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| Introduction to Investment Banking |
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| What is an investment Bank? |
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An investment bank does not offer the typical services available at a commercial bank such as a saving and current accounts, credit cards, loans and credit facilities; rather, it provides advice. |
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Advisory services can include anything from enhancing the capital structure of a company to helping the company raise new equity or debt, rearranging existing debt, or engaging in mergers & acquisitions. |
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An investment bank can represent its client in their decision to acquire another company, merge with it, or divest part of its shareholding. |
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Well known international investment banks include Morgan Stanley, Goldman Sachs, BoA Merrill Lynch and Nomura to name a few. |
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| Who are the typical clients of an investment bank? |
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Investment banks provide their services to private and public sector companies that are large or medium in size. |
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Clients retain investment banks as advisors to ensure that they get objective, high quality financial advice and guidance that is tailored to their specific needs. |
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Investment banks specialize in finance, yet the ultimate expert in the business is its owner; By hiring a dedicated and specialized team to assess the financial aspects of a company and to highlight possible opportunities the management of the company is able to focus on running and growing the business. |
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| What is the relationship between an investment bank and its clients? |
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A client mandates an investment bank as its advisor to undertake a specific task such as valuation of its business or the identification of a potential target for acquisition. |
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An investment bank is contractually obliged to maintain confidentiality of all documents and discussions held with a client and to safeguard all information pertaining to the client in its possession. |
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In addition to confidentiality the investment bank is obliged to exclusively represent its client in the best possible manner and only act in what is in the interest of the client. |
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Investment banks usually charge a ‘retainer fee’, which is a fixed charge, to cover their operating expenses as well a ‘success fee’ which is a percentage of the overall transaction they undertook, if they are able to successfully close a deal. |
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A good investment banking relationship spans many transactions over a number of years; and the aim of any reputable investment bank is to retain its clients and continue to provide them with quality advice. |
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| Why should I value my company? |
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Ability to capitalize on Law No. 61 which facilitates conversion of private family firms into limited liability and joint-stock companies, and for the revaluation of their assets. |
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Ability to determine an agreeable and fair valuation that is acceptable to a number of partners wishing to split a business. |
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Allows an owner to determine what his company is worth in the market today, and in turn, be able to decide whether is in his interest to sell part or all of his business to a prospective buyer. |
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Properly evaluate opportunities to merge with another company. |
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A family owned business will be able to fairly distribute shareholding in the company and its investments for inheritance purposes. |
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Useful in the creation of a stock-option plan for company employees to ensure that they are well rewarded and committed to the firm’s long term growth and prosperity. |
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Ability to value intellectual property such as trademarks, and brands. |
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