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1. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Corporate Advisory Services
Module B: Investment Banking

2. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
CAIIB – SUPER NOTES
Corporate Banking: Corporate Advisory Services

3. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Contents
Coverage:
1. Corporate Advisory Services
2. What happened to the Merchant Banks
3. The Impact of Global Financial Crisis
4. Capital Restructuring
5. Advantages and Disadvantages of Financing Options
6. Benefits of Capital Restructuring
7. Private Equity
8. Project Advisory Services
9. Introduction to Venture Capital
10. What is involved in the Investment Process
11. Loan Syndication
12. Important Roles in Syndicated Loans
13. Benefits of Loan Syndication for borrowers

4. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
CORPORATE ADVISORY SERVICES
1.

5. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Corporate Advisory Services
• The activity of advising organisations including corporations,
institutions and government bodies on mergers and
acquisitions and other transactions which involve a change in
ownership of a company or business.
• Also includes services related to matters pertaining to Finance
and Taxation

6. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Advisors in M&A Transactions
Financial
Advisors
Financial
Advisors
Legal
Advisors
Legal
Advisors
FinanciersFinanciers
Independent
Experts
Independent
Experts
Other
Advisors
Other
Advisors

7. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Role of Corporate Advisor
Advise on overall
approach to
transaction
Advise on overall
approach to
transaction
Assistance with
selection of proper
team of advisors
Assistance with
selection of proper
team of advisors
Co-ordination of
advice received
from other
advisors
Co-ordination of
advice received
from other
advisors
ValuationValuation
Assisting in
conducting Due
Diligence
Assisting in
conducting Due
Diligence
Advise on optimal
structure for
proposed
transaction
Advise on optimal
structure for
proposed
transaction
Advise on
proposed
financing
arrangements
Advise on
proposed
financing
arrangements
Advise on likely
market reaction to
a proposed
transaction
Advise on likely
market reaction to
a proposed
transaction
Advise and assist
in design of
investor
communications
Advise and assist
in design of
investor
communications
Oversight of
production of
transaction
documentation
Oversight of
production of
transaction
documentation

8. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Corporate Advisors
Global Investment
Banks
Global Investment
Banks
• Offer a ‘one stop
shop’ solution
• A situation of
conflict of interest
may arise
Specialist Corporate
Advisory businesses
Specialist Corporate
Advisory businesses
• Solely offer M&A
advise

9. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
WHAT HAPPENED TO THE
MERCHANT BANKS
2.

10. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
What happened to the Merchant Banks
• Historically,
– Merchant Banks provided Trade Finance in the form of debt capital to
merchants from their own balance sheet
– Investment Banks provided capital by intermediating between sources
of capital and clients requiring funds
• Over time, the distinction blurred, as merchant banks
accessed capital markets and investment banks begun
investing their own capital

11. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
THE IMPACT OF GLOBAL FINANCIAL
CRISIS
3.

12. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
The Impact of Global Financial Crisis
• The trend of major corporate and governments increasingly
turning to independent advisory businesses for advice has
continued
• There is greater regulation in certain markets on certain
services

13. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
CAPITAL RESTRUCTURING
4.

14. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Capital Restructuring
• Capital is generally the assets, often monetary, that are available to
generate more assets. Thus, the liquidity of capital should be high.
• Restructuring means reallocating the capital to improve its
availability(liquidity)
• The process requires selling assets to buy different ones in order to
improve owner’s monetary position so that they can improve their asset
position thus enabling them to earn more.
• It can be defined as a fundamental, voluntary change in a firm’s capital
structure, effected by altering voting rights of the providers of equity
capital and loan capital

15. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Capital Restructuring
• Makes companies attractive to potential stakeholders, reduces costs,
increases efficiency, increases EPS and gives better returns
• Competitive pressures, shareholder’s demands, management decisions
and regulatory and political environment, all warrant that companies keep
on changing
• Approaches to restructuring include:
– Expansion
– Contraction
– Corporate Control
– Changes in ownership structure

16. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Changes in ownership structure
• Share repurchase or buyback is one of the most important
strategies. However, it may also send negative signals.
• Buyback methods include:
– Repurchase Tender
– Open Market Purchase
– Privately Negotiated Repurchases
• Share buyback is also an information signal to the market
apart from being a strictly financial decision

17. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
ADVANTAGES AND DISADVANTAGES
OF FINANCING OPTIONS
5.

18. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Debt Financing
Allows founders to retain
ownership and control of the
business
Provides small business
owners greater degree of
financial freedom
Easy to administer
Less expensive for small
businesses over the long
term
Requires regular monthly
payments which may be
difficult for small businesses
Availability is often limited to
established businesses
AdvantagesAdvantages
DisadvantagesDisadvantages

19. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Equity Financing
No obligation to repay
the money
Easy availability for
concept and early
stage businesses
Investors are often
good sources of advice
and contacts
Founders must give up
control
Can be complex and
difficult to administer
AdvantagesAdvantages
DisadvantagesDisadvantages

20. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
BENEFITS OF CAPITAL
RESTRUCTURING
6.

21. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Benefits of Capital Restructuring
Improved
Reinvestment
Decisions
Improved
Reinvestment
Decisions
Improved
Asset
Management
Improved
Asset
Management
Reduced
Information
Asymmetries
Reduced
Information
Asymmetries
Information
Dissemination
Information
Dissemination
Due to these advantages capital is put to optimal use, resulting in greater efficiency in
operations culminating in higher profitability and consequently a higher EPS.

22. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
PRIVATE EQUITY
7.

23. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Private Equity
• Equity capital which is not quoted on a public exchange
• Consists of investors and funds that make investments directly into
private companies or conduct buyouts of public companies that
result in delisting of public equity
• Commit large sums of money for long periods of time
• Conduct Leveraged BuyOuts
• Venture Capitalists are early stage investors whereas PE investors
step in for growth and consolidation
• Most PE firms are structured as limited partnerships

24. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
PROJECT ADVISORY SERVICES
8.

25. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Project Advisory Services
Promoting
Company/SPV’s
Overview
Promoting
Company/SPV’s
Overview
Project Review:
Structure and
Costs
Project Review:
Structure and
Costs
CPM Schedule
Preparation and
Review
CPM Schedule
Preparation and
Review
Project team,
documentation
and process
evaluation
Project team,
documentation
and process
evaluation
Change Order
Evaluation
Change Order
Evaluation
Time Extension
Evaluation
Time Extension
Evaluation
Cost Recovery
Audit
Cost Recovery
Audit
Fraud Consulting,
investigations and
internal audit co-
sourcing
Fraud Consulting,
investigations and
internal audit co-
sourcing
Contract
Compliance
reviews and
Contract closeout
Contract
Compliance
reviews and
Contract closeout
Looking for Capital
Structuring
Looking for Capital
Structuring
Arranging finance
at reasonable cost
Arranging finance
at reasonable cost
Suggest Financial
Modeling
Suggest Financial
Modeling
Risk analysis,
allocation and
mitigation
measures
Risk analysis,
allocation and
mitigation
measures
Advising and
Development of a
security package
Advising and
Development of a
security package

26. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
INTRODUCTION TO VENTURE
CAPITAL
9.

27. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Venture Capital
• Long Term committed share capital to help unquoted
companies grow and succeed
• VC investors are interested in companies with high growth
prospects, managed by experienced and ambitious teams
who are capable of turning the business plan into reality
• A form of Risk Capital
• Investment for 3-7 years or more
• VC firms obtain funds from various sources

28. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
WHAT IS INVOLVED IN THE
INVESTMENT PROCESS
10.

29. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Initial evaluation of Business Plan
• Is the product or service commercially viable?
• Does the company have potential for sustained growth?
• Does management have the ability to exploit this potential
and control the company through growth phases?
• Does possible reward justify the risk?
• Does the potential financial return on investment meet the
investment criteria?

30. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Additional Financing (other than VC)
Clearing Banks
(ODs and STLs)
Clearing Banks
(ODs and STLs)
Merchant BanksMerchant Banks Finance HousesFinance Houses
Factoring
Companies
Factoring
Companies
Government and
European
Commission
Sources
Government and
European
Commission
Sources
Mezzanine
Financing Firms
Mezzanine
Financing Firms

31. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Making the Investment – Due Diligence
Management
Information
Systems
Management
Information
Systems
Forecasting
Techniques and
accuracy of past
forecasting
Forecasting
Techniques and
accuracy of past
forecasting
Assumptions on
which financial
assumptions are
based
Assumptions on
which financial
assumptions are
based
Latest available
management
accounts
Latest available
management
accounts
Bank facilities and
leasing
agreements
Bank facilities and
leasing
agreements
Pension fundingPension funding
Employee
Contracts etc.
Employee
Contracts etc.
Due diligence review aims to support or contradict the V C firm’s own initial
impressions of the business plan formed during the initial stage

32. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
LOAN SYNDICATION
11.

33. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Loan Syndication
• Syndication is an arrangement where a group of banks which may not have
any other business relationship with the borrower participate in a single loan
• Banks in the syndicate share the risk of large, indivisible investment projects.
– Additional syndicate members provide informative opinions of investment projects or
additional expertise after the funding has been extended
– Enable banks to participate in projects which they would not be able to finance singly
because of regulatory constraints
• Traditionally, syndicated loans are structured as term loans or operating
revolvers. However, they may also include tranche or segmented structures,
LCs, acquisition facilities, construction financing, asset based structures,
project finance and trade finance

34. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Loan Syndication
• Corporates opt for syndication when:
– The borrower wants to raise large amount of money quickly and conveniently
– The amount exceeds the exposure limits or appetite of any one lender
– The borrower does not want to deal with a large number of lenders individually
• Euro syndicated loan is usually a floating rate loan with fixed maturity, fixed
draw down period and a specified repayment schedule
• Drop Lock Feature: Converts floating rate loan into a fixed rate loan if the
benchmark index hits a specified floor
• Multi Currency Option: Allows the borrower to switch the currency of
denomination on a roll over date
• Security requirements vary

35. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
IMPORTANT ROLES IN SYNDICATED
LOANS
12.

36. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Important Roles in Syndicated Loans
•Responsible for placing the syndicated loan with other banks
•Entitled to arrangement fee
•Bear reputation risk
Arranger/Lead ManagerArranger/Lead Manager
•Bank that commits for supplying the funds to the borrower
Underwriting RiskUnderwriting Risk
•Lends a portion of the total amount
Participating BankParticipating Bank
•Takes care of all administrative arrangements over the term of the loan
•May be either the lead manager or the underwriting bank
Facility Manager/AgentFacility Manager/Agent

37. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Types of Lead Bank Arrangement
• Lead bank ties up the entire requirement amongst its close contacts
• In case of very lucrative or small deals
Club DealClub Deal
• Lead bank does not promise or guarantee the success of its efforts
Best EffortBest Effort
• Lead Bank gives assurance for the success of the syndication in
mobilizing the requirements of the borrower
Full CommitmentFull Commitment

38. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Syndication Stages
Pre-Mandate Phase
• Lead Bank identifies the needs of the borrower, designs an
appropriate loan structure, develops a persuasive credit
proposal, and obtains internal approval
Pre-Mandate Phase
• Lead Bank identifies the needs of the borrower, designs an
appropriate loan structure, develops a persuasive credit
proposal, and obtains internal approval
Placing the Loan
• Lead bank prepares Information Memorandum, Term Sheet,
and legal documentation and approaches the banks
• Lead manager carries out negotiations and deal is closed
Placing the Loan
• Lead bank prepares Information Memorandum, Term Sheet,
and legal documentation and approaches the banks
• Lead manager carries out negotiations and deal is closed
Post Closure Phase
• Agent now handles day to day running of the loan facility
Post Closure Phase
• Agent now handles day to day running of the loan facility

39. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Characteristics of Syndicated Loans
Bilateral Loans Syndicated Loans Bond Markets
Loan Size Lowest Large Large
Public Disclosure Lowest Medium Highest
Driving Factor Relationship Relationship/
Transaction
Transaction
Covenants Extensive and
Frequently
Negotiated
Extensive but less
frequently
negotiated
Rarely negotiated
Borrowing Rate Floating Rate Floating Rate Fixed Rate
Funding Revolving Credit or
Fully Funded Term
Loan
Revolving Credit or
Fully Funded Term
Loan
Fully Funded

40. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
BENEFITS OF LOAN SYNDICATION
FOR BORROWERS
13.

41. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Benefits of Loan Syndication for borrowers
Complete menu of
financing options
Can raise large amount of
money quickly and
conveniently
Allows company to raise
funds from a diverse
group of financial
institutions
Managing multiple
banking relationships is
not easy
Negotiations can take a
long time
AdvantagesAdvantages
DisadvantagesDisadvantages

42. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
Do you have any questions or queries or some feedback to give?
Just mark an email to super.msahluwalia@yahoo.com

43. CAIIB – Super-Notes© M S Ahluwalia Sirf Business
For more Super-Notes: Click Here
M S Ahluwalia, amongst other things, is a visual artist, blogger,
blog designer and of course an MBA and Banker from New
Delhi, India.
To know more about him you may visit his blog-site: Estudiante De La Vida