantly. have worked successfully with in the past. Finding the right Merger and acquisition transactions mix of people to go with the usually center on a more mature company, money can be extremely with the owner typically selling as a means difficult and frustrating, but of providing for retirement income. The The process of selling a business the entrepreneur that is business owner frequently has a tough time prepared for this addition separating his or her persona from the is somewhat similar to raising of a new personality in business. Due to the emotional and social money for a startup. advance is likelier to be issues an owner encounters upon a sale more receptive to it when transaction, receiving the highest price is the time comes. not always the primary consideration that In the end, the role of the drives a successful outcome. The advisor has to be keenly aware of what is advisor can be more of a coach or psychologist at times than most important to the owner before commencing any formal auction strictly a banker trying to strike a deal. The people side of the process. The social implications of a transaction are often more complex business is highly complex, and often overlooked during the than the mechanics of the transaction itself. Knowing exactly what is most course of making a deal. Our clients have different expectations important to the owner eases the client’s mind during a long and sometimes from one another on what should constitute a successful arduous process of finding a buyer. transaction. By understanding and recognizing each one’s The perspective of the entrepreneur starting a company from scratch is unique perspective at the forefront of an engagement, we are obviously very different than that of a long-standing business owner. likelier to do a better job in the end of getting the deal done Emotions being tied to the business are less of an issue at this early stage, due and achieving the client’s objectives. to a lack of company history. While certainly passionate about the unfolding venture, the early-stage entrepreneur does not have 20 to 30 years of business Tom Spence is a registered representative with LarsonAllen memories to contend with in the quest for receiving growth capital. One’s Financial, LLC, member NASD & SIPC. Contact Tom at influence of generation also plays a key role in dictating perspective of the firstname.lastname@example.org or 612/376-4715. LarsonAllen EFFECT / Spring/Summer 2002 29
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