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Merchant Banking - Definition & Advantages of Merchant Banking | What is Merchant Banking?

Understanding Merchant Banking 

Merchant banking provides capital, facilitates mergers and acquisitions, and provides advisory services to businesses. They have a focus on supporting large corporations, high-net-worth individuals and mid-size businesses. 

Merchant banks extend capital to businesses as equity, debt or a mix of both. They also provide advisory services concerning mergers and acquisitions, restructuring, and capital-raising strategies. 

Key Objectives of Merchant Banking 

Merchant banks offer a wide range of financial services with the primary goal of providing capital and expertise to corporations. The common objectives include: 

  1. Underwriting securities offerings to help corporations raise capital.
  2. Assisting in capital raising through various routes such as private placements, public offerings, and debt financing.
  3. Advising on mergers, acquisitions, and other strategic transactions.
  4. Providing structured finance services, such as project finance or asset-backed securities.
  5. Offering advisory services to help corporations make informed financial decisions.

Functions of Merchant Banking 

Merchant banks play a pivotal role in helping businesses expand. The key functions include: 

  1. Raising capital for companies through equity or debt financing.
  2. Facilitating mergers and acquisitions.
  3. Providing strategic advice on capital-raising strategies, business restructuring, and management consulting.
  4. Securing financing for specific projects.

Benefits of Merchant Banking 

Merchant banking offers several advantages to businesses and individuals in need of financial services. Some benefits include: 

  • Helping invest surplus funds into profitable ventures.
  • Assisting in organizing financial activities.
  • Ensuring compliance with various regulatory requirements.
  • Identifying profitable investment opportunities.
  • Evaluating the risk associated with investments.
  • Assisting in implementing complex financial transactions.
  • Supporting in developing and executing strategic plans.