What is the role of Merchant Banker?

Merchant Bankers or the Book running lead Managers have become a crucial part of the financial and credit system as they play an important role in assisting  the Small and Mid- size  companies (SMEs) to raise funds through IPOs, debt Issue or private equity. They also provide advisory services.

SMEs usually have requirement of funds to fuel their business growth through expansion and thereby Merchant Banking has become a valuable financial service for SMEs to raise capital through Primary Issue (SME IPO). Merchant bankers also provide advice and assistance in areas of financial management and corporate restructuring.

 

What role does IPO Advisors play in successful IPO?

IPO Advisors play an important role in successful launch of an IPO. Their advisory role from IPO readiness, selecting the best merchant banker in India for SME IPO, various due diligence activities and IPO valuation guides the company throughout the IPO Issue and listing process. IPO platform in India provides information on upcoming IPOs on NSE Emerge and BSE SME and list of merchant bankers and anchor investors. Role of IPO advisor is important in the success of the listings.

 

Top 5 merchant banks for SME IPOs in India wrt no. of IPOs and other related data can be seen in the table below:

Merchant Banker	No. of IPOs	Average IPO Size (in cr)	Average Subscription (no. of times)
Beeline Capital Advisors Private Limited	25	25.18	171.4
Hem Securities Limited	24	29.44	208.5
Shreni Shares Limited	15	22.11	102.3
First Overseas Capital Limited	15	32.63	18.97
Gretex Corporate Services Limited	12	31.59	96.48
*the data taken in to consideration is from Jan 2023 to 7 March 2024

 

Functions of a Merchant Banker

1. Management of public Issues

1. The role and responsibility of merchant banker is broader in SME IPO as their role starts from the IPO process up to the post IPO phase.
2. A merchant banker is responsible to carry out the entire IPO process for SME which includes Due Diligence, preparing DRHP, RHP and documentation.
3. A Merchant Banker arrives at a fair valuation of the business for the purposes of IPO. Valuation is based on analysis of financial data, assessing the key market trends, peer analysis and sector information.
4. 100% of the Issue is underwritten and further it is compulsory for a merchant banker to underwrite 15% of the Issue size in its own books.
5. Merchant banker has to ensure Market making for a period of 3 years from the date of listing. Market makers are appointed for this purpose.
6. As per the provisions of chapter XB of the ICDR, merchant banker can enter into arrangements with nominated investors (PE funds & QIBs as defined therein) for the purposes of market making and underwriting. The merchant bankers are required to disclose this arrangement with Nominated investors to the exchange in the Final Offer document.

2. Loan Syndication- Merchant bankers act as an intermediary between the borrowers and the lenders. They are involved in all the steps of loan processing and approval.
3. Private Equity and Venture capital- Some of the Merchant bankers also help the start ups and mid -size companies to raise funds through private equity or venture capital.
4. Corporate Finance Advisory- Some merchant bankers offer advice on financial matters like restructuring, capital raising strategies and regulatory compliances thus assist a company to use its financial resources effectively.
5. Asset management- Some Merchant Bankers also manage investment portfolios on behalf of individual and institutional clients like mutual funds, hedge funds and others.

Conclusion- Merchant Bankers, regulated by SEBI play an important role in the fund raise process of a company through IPO, Private Equity or Venture capital. In a nutshell, they obtain regulatory clearances from the relevant authorities, handle the associated documentation and approach the investors for the fund raise.