Navigating important strategic decisions can be tricky. Critically evaluating corporate development options – such as mergers and acquisitions (M&A), financing and capital allocation opportunities – allows businesses to create a roadmap to achieving their desired outcomes. Anyone from executive teams, Boards of Directors, special committees, shareholders and creditors can receive the specialized assistance they need to act confidently by leveraging the capital and financial expertise of Advisory Services providers.
What are Advisory Services?
Qualified providers of Advisory Services are typically investment banking firms with significant transaction and financial expertise. Services can include strategic planning, valuation assessments, preparation for a transaction (either M&A or capital raising) and performing other corporate finance projects. Advisory Services are often provided to help companies determine their strategic roadmap, which is done in advance of an actual transaction, or where the engagement of an investment banking firm to execute a transaction is not required.
Companies often lack the in-house bandwidth and/or capabilities to perform the rigorous analysis required to effectively evaluate all options and trade-offs related to major strategic decisions. They may also lack transaction expertise or thorough understanding of the complexities associated with various options available. Firms that provide Advisory Services help companies pave the way for seamless transitions, as well as align corporate values and strategy with the goal of maximizing shareholder value.
Below are brief explanations of typical Advisory Services:
Advice on debt financing typically covers a wide range of services. Capacity analysis is conducted to determine appropriate amounts of financing, as well as an analysis of the collateral and/or assets available. This will help determine how to restructure or refinance existing debt to reduce costs and free up capital. Negotiations with third party funding sources may also be necessary. In this case, capital optimization is used to provide the most efficient use of funding sources. If optimal capital return needs to be provided to investors, dividend or share repurchase strategies can be explored.
To be an equity investor doesn’t mean you have to be a stockholder in a publicly traded company. Companies can be financed by private or public equity capital. Equity financing services includes capital table, waterfall and dilution analysis to determine investor value. In the event of a change of control, recapitalization and structuring analysis can swap equity to debt (or vice versa). This may also be used to return more profits to investors. Other strategies in equity financing include capital optimization and dividend/share repurchasing.
Equity and debt financing are interrelated in that debt providers typically receive a lower rate of return and have liquidation priority over equity investors. Since equity investors take a backseat to debt investors in a liquidation scenario (i.e., bankruptcy), they require a higher rate of return. For companies, the capital optimization described above is extremely important in providing the low-cost funding and right sized cash flows to provide return on capital and return of capital to investors.
M&A related Advisory Services include buy-side, sell-side, divestitures and carve-outs. They utilize many of the same processes and tactical approaches investment banking firms use, but they do so to evaluate and prepare for a transaction prior to actual execution. These preparatory actions include activities such as conducting scenario and sensitivity analysis, due diligence, target identification of strategic partners, valuation analysis, process design and deal structuring.
Corporate Finance Services
There are Advisory Services that don’t fit under the three previously mentioned umbrellas. Such services include lease/build/buy analysis to determine the best way to acquire an asset, as well as cost-benefit analysis to optimize spending on a project. Additionally, portfolio valuation can help management understand how investments in products drive return to investors, as well as provide a basis for investor reporting and audits.
Advisory Services are successfully used to bring clarity and confidence to a wide variety of strategic situations for many types of companies. Whether your company is ready to act and knows the direction to go, or knows it needs to do something but the “what” is unclear, you need to be sure you’re making the appropriate fiduciary decisions for your business. Having a trusted and experienced advisor by your side helps to prepare, plan and guide your company to success.
Bridgepoint Merchant Banking is a division of Bridgepoint Holdings, LLC. In order to offer securities-related Investment Banking Services discussed herein, to include M&A and institutional capital raising, the Managing Principals of Bridgepoint are registered representatives of M&A Securities Group, Inc., an unaffiliated broker-dealer and member FINRA/SIPC.