Explaining Corporate Finance

I always remember as a young auditor that there was an air of mystery and intrigue about the Corporate Finance team. However, the reality was that few trainees or newly qualifieds that I worked alongside actually knew what they did. Nevertheless, it seemed like the glamourous side of accounting where many of us aspired to be, and indeed, where I ended up.

I suspect the level of awareness of what Corporate Finance actually does has increased as general access to information and knowledge has expanded exponentially since my days as a trainee. I think also that some of the deliberate separation of Corporate Finance from the wider accountancy businesses (in my experience I am talking about glass walls and coded doors!) have been removed and some of the enigma has been extinguished.

However, from interviewing many newly qualified accountants over the years it is clear that, to varying degrees, there remains a lack of clarity of what a role in corporate finance would actually look like. To this point, I will attempt in lay man’s terms, to provide a very basic overview.

I will start with a caveat (like every poor due diligence report) and say that Corporate Finance is a highly technical, complex and comprehensive area and the following analogy is not meant in any way to demean or underplay the role.

Notwithstanding that, when explaining Corporate Finance to colleagues, family or friends I like to use the analogy of the house selling process. The fundamental activity within Corporate Finance activity is the buying (including investing) and/ or selling of businesses, and there are several parallels that can be used to explain the job.

1.       It is project based. Each acquisition, investment or disposal is an individual project for a specific client. Project volumes (deal activity) vary with market conditions.

2.       There is a marketing agent, or in our language the Lead Advisors. The Lead Advisor is responsible for marketing an asset (a company) in the best possible manner, to contact and engage a number of suitable of buyers, to prepare all of the relevant sale documentation (the Information Memorandum), to create competitive tension, to project manage the process from start to finish – including the legal process, and to try and maximise the sale price or structure based on the seller’s requirements.

3.       There is specialist due diligence, or in our language a Transaction Services team. Once a bid has been accepted for a business, a transaction services team will be appointed by the prospective purchaser to perform financial and tax due diligence (there will also be multiple other due diligence workstreams) on the asset to determine if there are any issues that need to be addressed before the transaction can be completed. This financial and tax health-check will focus on historical and projected data (profit and loss, balance sheet and cash flow and supporting analysis) and will aim to focus on core commercial areas or value drivers to identify risks, challenges, threats and opportunities as well as validating the particulars of the Information Memorandum.

4.       There is an exchange and completion based on legal documentation, being a Sale and Purchase Agreement that will be signed by all parties to execute the deal.

The above is a simple example of the relevant roles; there are also projects where the Lead Advisors will work with the purchaser and where Transaction Services teams will be engaged by the Seller.

Whilst the analogy of  a house sale makes it easier to describe the role of corporate finance in business – the comparisons do not stop there. In corporate finance, as with real estate, there are plenty of firms willing to take a fee for the minimum input. When engaging with a Corporate Finance specialist, make sure you do your homework. Credibility, track record and reputation can be the difference between completing a transaction successfully or otherwise. So whether you’re looking for a career in Corporate Finance or for someone to help complete a transaction on your business, the due diligence you do on who to work with could be the most important decision of all.

If you think you might be interested in a role in Corporate Finance, then please send your CV to [email protected]