Investment banking involves helping companies raise capital by offering corporate finance services such as mergers and acquisitions (M&A) advisory, debt or equity financing, restructuring advice, valuation, and other related financial services.
Companies in the healthcare sector include everything from pharmaceutical to biotech companies that help treat cancer cures to hospitals that offer medical treatment. Healthcare is a $3 trillion-per-year industry globally, with approximately 8 percent of GDP going towards various aspects. As a result, investment bankers play an essential role in raising capital for these healthcare firms through public offerings and private placements.
This article will focus on some of the basics of what is involved when working within this specialized field during your career without getting too technical regarding specific transactions.
When working in any industry, knowledge of the basics of finance is a must. If you have an interest in healthcare but have never worked for a company in this sector before, it would be beneficial to take some business courses at your local university that teach introductory finance skills such as accounting and financial modeling just so you can get a sense of what is involved from a finance perspective with being involved in transactions. Although these classes may not directly be related to healthcare, they will give you the basic foundation needed when learning about the more intricate aspects of healthcare investment banking later on during your career.
The first aspect of investment banking within healthcare is understanding how companies raise capital. This involves knowing how much money a company needs for its operations, how long it will take to reach the desired amount, and how it plans on paying back any given debts. One of the main ways companies raise capital is through an initial public offering (IPO) which makes them public for the first time with shares that can be bought and sold.
If a company chooses not to go public, another alternative is private placements in which investment banks facilitate transactions between companies with cash raised from large investors along with debt financing through bank loans or credit lines. This article is about equity-related healthcare deals, so, therefore, excludes M&A advisory.
Once you have learned all of this information, it is time to understand some terminology associated with healthcare investing. For instance, knowledge of the difference between primary, secondary market offerings is important, as well as knowing how each process works.
Primary offerings refer to the first sale of stock by a company to the public and can occur either at the initial public offering stage or years later through another round of financing. Secondary offerings, on the other hand, occur when an already existing shareholder decides to cash out at some point and happen much more frequently than primary offerings. In addition, companies offering secondary shares usually do not have as high of valuations as those going through a primary offering for the first time because buyers are generally skeptical due to lack of historical information with which they can compare their current position.