In the heady field of mergers & acquisitions, the investment bank is an advisor to a client that is either selling or purchasing an entire company, a division, or other business assets (like a factory or a hotel). The bank advises either the seller or the buyer, decides on an appropriate valuation range, and negotiates terms that favor the bank's client. Mergers and acquisitions can take myriad forms, from a friendly stock swap (increasingly common) to a hostile takeover (increasingly rare). (Note: "Mergers" and "acquisitions" are essentially the same thing - the words are merely legal terms that depend on the amount of stock swapped and other details of arcane corporation law.) Investment banks may also be hired to advise on only one aspect of an M&A transaction, for example to help find the right partner, purchaser or seller, to arrange financing, or only to value businesses or assets to be sold.
Often, investment bankers will approach companies to propose M&A deals they may not have otherwise considered. Proposing such deals -- or providing advice to a client -- requires heavy research and knowledge of an industry, it also means gaining the trust of top company officials. It means lots of schmoozing. Although bankers generally drive the overall strategy of a company?s decision to merge, acquire, or be acquired, lawyers are the ones who typically do negotiate over the fine points of a deal.
M&A has been a robust business in the past recent years. In fact, eight of the top 10 mergers ever were announced in the first half of 1998, including the Travelers Group/Citicorp merger, the SBC/Ameritech marriage, and the Daimler Benz/Chrysler combo. The increased merger activity has greatly improved Wall Street's bottom line - M&A is a high-margin business.