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Investment Banking advice relates to corporate actions rather than product or organisational matters, such as product improvement, market analysis or management organisation. Nonetheless, an investment banker needs to have an understanding of all these things because they, too, will have an impact on shareholder value.

Mergers and Acquisitions (M&A)

The majority of financial advice relates to M&A. The client company seeks to expand by acquiring another business. There are many possible commercial reasons for this, such as:

• increasing the range of products
• increasing the business' geographical footprint
• complement existing products
• integrating vertically (i.e. acquire suppliers, further up the chain, or customers, further down the chain)
• protecting a position (for example by preventing a competitor from acquiring the business in question).

As a result, our Investment Banking division is divided into industry sector teams, who can then familiarise themselves with the principal players, economics and dynamics of the sector in question.

There are also many possible financial reasons for making an acquisition, such as:

• raising profitability, and therefore the share price
• increasing in size - generally speaking, larger companies are more widely followed and more widely invested in; again, likely to have a positive effect on the share price
• financing growth
• improving quality of profits - investors like predictable profit streams, and will value these more highly
• shifting the business towards sectors more favourably viewed by the market.

The role of the investment banker advising the acquiring company is:

• using his/her knowledge of the industry sector, to help with the identification of potential targets which meet commercial criteria such as those referred to above
• using his/her knowledge of the investment market, to advise on valuation, form of consideration (should the sellers be paid in cash - which is likely to involve the buyer borrowing the money - or in the buyer's shares - so that the seller ends up with a stake in the buyer, or a blend of the two?), timing, tactics and structure
• to coordinate the work of the other advisers involved in the transaction - lawyers, who prepare the documentation for the acquisition and help with the "due diligence" to be performed on the business being acquired; accountants, who advise on the financial reporting aspects of the transaction, and tax consequences; brokers, who advise on shareholder aspects (how are the buyer's shareholders likely to view the acquisition?) and how the market as a whole is likely to receive the transaction; and PR consultants, who ensure that the transaction has a favourable press.

Of course, the sellers of a company being sold will also have investment banking advisers, who provide advice from the other side. Generally, the investment bank is the first adviser to be retained in respect of the deal - indeed it often suggests the transaction - so you need more than a working knowledge of the specialist areas covered by the other advisers.

For further information on Rothschild's M&A business, click here.

General financial advice

Investment Banking also involves providing general financial advice on a range of issues, such as capital structure (perhaps the company is too indebted, and should issue shares to raise more money; or does it have too much cash on its balance sheet, so that it should consider paying a large dividend to its shareholders or buying back some if its own shares?).

Privatisation work is similar to M&A, except that the seller in this case is a government, which is likely to have different, i.e. political, motives for completing the transaction although the commercial case must also be made.

For further information on Rothschild's Privatisation business, click here.

Debt Advisory

Investment Banking also involves providing financial advice on debt-specific issues including for instance:

• Debt raising e.g. to fund an acquisition (of companies or assets) or refinance existing debt (providing views on the feasibility of the transaction in current debt market conditions, the appropriate structure and assisting companies in the selection of debt instruments and providers to obtain the best terms; also covering strategy in front of rating agencies where a company wants a public credit rating).
• Restructuring: this is the term used for the provision of advice to companies or their lenders in situations where the present borrowing structure has become unsustainable (for example, because the company is unable to pay the interest due on its debt). For further information on Rothschild's Restructuring business, click here.
• Leasing/structured finance and securitisation: advising on funding secured against specific assets (e.g. customer loans) or cashflow streams (e.g. future rent payments).

For further information on Rothschild's DCM Advisory Business, click here.

Note: If a company is to grow, it has to invest and, often, that capital comes from external sources. This can be in the form of debt or equity raised from the capital markets. The debt is typically provided by banks or directly from investors and the equity may be institutional (eg. pension funds) or retail (eg. individuals).

Rothschild's debt activities are part of the Corporate Banking division. We do not underwrite equity products nor are we engaged in sales and trading activities.