MERCHANT BANKING

SERVICES
MERCHANT BANKING
 Merchant banking is the financial intermediation
that matches the entities that need capital and
those that have capital.
 A Merchant Bank is a British term for a bank
providing various financial services such as
accepting bills arising out of trade, providing
advice on acquisitions, mergers, foreign exchange,
underwriting new issues, and portfolio
management.
MERCHANT BANKING-MEANING

 Form of banking where the bank arranges credit financing, but

does not hold the loans in its investment portfolio to maturity.
 A merchant bank invests its own capital in leveraged buyouts,
corporate acquisitions, and other structured finance
transactions.
 Merchant banking is a fee based business, where the bank
assumes market risk but no long-term credit risk.
MERCHANT BANKING AND ITS OTHER
NAMES
 Merchant Banking

 Investment Banking

 Corporate Finance

 Banque d'affaire
SCOPE OF MERCHANT BANKING
ACTIVITIES

 In channelizing the financial surplus of the general

public into productive investment avenues
 To coordinate the activities of various
intermediaries to the share issue such as the
registrar, bankers, advertising agency, printers,
underwriters, brokers etc.
 To ensure the compliance with rules and
regulations governing the securities market
MERCHANT BANKING – TYPES
OF SERVICES

Advisory services

Fund based services

MERCHANT BANKING - ADVISORY
SERVICES

 IPO (Public Issue Management)

 Project counseling
 Project funding
* Syndication
* private placement
* bridging/ mezzanine finance
* DFI
* other institutional funding-MF, pension funds
* private investors
MORE ADVISORY SERVICES….

 Tax advisory services

 M&A Advisory services
 Corporate counseling services
 Forex Advisory services
 Portfolio management services
 Private placement of bonds
MERCHANT BANKING- FUND
BASED SERVICES

 Underwriting a public issue

 Short term funding
* bridging finance/ mezzanine finance
* commercial banks/investors
 Structured financing deals
 Structured instruments
 * range accrual notes linked to currencies, intt. rate, stock
indexes, commodities etc
 Leveragedbuy- outs (LBO)
 Market makers for thinly traded securities
LEVERAGED BUY OUT ( LBO)
 A leveraged buyout or LBO ( also called "bootstrap"
transaction) occurs when a financial sponsor acquires a
controlling interest in a company's equity and where a
significant percentage of the purchase price is financed
through leverage.

 The assets of the acquired company are used as collateral

for the borrowed capital, sometimes with assets of the
acquiring company. The bonds or other paper issued for
leveraged buyouts are commonly considered not to be
investment grade because of the significant risks
involved.
LBO- TYPICAL TARGETS

 Some features of potential target firms that make for more attractive
leverage buyout candidates, include:
 Low existing debt loads;
 A multi-year history of stable and recurring cash flows;
 Hard assets (L&B, P&M,,inventory, receivables etc) that may be
used as collateral for lower cost debt;
 The potential for new management to make operational or other
improvements to the firm to boost cash flows;
 Market conditions and perceptions that depress the valuation or stock
price.