Merchant banking

Is the work in merchant banking more similar to that of IBD or IMD? From what I've read it sounds like it's basically Asset Management but with only one client: your own firm. Does merchant banking simply invest along with the firm's clients or do they come up with investments that are strictly for the firm to look at? Does merchant banking, or principal investing, relate to proprietary trading? Is the lifestyle/hours the same as IBD or IMD? Is merchant banking part of the front office?

 
Best Response

That's not technically True. Merchant Banking is a mixture of advisory services a bank may or may not offer. It's considered to be a catch-all name meant to encompass the services offered. I know of small shops that call themselves Merchant Banking and only focus on PE and Advisory, making it fall more under IMD, while I know others (And see below for a few names) that focus on all areas of the markets, making them IBD.

Merchant Banking is also not limited to BB's. Merchant Banking used to, and still is, associated with boutique shops.

Below is something I had posted (Now updated for spelling) after someone asked a similar question, must have been a year ago, maybe a year and a half ago.

It's the old school way of describing Investment Banking, however it is also commonly associated with PE. It was originally designed as a way for Italian farmers to be financed during the middle ages and has expanded to encompassing most functions of banking, from raising funds to underwriting to PE. The ancient bankers would hold deposits, make loans, finance trips and undertake most functions of banking. The key thing to note about ancient Merchant Banking was that the rate charged was extremely high, prohibiting both Islamic and Christian practitioners against this due to Usury prohibitions, leaving the Jews to enter into this area just about completely unopposed due to no restrictions on Usury.

Nowadays, as I said, it covers just about all of the IBD activity, however it's most commonly associated with PE, M&A and advisory roles. I'm not sure as to why they focus primarily on these areas, but that is the trend with more modern Merchant Banks.

If you do take a look at some of the "Classic Merchant Banks", such as S.G. Warburg and Warburg Pincus (and by extention, M.M. Warburg and Co.), Barings and N. M. Rothschild & Sons, they focus, or focused as the case may be for S.G Warburg, Warburg Pincus and Barings, on all aspects of banking while maintaining their Merchant Banking name.

If someone wants to add more info, please go ahead. I hope this does serve as a most basic primer though.

 

We invest 'our own money' across several asset classes, up and down the capital stack. Even as 'equity' players we are very 'risk averse' - an oxymoronic term these days but still that's the party line. We do 'advisory' of sorts. This means we find a deal we cannot get approved / funded internally we'll go outside and take a fee. Pretty sexy stuff -- not!

Note: 1) we do not pay nor behave like IBs at any level. 2) 'our' money is now of course YOUR money as the public essentially owns our bank, so thanks for the loaner.

I'm here to help break through the 'shadowy' world of BS that is Wall Street.

Cheers!

 
LaidoffBUTupbeat:

We invest 'our own money' across several asset classes, up and down the capital stack. Even as 'equity' players we are very 'risk averse' - an oxymoronic term these days but still that's the party line.
We do 'advisory' of sorts. This means we find a deal we cannot get approved / funded internally we'll go outside and take a fee. Pretty sexy stuff -- not!

Note: 1) we do not pay nor behave like IBs at any level. 2) 'our' money is now of course YOUR money as the public essentially owns our bank, so thanks for the loaner.

I'm here to help break through the 'shadowy' world of BS that is Wall Street.

Cheers!

What is the typical day like as a Merchant Banker?

 
Jaygatsby28:
In banking, a merchant bank is a traditional term for an Investment Bank. It can also be used to describe the private equity activities of banking.
Right. An IBs PE is a MB area of the IB.
 

quite a few banks have RE PE divisions. From what I know - MS, GS, ML, DB, Citi and Lehman all have REPE divisions. Use the search there was quite a big thread on REPE a while back.

Straight PE - GS, Lehman, ML definitely have such divisions and other banks probably do it as well.

If you're an undergrad trying to get in out of college its not easy - there are extremely limited opportunities. For each major city (NY, London, LA/SF) each bank probably only takes 1-3 from undergrad. The rest of the analysts in the (RE)PE teams are 'experienced' hires - i.e. they have a couple of years LevFin or RE M&A experience. Some banks only recruit 'experienced' bankers with a couple of years experience for their (RE)PE teams.

