How AI and data are democratising the traditional world of investment banking – Banking & Finance News

By Maneesh Bhandari

Investment bankers are the blue-eyed boys of the corporate world. Highly paid, they work with the CEOs and board members of some of the most interesting businesses and help companies grow inorganically by zeroing in on acquisition targets.

No wonder that investment banks are the Day 1 companies at top B-Schools across India. And the i-banking profession is synonymous with striking big-ticket deals, making money and glamour.

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But any industry that does not use data intelligently in the world of artificial intelligence and machine learning sets itself up for one thing – disruption! Disruption requires unconventional thinking and a good understanding of the problem that needs to be solved. It also requires the bursting of myths. 

Data is the new fuel for almost all industries. Search engines, automation, and AI have become ubiquitous in most domains. Companies have been using data and lead-gen for building sales pipeline building for decades. 

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But investment bankers have not even scratched the surface of data goldmine for generating leads for M&As. They remain limited to companies known to them or those they learn about through word of mouth – the ones in the market. So, a potential buyer may be able to find say 100 companies looking to sell, but they will miss out on the hundreds of others which are outside the radar of their M&A team or investment bankers due to the limitation of “connections”.

The M&A landscape, therefore, traditionally characterized by large-scale, transformative deals, is undergoing a notable evolution. Companies are increasingly questioning the viability and sustainability of these massive transactions in a post-pandemic world marked by uncertainty and rapid change. The focus is shifting towards more strategic, calculated approaches that balance risk with potential for growth.

Listing some of the common myths on Investment Banking. 

1. The Evolving Role of Corporate Development (CorpDev)

While deal sourcing is an important function within Corporate Development (CorpDev), it’s not the sole focus or the main job of a CorpDev team. CorpDev encompasses a broader range of responsibilities beyond just sourcing deals such as Strategy Development, Due Diligence, Negotiations and Execution, and Post-Merger Integration. Hence, while deal sourcing is a critical part of CorpDev, it’s just one step in a more extensive process.

The strategic aspect of identifying, evaluating, executing, and integrating deals is equally important within Corporate Development. We analyzed 100+ JD of Corp Devs and found that the corporate development job is to do strategy development and planning, market mapping sourcing deals, executing deals, project management (pre and post-deal execution ) and integrating deals, networking, end-to-end deal execution, and project management. 90% of corp dev time is spent on doing work related to non-sourcing. Generally, Corp dev teams are of smaller size and always face a constraint with bandwidth. 

2. Only companies that hire Investment Bankers to sell are serious about selling

Many sell-side companies embark on their journey by tapping into existing networks and reaching out to potential buyers from their hot list before actively seeking external assistance. This initial approach allows sellers to explore interest and initiate negotiations without immediately involving third-party advisors. Off-the-market deals, characterized by their discreet nature and lack of public marketing, often stem from a buy-side mandate, where prospective buyers instruct intermediaries to identify and approach suitable acquisition targets. Such private deals are favoured by buyers seeking to avoid competitive bid scenarios, potentially leading to more favourable terms. 

3. Only large companies make acquisitions

A prevalent myth is that only large companies engage in acquisitions. In reality, companies of various sizes, including small and mid-sized firms, actively pursue acquisitions. The approach often involves less cash upfront, favouring equity and future payouts.

4. It is very difficult for Women to break into the IB world 

While women still comprise a minority in IB, their representation is growing. According to research by Refinitiv, women made up 23.4% of all investment banking professionals globally in 2022, compared to 19.1% in 2018. Leading firms are taking concrete steps. For example, Goldman Sachs set a target of having women comprise 50% of its analyst class by 2025.

Success in an acquisition is like finding the desired needle from a haystack. Traditional networking practices in investment banking excel at sourcing major deals but tend to overlook smaller, yet potentially lucrative opportunities. This is precisely where leveraging data can transform the landscape. With the power of data analytics, companies of every size—from bootstrapped startups to large corporations—can be identified and evaluated. This not only expands the range of possible deals but also democratizes the M&A process, enabling entities of all scales to engage actively in acquisition activities.

(The author is the Founder and CEO of Growthpal. Views expressed are the author’s own and not necessarily those of financialexpress.com)

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