Investment banking involves providing advice and management services for large, complex financial transactions, and providing services involved with capital creation for corporations, organizations or even governments. Two of the primary activities of investment banks are underwriting debt financing and the issuance of equity securities, as in an initial public offering (IPO), and advising and facilitating mergers and acquisitions (M&As) for companies, including leveraged buyouts.

Additionally, investment banks provide help in securities sales and stock placement, along with handling investments and brokering trades for corporate clients, sovereign entities or high-net-worth individuals (HNWIs). Investment banks are also the primary advisors, planners and managers for corporate restructuring or reorganization, such as handling divestitures.

Typical divisions within investment banks include industry coverage groups and financial product groups. Industry coverage groups are established to have separate groups within the bank, each having vast expertise in specific industries or market sectors, such as technology or health care. These groups develop client relationships with companies within various industries to bring financing, equity issue, or M&A business to the bank.

An investment bank's product groups have a focus on specific investment banking financial products, such as IPOs, M&As, corporate restructurings and various types of financing. There may be separate product groups that specialize in asset financing, leasing, leveraged financing, and public financing. The product groups may be further organized according to their principal activities or products. Thus, an investment bank may have product groups designated as equity capital markets, debt capital, M&As, sales and trading, asset management, and equity research.

The firms engaged in the investment banking industry are commonly classified into three categories: bulge bracket banks, middle-market banks, and boutique banks. Boutique banks are often further divided into regional boutiques and elite boutique banks. Elite boutique banks sometimes have more in common with bulge bracket banks than they do with regional boutiques. The classification of investment banks is primarily based on size; however, "size" can be a relative term in this context and may refer to the size of the bank in terms of the number of employees or offices, or to the average size of M&A deals handled by the bank.

Regional Boutique Banks

The smallest of the investment banks, both in terms of firm size and typical deal size, are the banks referred to as regional boutique banks. Regional boutiques usually have no more than a handful to a few dozen employees. Because of the small size of most regional boutiques, they do not typically offer all the services offered by bulge bracket investment banks, and may simply specialize in a single area, such as handling M&As in a particular market sector.

As the classification implies, these banks have offices or operations that are restricted to, or at least concentrated in, a specific region of the country. The bank's offices may even be limited to a single city. An example is a Texas-based investment bank with a single office and fewer than 20 employees that strictly handles M&A deals for oil and gas industry companies. Regional boutiques may have clients that include major corporations headquartered in their areas, but they more commonly serve smaller firms and organizations. They are unlikely to be involved in working with governments other than on a local or state basis. They also generally handle smaller M&A deals, in the range of $50 to $100 million or less.

Elite Boutique Banks

Elite boutique investment banks are usually altogether different from regional boutiques. Elite boutiques more closely resemble bulge bracket banks in regard to the dollar value of the deals they manage, which is frequently over $1 billion, although they may handle some smaller deals as well. Elite boutiques again look more like bulge bracket banks in that they commonly have sizable nationwide and international presence, operating dozens of offices in multiple countries. However, they usually still lack the kind of global presence of a major investment bank such as JPMorgan Chase & Company.

Elite boutiques are often like regional boutiques in that they usually do not provide a complete range of investment banking services and may limit their operations to handling M&A-related issues. They are more likely than regionals to offer restructuring or asset management services.

Most elite boutique banks begin as regional boutiques and then gradually work up to elite status through handling successions of larger and larger deals for more prestigious clients. Some elite boutiques, such as Qatalyst Partners, achieve rapid advancement in status largely due to the investment banking reputation of the companies founders. Examples of well-known elite boutique investment banks are Lazard LLC, Evercore Group LLC, and Moelis & Company.

Middle-Market Banks

Middle-market investment banks are generally what the designation implies. They occupy the middle ground between smaller regional investment banking firms and the massive bulge bracket investment banks. Middle-market banks usually work on deals that begin around the regional level and go up to near the bulge bracket level, typically ranging from about $50 million up to around $500 million or more. Middle markets are usually also in the middle ground as far as geographic reach, having a substantially larger presence than regional boutiques but falling short of the multinational scope of bulge bracket banks.

Unlike boutique banks, middle-market firms usually provide the same full range of investment banking services as bulge bracket banks, including equity capital market and debt capital market services, a full complement of financing and asset management services, and M&A and restructuring deals. Some of the middle-market banks resemble regional boutiques in that they specialize in offering services to a particular industry or sector. For example, one of the more recognized middle-market investment banking firms is KBW, an investment bank that specializes in working with financial services sector companies. Some of the more well-known middle-market firms are Piper Jaffray Companies, Cowen Group, and Houlihan Lokey.

Bulge Bracket Banks

The bulge bracket banks are the major, international investment banking firms with easily recognizable names such as Goldman Sachs, Deutsche Bank, Credit Suisse Group AG, Morgan Stanley and Bank of America. The bulge bracket firms are the largest in terms of numbers of offices and employees, and also in terms of handling the largest deals and the largest corporate clients. The overwhelming majority of clients are Fortune 500, if not Fortune 100, firms. Bulge bracket investment banks regularly handle multibillion-dollar M&A deals, although, depending on the overall state of the economy or the particular client, a bulge bracket bank may sometimes handle deals valued in the low hundred millions.

Each of the bulge bracket banks operates internationally and has a large global, as well as domestic, presence. The major investment banks provide their clients with the full range of investment banking services, including trading, all types of financing, asset management services, equity research and issuance, and the bread and butter of investment banking, M&A services. Most bulge bracket banks also have commercial and retail banking divisions and generate additional revenue by cross-selling financial products.

One notable, post-financial crisis shift in the investment banking marketplace is the number of high-net-worth and Fortune 500 clients that have opted to retain the services of elite bouquet investment banking firms over the bulge bracket firms.

Working in Investment Banking

People interested in working in investment banking should think specifically about what type of work they want to do before deciding to apply to a particular investment bank. Keep in mind boutique banks do not offer all the services of middle market and bulge bracket firms. So, for example, if you are interested primarily in working at a trading desk, only the larger firms are likely to offer that opportunity. However, if you are interested in handling M&A deals, smaller banks usually provide a quicker career path to directly managing such deals.

Investment banking compensation may not vary all that much between working for one of the largest bulge bracket banks as compared to a smaller, elite bouquet bank. While the larger banks commonly handle larger deals, those deals are fewer and farther between than smaller deals. Also, the smaller investment banking firms do not have the massive overhead expenses of the bulge bracket banks, and therefore, usually manage larger profit margins from which to recompense employees. Looking ahead to future career opportunities, experience at one of the major bulge bracket banks generally looks best on a resume, simply due to the name recognition.