Merchant Bank vs Private Equity: Difference and Comparison

A merchant bank is a place that engages in financial departments. It is directly related to business loans, fulfilling the needs of big enterprises, high-net-worth individuals, etc.

Private equity is an alternative capital investment. You can buy a specific portion of any company that is not owned publicly or not enlisted in any stock exchange market, either.

Key Takeaways

1. Merchant banks provide various financial services to businesses, including corporate advisory, underwriting, and raising capital through debt or equity offerings.
2. Private equity firms invest in private companies or conduct buyouts of public companies, aiming to improve operational efficiency and increase the value of their investments.
3. Both entities work with businesses to support growth and development, but merchant banks primarily offer financial services and advice, while private equity firms directly invest in and manage companies.

Merchant Bank vs Private Equity

Merchant banks and Private equity differ because merchant banks deal with business capital funds, borrow money, and invest in different sectors to earn profits. In contrast, Private equity firms are slightly other, aiming to finance the individual’s money to private equity deals to gain benefit.

Merchant banks offer services worldwide, and the trading network is spread internationally. They have several benefits, such as financial consultancy, advisory services, marketing, etc.

Private equities are generally known as capital investments and are pursued long-term growth. Their way of working is simple and includes only three steps: Buy, change, and sell.

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Comparison Table

Parameter of Comparison	Merchant Bank	Private Equity
Funds	Merchant banks deal with wealthier institutions or wealthy individuals. They often raise loans from banks to invest in their project.	Private equity firms use investors’ funds to invest in equities to gain profit from them.
Activity	Promote business institutions in their early stage. It is one of the critical roles they play for the organization.	Private equity firms, on the other hand, provide financial support to business institutions that require it and help merchandise the company for future capital.
Expansion	To expand the business, merchant banks advise raising funds by issuing shares and debentures in international markets.	These firms do not support the policy and instead invest their investor’s money for expansion purposes of any business.
Services	Merchant banks provide their clients with portfolio management advisory services, which means the firm handles all the trading on behalf of the client.	Private firms will let the business institutions access newer markets initially closed to them. The bigger a company’s market reaches, the more revenue it is likely to earn.

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What is Merchant Bank?

Merchant banks provide various services to many business organizations, wealthy individuals, etc. They will give the institution consultancy services for growth, trading, and marketing.

The organization will raise funds from the domestic and international markets to invest in the client’s project. They have tons of services to offer that we are about to write down below –

1. Merchant banks will offer business institutions consultancy services related to their financial and marketing strategies.
2. Public sector units get help raising long-term capital with the help of Merchant banks. Every leading institution takes financial assistance from these organizations.

 

What is Private Equity?

Private equity has very different characteristics that set it apart from Merchant banks. Their goal is to grow and develop a company using private equity investments.

These firms consist of a group of investment funds. Some companies do not get the growth they need and require assistance.

There are many useful features and services that private equity firms have to offer. These services are –

1. The primary and one of the essential functions of private equity firms is to make sure that they earn profit for their investors.
2. Private equity firms provide financial support to different companies in multiple ways. It helps to raise a smaller company raise capital for better growth.

These firms focus on increasing a company’s value to gain profit by selling it. They manage the company, increase its growth and make it more reliable and better organised.

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Main Differences Between Merchant Bank and Private Equity

1. Merchant banks only deal with wealthy professionals, whereas individuals can invest in private equity.
2. Merchant banks will offer their clients various kinds of services. Private equity firms help to grow a new business.

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References

1. https://www.nber.org/papers/w19300.pdf
2. https://archives.tpnsindia.org/index.php/sipn/article/view/1868
3. https://doc1.bibliothek.li/acb/FLMF040688.pdf