Mergers & Acquisition and Investment Banking
M&A and Investment Banking
Historically, Investment Banks (intermediaries which assist companies in selling ownership of themselves as stock or borrowing money directly from investors in the form of bonds) have been closely associated with Merger and Aquisition activity. This is because usually a merger or aquisition is a sales opportunity for the Investment Bank. If the company wants to merge with another, it must print shares to swap, which would involve an invesment bank. If it wants to buy the other company with borrowed money, it would most likely borrow directly from investors in the form of bonds, also printed by the investment bank. Thus, Investment Banks position themselves to act as advisors on mergers and aqusitions, and usually charge a separate fee for doing so (this fee is usually the most profitable of their operations).
This system however, gives and incentive to Investment Banks to try and stimulate as much mergers and aquistions activity as possible, even though the result might not be good for the shareholders of the aquiring company. The amount of influence this has is unclear, since this activity is usually secret and since the majority of merger proposals do not go through.