 

Random observation. During the interview process for internships I had a few people interview me/talked to some people in merchant banking at some BB firms. The thing they had in common was they were all third year analysts who had switched into merchant banking within their firm for their third year (one started in IB, the other in a division of DCM). I have never heard of anyone from college go straight into merchant banking.

 
JackDole1029:
MB is not about salary. It is about getting a track record at a young age and starting your acquisitions/pe/lbo fund.

Aren't you the one that started this thread? Please shut your mouth until you know what you're talking about. What the fuck do you mean by 'track record'? We're not talking about junior traders, here.

 

Merchant banks are often holding companies (not necessarily THE holding company). They fund the equity for many ventures, usually bank related. Functions there seem executive/PE in nature, and I'd imagine it's a nice route to upper management, not just department head (no knowledge if this is the case, though).

 

Merchant Banking is PE. GS's PE arm is called Merchant Banking, so it CS's I believe. Your exit opps should be pretty good. Also, you could always get into a top MBA if you want to land into a Mega PE fund.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

The Shit

OK, I agree I was more or less "owned" on the technical point -- no big deal.

However, why don't you learn what merchant banking is and don't fall for some marketing crap that is essentially just showing it as Private Equity. (by the way, does the girl in the pic to your link look like she's about to fart?)

Honestly, I have no clue why GS is calling this Merchant Banking. Obviously some retarded HR person created that cheezy site. Merchant banking is not supposed to be synonymous with Private Equity.

MB is taking stakes / risks with your client for the purpose of advising them and having skin in the game. Essentially winning advisory business and mixing in a principal stake in some way that is inter-related. This is what MOST people refer to that know what they are talking about.

For a Senior Baboon, I'd expect a little more insight. If I'd bought any Monkey Shit, I'd poop on your head you bastage! LOL. Who cares, anyway, really. Right.

################################################# I am the Man. I Have the Plan. Follow Me to the Promised Land.
 

^ Retard, I wasn't discussing with you the technicals about merchant banking. The fact of the matter is some BBs do have a Merchant Banking division. Not just Goldman.

Kid, you gotta be fucking kidding me. Lower your ego before I shit on you.

 

.....people need to stop talking about stuff they have no clue about....

Merchant Banking is the same as Private Equity, it has its own funds raised from private investors (hence the name Private Equity and not Public Equity which refers to Mutual Funds). The fund is separate from the BB's balance sheet unless the BB is a GP in the fund of its Merchant Banking, most BBs are the (major) GP of their fund in the Merchant Banking.

 

merchant banking is similar to private equity where the bank is buying companies (or real estate assets) where as traditional Ibanking is advisor companies as they buy and sell

 

MB is def a lot harder to get into than normal IB. There are perhaps a few more places for real estate PE but for normal PE its almost impossible.

In London (for both REPE and PE)

Lehman, ML, MS, Goldman, Blackstone probably take between 1-3 each year.

Other banks do REPE/PE (Deutsche and Citi are big in REPE) but I am not sure if they take people straight from undergrad.

Those numbers compare with around 50+ analysts per bank per year in normal IBD.

 

are they just as prestigious/hard to get into? I am talking about small no name shops that have 10-70 people working for them. How can evaluate a smaller shop? thanks again.

 

are hard as hell to get into. clearly small shops dont have the prestige as big houses. id take a good BB spot over a small shop any day, but if you have nothing else go for it

look at the deals theyve done and try and find the high profile ones to determine prestige..also look at bios of people wokring there to see if they are ballers or scrubs

 

They do a mix of advisory and private direct investing... at least from what I understand. Typically M&A advisory mixed with a fund that does minority PE investments, but you may see a VC fund instead.

 

See here, scroll to last post for second link:

//www.wallstreetoasis.com/forums/merchant-banking-vs-investment-banking //www.wallstreetoasis.com/forums/difference-between-a-search-fund-and-a-m…

And, of course, WSJ:

http://online.wsj.com/article/SB100014241278873248679045785935642459658…

In my experience it is buy-side M&A advisory, with the MB potentially investing alongside its clients. Very traditional and highly relationship-driven, and usually small shops working on lower MM deals. The larger firms with merchant banking divisions (like GS) operate differently, I think - more emphasis on the PE part.

 

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