Merchant Banking: Overview & Functions of Merchant banks

Merchant Banking: Overview & Functions of Merchant banks

March 24, 2023 Admin
Merchant banking Merchant banking services Merchant banks Merchant banking financial services Merchant bank

What is merchant banking?

Merchant banking typically involves providing a range of financial services to businesses, including underwriting securities offerings, managing IPOs, providing merger and acquisition advice, managing private equity placements, and offering various types of structured finance solutions. Merchant banking financial services include underwriting, mergers and acquisitions advice, and corporate restructuring.


Merchant Banking: Overview & Functions of Merchant banks

Merchant banking services:

  • Merchant banking financial services: Merchant banking financial services include providing support to corporate clients in their business dealings. These banks often work with firms that may not have the size or resources to raise funds through a public offering (IPO).
  • Financing and Loan Services: Merchant banks have a history of providing international financing and underwriting services for various sectors such as real estate, trade finance, and foreign investment. They also facilitate the transfer of funds. 
  • Handling International Transactions For multinational corporations operating in various countries: Merchant banking financial services can offer to arrange finance for their business operations globally and handle currency exchange management. When a company is looking to make a significant purchase in another country, it will approach a merchant bank to arrange the transfer of funds using a letter of credit.

Other than the above-mentioned functions, merchant banks can offer the following services as well:

Merchant banks offer a range of services to their clients, including project counseling, leasing services, issue management, arranging underwriting, fundraising, portfolio management, loan syndication, and promotional activities. They assist clients in idea generation, report creation, budgeting, financing, and leasing assets and equipment to generate rental income. They also help clients issue equity shares, preference shares, and debentures to the public and facilitate equity underwriting. They assist private companies in generating capital from both domestic and international markets through underwriting and securities issuance. In addition, they invest on behalf of clients in various financial instruments for various projects. Lastly, they act as financial intermediaries and promote new enterprises.


Functions performed by Merchant Banks:

  1. Access to Capital: It helps businesses raise capital through the issuance of securities such as stocks and bonds. This can be particularly beneficial for companies that are looking to expand or for those that are not able to access traditional forms of financing.
  2. Expertise: They have a team of experienced professionals that specialize in investment banking, corporate finance, and asset management. They can provide valuable advice and guidance to help businesses make strategic financial decisions.
  3. Diversification: They provide a wide range of services, which can help businesses diversify their investments and manage risk.
  4. Flexibility: They provide customized solutions and tailor their merchant banking financing services to meet the specific needs of each client.
  5. International trade: They have a deep understanding of global trade and finance, which can be very beneficial for companies that are involved in international trade.
  6. Connections: They have a wide network of contacts and relationships with other financial institutions, which can be beneficial to businesses that are looking to expand.

Importance of Merchant Banks:

Merchant banks play a crucial role in providing financial support to small and medium-sized businesses, who otherwise may not be able to secure funding from venture capitalists or investment bankers. These banks act as intermediaries between savers who seek high returns on their investments and businesses that require funding for their operations. They offer corporate and project counseling services, helping companies make informed financial decisions and also offer a wide range of merchant banking services. They provide valuable support to companies that cannot afford the high costs associated with accessing the capital markets through larger investment banks.


Differences Between Merchant Banks and Investment Banks

  1. Services offered: Merchant banks typically offer a wider range of services, such as corporate finance, asset management, trade finance, and private banking. Investment banks, on the other hand, primarily focus on investment banking services, such as underwriting securities, advising on mergers and acquisitions, and helping companies raise capital.
  2. Client base: The client of the two varies according to the nature, quantum and timing of the funds required for investment. 
  3. Type of Transactions: Merchant banks are more focused on long-term transactions and providing financial advice, while investment banks are more focused on short-term transactions and trading.
  4. Capital structure: Merchant banks are typically more diversified and have a more stable capital structure, while investment banks are more leveraged and have a more volatile capital structure.
  5. Risk: As merchant banks have a more diversified portfolio and focus on long-term investments, the risk associated with merchant banks is generally considered to be lower than that of investment banks.

Resurgent India Limited:

Resurgent India Limited is a highly regarded financial advisory firm in India that has been classified as a Category I Merchant Bank by the Securities and Exchange Board of India (SEBI). The company offers a comprehensive suite of merchant banking financial services to its clients, spanning private equity, debt solutions, mergers and acquisitions, structured finance, capital market solutions, transaction advisory, valuations, enterprise risk management, tax services, and training.

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