Sometimes, mergers and acquisitions can involve lengthy battles.
Even as investment bankers help grease the wheels of capital markets, they have attracted criticism.
While this activity helps smooth the wheels of capitalism, the role of investment bankers has come under scrutiny because there is some criticism that they are paid too much in relation to the services they provide.
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This involves valuing the targeted company and coming up with a price that represents its value.
On the other side of the deal, companies putting themselves up for sale also need investment bankers to evaluate asking price and offers.Another conflict of interest can occur when investment bankers, who have access to confidential information from clients related to their business and prospects, can pass information to their firm’s traders.Traders can use this insider information to an unfair advantage when dealing with investors who don’t have the same information.In the course of arranging capital markets financing for its clients, investment bankers also typically undertake the underwriting of the deals.This means that they manage the risk inherent in the process by buying the securities from the issuers and selling them to the public or institutional buyers.In this case, the investment bankers have the option to sell securities and get paid, on a commission basis, for the actual amount of securities they sell.Instead of taking on the cost of a public offering, sometimes investment bankers help their clients raise capital through private placements.An investment banker would put together a prospectus explaining the terms of the offering and the risks it carries, manage the issuance process with the SEC, and help price the offering. If they are priced too high, the public may not be interested in buying them.If they are priced too low, the investment banker may be leaving some money on the table that he or she could have generated for the client.For instance, they could place an offering of bonds with an institutional investor such as an insurance company or a retirement fund.This is usually a faster way to raise money since there is no need to register this sort of offering with the SEC.