Merchant banks and investment banks primarily can be defined as financial institutions that perform different services. However there are some differences between the type of activities which investment and merchant banks perform.
Investment banks facilitate mergers and acquisitions through share sales and also provide research to various companies; they also manage initial public offerings (IPOs) and also public and private share offerings. Apart from these services they also provide services like underwriting of shares and broking related services for their clients. Hence it can be said that investment bankers deal with companies which are big both in terms of size as well as capital they need for expansion.
While on the other hand merchant banks perform international financing activities such as foreign corporate investing, foreign real estate investment, mezzanine financing and trade finance. This includes services like issuing letters of credit, transferring funds internationally, trade consulting and also co-investment in international projects of the companies. As far as merchant banks are concerned their clients are mostly middle sized companies.
Hence from the above one can see that though both merchant banking and investment banking are financial institutions but they differ widely in terms of services they offer to their clients as well as in terms of their scale of operations.