In the past year, stories have ran in the Australian Financial Review and the Wall Street Journal about the imminent demise of investment banking. In this case, demise is a strong word, and it underpins an inflammatory view of what is a natural ebb and flow in the industry.
Is the industry a few percentage points lower than last year? Maybe. But if we are to take a 10 year view of the industry, it's plain to see that there are more highly valuable transactions in 2019 than ever before.
As experienced corporate advisors, Nash Advisory can help you make the most of the fluctuations in the investment banking industry. If you're looking to sell your business, get in touch with us today.
What is investment banking?
The definition of investment banking is very broad. Depending on what country you are in, it can mean different things.
In many countries, including the United States and United Kingdom, investment banking is best defined as the practice of helping a company manage their money by creating capital, pledging to buy debt or securities (underwriting), or assisting with the management of mergers and acquisitions.
[content_aside]In Australia, investment banking most closely aligns with:
- Mergers and acquisitions advisory, where entities help companies to buy or sell to other companies.
- Debt funding of a transaction, where companies become creditors by selling debt to other companies.
- Initial public offerings – however these are much smaller markets in Australia.[/content_aside]
How is investment banking practised?
Before we can understand the health of the investment banking industry, we must first understand the difference between the size and scale of investment banking transactions. Some are large and supported by banks, while others are smaller, and are facilitated, but not financially supported, by corporate advisors.
Investment banking by an investment bank
Investment banking executed by investment banks is commonly applied to billion dollar deals. An investment bank such as Macquarie or Goldman Sachs can hypothetically fund their client with debt or equity, supporting the transaction from start to finish.
Some notable recent investment banking transactions include:
- Medibank Private IPO of $6 billion — the largest initial public offering of a state asset since Telstra Corp Ltd in 1997
- KKR's acquisition of MYOB for $2 billion —one of the most impressive public-to-private deals in Australian history
Investment banking by corporate advisory
The market where transactions occur in the $10 to $200 million range is covered by corporate advisors. A corporate advisor undertakes a very similar role to an investment bank, except that they are not a bank. A corporate advisor doesn’t have a balance sheet to help their clients.
- Horizontal Falls Seaplane Adventures sold to Journey Beyond through an intensive, 6-month process.
- Total Communications sold to Paragon Care, a diversified, ASX-listed Australian medical company.
- Travellers Autobarn entered into a Joint Venture agreement with the Diethelm Keller Group, a large European family office.
Why investment banking is alive and thriving
Simply put, investment banking is a constantly growing and changing industry. Businesses are continually developing and expanding as industries change to meet new demands.
Here are the main reasons why investment banking is thriving:
- Transaction volumes are high in 2019
- Transaction values are rising with higher asset prices and more funds being available
- Private equity funds around the world are always seeking a transaction
Finally, it has never been more complicated to undertake a transaction than in 2019. Changes to laws, regulations, banking, and big data have resulted in transactions becoming extremely complicated. Now more than ever, transactions of any value require the knowledge and experience of corporate advisors.
Why you need a corporate advisor
In order to sell a company for over $10 million, a corporate advisor is required. A corporate advisor does so much more than facilitate a successful sale. Hard work, experience, and attention to detail from Nash Advisory produce outstanding results, ensuring that our clients always receive the best sales price to the highest bidder.
Without a corporate advisor, business looking to sell can run into many risks. These can include:
- The probability of completing a successful transaction
- A range of legal and taxation mistakes and errors could be made
- An owner is unlikely to realise the market value of their business and may accept a low offer