Describe the roles of investment banks, with an emphasis on the nature of their off-balance-sheet business, in particular mergers and acquisitions. A wide range of non-bank financial institutions has evolved within the financial system in response to changing market regulation and to meet particular needs of market participants.

Investment banks play an extremely important role in the provision of innovative products and advisory services to corporations, high-net-worth individuals and government.

The structure of investment banks is characterised by a division of activities between front office (trading, investment banking, investment management, research), middle office (risk measurement, risk management) and back office (accounting, audit, compliance).

Investment banks raise funds in the capital markets, but are less inclined to provide intermediated finance for their clients; rather, they advise their clients and assist them in obtaining funds directly from the domestic and international money markets and capital markets.

Investment banks specialise in the provision of off-balance-sheet products and advisory services, including operating as foreign exchange dealers, advising clients on how to raise funds in the capital markets, acting as underwriters and assisting clients with the placement of new equity and debt issues, advising clients on balance-sheet restructuring, evaluating and advising on corporate mergers and acquisitions, identifying and advising on potential spin-offs, advising clients on project finance and structured finance, providing risk management services and advising clients on venture capital.

An investment bank may advise a corporation on all aspects of a merger and acquisition proposal. This is a situation in which one company seeks to take over another company. The merger may be friendly or hostile, and strategically may be a horizontal takeover, a vertical takeover or a conglomerate takeover. The merger will seek to achieve synergy benefits, such as economies of scale, finance advantages, competitive growth opportunities and business diversification.

Question:

Typically, an investment bank will act on behalf of a company involved in a merger and acquisition. What are the main areas to which the investment bank will draw the client's attention?