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The next type of investment banking services we will examine are advisory services, comprising assistance in transactions, like mergers and acquisitions (known as M&A) and debt restructurings.
As we already said, M&A stands for Mergers and Acquisitions.
In every M&A process, there are at least two parties. One of the companies is called the Buyer or the Buying company, and the other one is called the Target, which is the firm acquired.
The Buyer company can offer a compensation to the Target company’s shareholders in several ways. They can offer a cash compensation, a stock package of the new entity, or a combination of both. The technical name of the amount paid is called “consideration.”
There are several reasons M&A deals play an important role in a company’s life. Top managers understand that, sometimes, it is cheaper to acquire something that has been already created, rather than trying to generate it internally. In addition, businesses are so complimentary that their combination can unlock a great deal of savings, efficiencies, and opportunities. We will focus on these aspects in the chapter dedicated to the mechanics of M&A services.
Why do companies need help when acquiring other companies?
Investment bankers are ideally positioned to provide valuable M&A insights to their clients, as they know their business and the industry in which they operate. Sometimes, an investment bank advises several firms from an industry and can gain perspective through multiple points of view.
Besides M&A, many investment banks engage in restructuring services. These services are necessary when a firm cannot service its debt and is in danger of going bankrupt. I’m sure you can imagine how tough it is to work on these transactions and assist companies in deep trouble.
What leads to the distress of a company? Why would a company borrow money it can’t repay?
Well, the simple answer is that things change, and sometimes, unforeseen circumstances can materialize.
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