Role of Investment Bankers: How They Help Companies and Investors

When a company goes public, you often focus on its financials, growth prospects, and the potential for listing gains. However, the reality of any IPO is that it involves a complex decision-making process that begins well before the shares are taken to market. Few investors stop to think about who makes that process possible

Investment bankers play a key role in facilitating the transition of privately owned companies to the stock market. Their contribution influences the structure and pricing of an IPO, as well as the demand and regulatory environment for investors, by advising on these aspects. Understanding the role of investment bankers helps you see how companies raise capital efficiently and how investors can access new opportunities through public markets.

Who Are Investment Bankers?

Investment bankers are financial experts who assist companies, governments, and institutions in raising capital and executing large financial transactions. Their business sits at the crossroads of businesses in need of funds and investors seeking opportunities.

The role of investment bankers in IPO is to serve as advisors, intermediaries, and facilitators. They assist the company to entering the public markets, maintaining accurate information for investors, and providing investors with equal access to the offering.

You may imagine investment bankers as the people who come onto the stage and manage several stakeholders, the company management, the regulators, the stock exchange, and the investors, and make sure that the whole process is flawless.

Key Roles of Investment Bankers

Investment bankers do not focus on just IPOs. They offer a broad range of financial and strategic services that benefit companies and investors.

1. Capital Raising - Assisting Companies in Raising Funds via IPOs, FPOs, Bonds

Raising capital for companies is one of the most important tasks of investment bankers. This may occur in the form of IPOs, follow-on public offerings (FPOs), or bonds. In the case of an IPO, investment bankers will assist in deciding the amount of money that the company will raise and which instrument is best. They evaluate the funding requirements, growth plans of the company, and financial status of the company, and suggest the most appropriate strategy. This ensures that the amount of capital raised is organised and controlled, and there is less uncertainty among investors about the offering.

2. Advisory Services - Mergers, Acquisitions, Restructuring, and Corporate Finance

Investment bankers also act as strategic advisors. They are used to assist companies in appraising mergers, acquisitions, divestments, and restructuring.

In case a company is in the process of doing a merger or acquisition, investment bankers will analyse the financials, determine risk, and offer advice on the structure and pricing of the deal. They are meant to assist the management in making wise decisions that are meant to reach the long-term business objectives.

In the mind of an investor, this advisory role affects the corporation's actions, which may have a drastic impact on shareholder value.

3. Underwriting - Guaranteeing the Sale of Securities to Investors

Some of the most apparent roles investment bankers have in an IPO include underwriting. In this capacity, they are ready to purchase the company's shares and resell them to investors.

This structure minimises the company's uncertainty by securing the necessary funds. As an investor, you would gain the security that the issue has been tested and approved by seasoned financial institutions. Underwriters are also used to stabilise prices at the initial stage of trading, particularly during IPO listings.

4. Market Making - Providing Liquidity for Securities

Once a company is listed, liquidity becomes very important. Investment bankers can become market makers and help create sufficient buying and selling interest in the stock.

They provide a buffer by providing liquidity, mitigating sharp price swings, and enabling investors to enter or exit positions. This role supports healthy market operations, particularly during the early post-listing period.

5. Management - Hedging and Managing Financial Risks

Investment bankers can help companies identify and manage financial risks. These risks can include interest rate movements, currency fluctuations, or market volatility. They assist companies in hedging against any unfavourable financial results through strategies and structured products. This risk management plan indirectly helps the investors by protecting the businesses and the ability to experience predictable financial results.

6. Valuation Services - Determining Fair Value of Companies or Securities

The core of investment banking is valuation, especially in IPOs. Investment bankers study financial reports, growth and industry trends, and comparable companies to determine a reasonable valuation.

For you as a shareholder, valuation work affects the IPO price band and shapes price expectations. Although the markets ultimately determine share prices, the banker-led valuation provides a basis for those prices.

Benefits of Hiring Investment Bankers

Hiring an investment banker helps the company add orders, professionalism, and credibility to key financial decisions. Experience leads companies through the twists and turns of capital markets with greater confidence.

Investment bankers help companies by:

• Complying with complex regulatory requirements, including listing regulations, disclosures, and approval processes
  
• Having broader access to investors, including institutional and global investors who might otherwise be hard to reach
  
• Enhancing pricing effectiveness by balancing the company's expectations, investors' demand, and market prices
  
• Minimising execution risk through timeline management, documentation, and stakeholder coordination
  
• Increasing credibility in capital markets: banker participation conveys professionalism and readiness to investors
  

For investors, the presence of investment bankers tends to lead to higher-quality disclosures, a clearer rationale for the pricing judgment process, and a more structured and transparent offering process. This helps reduce uncertainty and enhances combined trust when undertaking public offerings.

Role of Investment Bankers in IPO and Public Offerings

Investment bankers are most visible in the IPO process. They are involved throughout the offering lifecycle.

1. Pre-IPO Preparation

Before the IPO launch, the investment bankers collaborate with the company to make it ready to be scrutinised by the public. This involves examination of financial statements, enhancement of internal operations, and adherence to regulatory measures.

They also assist in writing the offer documents, in which the risks, business models, and financial data are reported in a clear and precise manner.

2. Pricing and Valuation

The investment bankers are instrumental in setting the IPO price band. They examine the demand on the part of institutional investors, evaluate market prospects, and combine company expectations with the appetite of the investors. As an investor, this pricing procedure has an impact on making an IPO look fairly priced or overpriced.

3. Marketing and Investor Outreach

During the IPO process, the investment bankers will schedule roadshows and meetings with institutional investors. These contacts are used to gauge demand and build interest in the offering. This promotion affects subscription levels and predetermines listing-day performance.

4. Allocation and Listing

After subscriptions close, investment bankers assist with the allotment process and liaise with stock exchanges to facilitate a smooth listing. Once listed, they can help stabilise prices and control volatility during the initial trading period. Impact on Investors

An investor's primary market experience directly depends on investment bankers' efforts. Their involvement influences how information is presented, how pricing is determined, and how smoothly the offering process is executed.

Their role helps to:

• Improve transparency by providing detailed disclosures, ensuring key information about the company, risks, and financials is available before you invest.
  
• Provide structured access to new investment opportunities by organising the offering process and defining clear timelines for participation.
  
• Reduce execution and settlement risks by efficiently coordinating allotment, listing, and post-issue processes.
  
• Support fair price discovery by assessing investor demand and market conditions during the pricing phase.
  

Simultaneously, you should keep in mind that investment bankers represent the issuing company. Their main agenda is to ensure a successful launch and subscriptions. Consequently, their interests may not always align with the investor's short-term interests; therefore, you must consider each offering separately.

Conclusion

Investment bankers are vital to the process of matching companies with capital and investors with opportunities. Their participation in advisory and valuation, underwriting, and risk management determines how firms enter the public markets and how investors are involved in the market. As an investor, you need to understand what investment bankers do during IPOs to see beyond headlines and IPO performance on listing day. It provides a clearer understanding of how offerings are organised, priced, and delivered so that you can make a better choice in the main market.

Sources:

1. https://www.investopedia.com/terms/i/investment-banking.asp
   
2. https://corporatefinanceinstitute.com/resources/career/what-do-investment-bankers-do/
   
3. https://blog.camonk.com/investment-banker-role-in-ipos-dont-miss-this-guide/