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Investment Banking Areas Explained: Advisory Services - YouTube
Channel: 365 Careers
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the next type of investment banking
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services we will examine our advisory
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services comprising assistance in
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transactions like mergers and
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acquisitions known as ma and debt
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restructurings M&A services became
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increasingly popular in the 1960s when a
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binge of conglomerate buildups took
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place the main investment banks
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understood this line of business can be
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profitable because M&A deals occur
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multiple times while IPOs are a one-off
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event as we already said MMA stands for
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mergers and acquisitions we talk about
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an acquisition when a company buys
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another company's shares or assets
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we have a merger when the buying company
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absorbs the target company the target
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company ceases to exist after the
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transaction and it is merged into the
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buying company in every M&A process
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there are at least two parties one of
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the companies is called the buyer or the
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buying company and the other one is
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called the target which is the firm
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acquired the buyer company can offer a
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compensation to the target company's
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shareholders in several ways
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they can offer a cash compensation a
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stock package of the new entity or a
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combination of both the technical name
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of the amount paid is called
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consideration there are several reasons
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M&A deals play an important role in a
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company's life top managers understand
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that sometimes it is cheaper to acquire
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something that has been already created
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rather than trying to generate it
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internally
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in addition businesses are so
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complementary that their combination can
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unlock a great deal of savings
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efficiencies and opportunities we will
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focus on these aspects in the chapter
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dedicated to the mechanics of M&A
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services why do companies need help when
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acquiring other company's investment
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bankers are ideally positioned to
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provide valuable MMA insights to their
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clients as they know their business and
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the industry in which they operate
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sometimes an investment bank advises
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several firms from an industry and can
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gain perspective through multiple points
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of view in addition industrial companies
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do not have the expertise to carry out
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these deals several technical aspects
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must be addressed issues such as finding
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bidders or targets communication with
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these bidders or targets acquisition of
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financial information negotiation with
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legal technical and financial due
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diligence advisors can be overwhelming
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for a company that has carried out very
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few if any M&A deals even some of the
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largest companies lack scale to carry
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out big deals
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without hiring an advisor in any
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transaction there are two possible roles
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that investment bankers can have they
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can be buy or sell side depending on who
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hires them the buying or the selling
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company this makes a world of difference
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all banks prefer to be on the sell side
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as a transaction is likely and
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commissions are almost guaranteed by
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side investors get paid in a more
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complicated way they receive a retainer
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a fixed amount which covers their costs
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and a success fee in case the firm they
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are advising purchases the target buy
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and sell side bankers have different
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tasks investment bankers hired by the
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firm to be sold focus on finding a large
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number of bidders they work closely with
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the company trying to prepare it for all
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questions asked by buyers sell-side
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investment bankers provide their
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valuation of the business and suggest a
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minimum bidding price they are also
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responsible for coordinating the entire
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sales process and work closely with the
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advisors of bidding firms when hired by
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a by side company investment bankers are
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mainly responsible for providing
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strategic advice on whether the target
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company is attractive and would fit
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nicely with the buyers existing business
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buy-side advisors must provide their
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valuation of the target business and
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have to estimate the amount of synergies
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the transaction would generate one of
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the crucial factors that determines how
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successful an M&A deal would be is the
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price that the buyer pays to the seller
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usually investment bankers valuation of
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the target business has a direct impact
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on the amount the bidder will pay and on
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the amount of the seller wants to
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receive company valuation plays a
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crucial role in equity capital markets -
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therefore later in this course we will
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spend a significant portion of time on
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various valuation techniques our goal is
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to prepare you to the fullest you will
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learn how to perform DCF
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multiples and LVO valuations we'll learn
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how to value a company once we've
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covered all investment banking lines of
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business
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besides M&A many investment banks engage
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in restructuring services these services
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are necessary when a firm cannot serve
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as its debt and is in danger of going
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bankrupt I'm sure you can imagine how
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tough it is to work on these
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transactions and assist companies in
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deep trouble what leads to the distress
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of a company why would a company borrow
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money it can't repay well the simple
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answer is that things change tense
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sometimes unforeseen circumstances can
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materialize there can be several reasons
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some companies can have operating
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difficulties these are problems with
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their core business or companies can
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have financial difficulties situations
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in which the core business is profitable
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but interest payments are having a
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detrimental effect on cash flows so the
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two main alternatives are a private
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workout and a formal bankruptcy
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procedure in court most lenders prefer a
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private workout because it provides them
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with faster results and a higher
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recovery rate investment bankers play an
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active role in negotiating with lenders
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and preparing a recovery business plan
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it is their job to ensure the company
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will have sufficient cash in the first
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12 months of the restructuring plan
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these are the two main advisory services
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offered by investment banks today in our
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next lesson we will learn about the
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trading and brokerage area the golden
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goose of Investment Banking nowadays
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