M&A is a vital sub-function of investment banking that assists wealthy clients of banks in executing corporate acquisitions and business mergers. When a firm takes a decision of merging with another firm, there comes up an abundance of work to be done, in terms of pricing and structuring the deal. Besides, there arises the very critical, due diligence proceedings that are to be taken care of. Investment banks possesses dedicated M&A divisions to address their clients’ challenges associated with execution of mergers and acquisitions.
An acquisition process involves one company buying the other, while mergers comprise two or more companies deciding to join forces for the simple reason of business growth and attaining increased profitability.
Valuation of M&A deals, globally, 2015-2021, by sector
Job Description of a Typical M&A Professional
Before we discuss the job description of an M&A professional in the banking sector, let’s talk briefly about the best aid available to the M&A banking aspirants to bag a job under the discussed domain. It’s the highly valuable and industry-relevant investment banking certifications that can be enrolled into, by registering online. These help aspirants immensely, in gaining a competitive advantage before they even appear for their first job interview.
Now, let’s come back to the job description part. From the viewpoint of the investment banking industry, M&A process constitutes three parts. First one is called ‘origination’ wherein the sourcing of the deal happens. The second is the due diligence part wherein the development of financial modeling is executed upon, afterwards, negotiations come into effect. Third is the real facilitation process of the monetary transaction.
Let’s discuss the three stages in detail:
Fifty percent of the total work or more, in the M&A divisions of banks, constitute origination efforts. And this is in regards to juniors – the analysts and the associates. For senior level partners and managing directors, ‘origination’ duties take up the majority of their work day. At the end of the day, it’s the deal-sourcing that translates to everything else in the M&A sub division of financial engineering.
The origination process in M&A pertains to spotting targets and accordingly, drafting pitch books. Investment banks, under the said process, formulate potential deals by themselves, and later, pitch the same to the clients. In case, a client finds the deal attractive or profitable, he decides to go for it. The bank makes money by levying a fee in return for structuring and facilitation of the related transaction. There are times when the client himself approaches the bank to receive help for price-determination and financial modeling.
2. Negotiating & Due Diligence
M&A divisions at banks, after getting a green signal from the client, move ahead with the transaction processing, and that’s where starts the modeling and due diligence part. Due diligence constitutes discussions with the target firm and its stakeholders, such as buyers and suppliers. It’s not limited to managing the legal and financial paperwork, but involves scrutiny of the whole business in detail. The process may involve 3rd-party consultants and VPs/associates who would help liaise the deal-making in order to finalize the transaction.
Its the final leg of the transaction-execution for an investment bank. It comprises negotiations on the structure & terms of the deal, basis the valuation reports. The target firm would have its personal advisers, and the objective behind negotiations is to get both the parties agree on the terms and conditions of the deal. A few complications might emerge during the execution of the said process which would need modifications to be made, such as selling off certain assets, or divisions.