Question

Based on the essay "Killing the I Bank", describe how changes in technology and market practice are affecting . . .

                a.     Underwriting of shares.

                b.     Mergers & Acquisitions

Answer 1

"Killing the I Bank" means the disruption of Investment Banking. This statement came conclusion after the collapse of Lehman & Bear Stearns and the global financial crisis and all the World's biggest investment banks needed to change.

The disruption of Underwriting of shares:

Underwriting an initial public offering (IPO) is a highly profitable business for an investment bank.

A company decides it wants to raise capital by going public, and an investment bank helps by connecting them with willing investors, promoting the company’s stock, navigating complex legal frameworks, helping to determine a price for the stock, and purchasing an agreed-upon number of shares and reselling them, thus taking on risk for how the stock will perform. For this work, the underwriting bank can make more millions from an IPO — whether or not the stock performs well.

In the present scenario,  the powerful tech companies fueling the world’s biggest IPOs are exerting their influence, using their size and name recognition to extract lower fees from the investment banks. Some companies are also searching alternatives to the IPO, like the direct public offering (DPO) and alternative exchanges, and even in some limited alternatives, initial coin offerings (ICO). And perhaps the trend that’s had the biggest impact — some large companies are electing not to go public at all.

One of the main change in investment banks offer the companies whose IPOs they underwrite is legitimacy — they confer their prestige on them.Private companies are untested. Having a significant investment bank co-signing and underwriting their IPOs is one way to gain the confidence of public investors.

Taking a hefty fee minimizes the investment bank’s risk by insulating it from the stock’s actual performance in the market.

2. The disruption of M&A

Mergers & acquisitions (M&A) is a traditionally relationship-driven industry built on large transactions and huge fees. For investment banks, M&A has historically been one of the most reliable revenue sources.

Technology is changing the nature of dealmaking and proving that much of the M&A value chain can be commodified. In the middle market (deals worth between $10M to $1B in value), private, online networks and SaaS tools are giving smaller company executives and brokers the ability to conduct M&A transactions on their own more quickly and far more affordably.

Even some large companies are opting to go it alone when it comes to mergers & acquisitions

M&A is a complex logistical and financial transactions, and may best instancethe prestigious, high-touch, and relationship-driven work investment banks are known for.

The “traditional M&A” was often driven force by a desire to boost EPS (earnings per share), with companies seeking to combine assets with a similar business, merging with a business in a lower-tax jurisdiction, or looking to get profit making  assets owned by other businesses.

Investment banks were ideal partners for these kinds of deals, which fueled the merger mania on Wall Street in the 1980s, because they had spent decades executing M&A from the perspective of increasing earnings per share (EPS), understanding the impacts of a deal on a company’s balance sheet, and identifying synergies, such as expanded production capacities or creating economies of scale.

Today, executives are more focused on strategic M&A, rather than a quick EPS fix. While strategic M&A isn’t new, tech companies today are especially focused on building more competitive long-term businesses by buying into new product spaces and expanding their portfolios.

hence, there is a great affected force in underrating of shares and Mergers & Acquisitions.