Corporate advisory

Corporate advisory refers to the activity of advising organisations, including corporations, institutions and government bodies, on mergers and acquisitions and other transactions that involve a change in ownership of a company or business. In investment banking circles, this activity is commonly known by the general term M&A (Mergers and Acquisitions).

Transaction types include mergers, acquisitions, disposals, defences, spin-offs, demergers, joint ventures, privatisations, leveraged buyouts and many others. Transactions may be “public” transactions, where the target is a listed public company, or “private” transactions, where the target company is not listed.

There will normally be a minimum of two parties to an M&A transaction, namely the bidder and the target. In a sale transaction, there will also be a vendor, ie the seller of the target business.

Who is involved in advising on a M&A transaction?

In practice, there may be a significant number of advisors on any particular M&A transaction. On a large, public transaction, these include:

• Financial advisors, usually investment banks and/or specialist corporate advisory firms. Typically both the bidder and the target (or vendor, in a sale transaction) will retain at least one financial adviser. On larger or more complex transactions, it is common for several financial advisers to be retained by each party to the transaction. In the UK, the Takeover Code mandates the retention of an independent adviser by a target company and that the advice must be made known to shareholders

• Legal advisors, usually specialist corporate law advisers. External legal advisors are normally retained even when financial advisers are not used.
• Financiers, either investment banks and/or corporate banks, whose job is to arrange and/or provide the finance required for the bidder to complete the transaction.
• Independent experts, separate from the financial advisors to the bidder and target, are required in some markets such as Australia and New Zealand. Their role is to provide independent financial advice to the shareholders of the target company as to whether the transaction is in their best interests.
• Other advisers, including management consultants, accounting advisors, auditors and financial PR advisors.

What is the role of the M&A adviser?

The M&A advisor’s precise role varies somewhat from market to market, but on an acquisition of a large listed company would typically comprise:

• advice on the overall approach to the transaction, including approach strategy and negotiating tactics;
• assistance with the assembly of an appropriate team of professional advisers;
• co-ordination of the advice received from other advisers;
• valuation, including, where appropriate or required by local legislation, a formal “fairness opinion” on the terms of the transaction;
• assistance with the co-ordination of due diligence (but not the design or execution of the due diligence programme);
• advice on the optimal structure for the proposed transaction, which will in turn impact on how the transaction may best be financed;
• advice on proposed financing arrangements, working with the proposed finance provider or capital markets issuer;
• advice on likely market reaction to a proposed transaction, in conjunction with equity market specialists where appropriate (often referred to as corporate brokers);
• advice and assistance with design of investor communications, in conjunction with any external financial PR agency that has been appointed; and,
• oversight of the production of transaction documentation, in close co-operation with the client’s legal advisers.

Who offers corporate advisory services?

Large public transactions (eg over US$1bn in value) represent the significant majority of M&A transactions by value globally. There are two main types of company that provide M&A advice on such transactions, namely global investment banks (including the investment banking divisions of major universal banks) and specialist corporate advisory businesses.

Investment banks offer customers a “one stop shop” solution, providing not only M&A advice but also the ability to provide, or arrange, any equity or debt funding required to finance the transaction. The investment banking divisions of such companies are managed to leverage the group’s capabilities, with a focus on cross-sale of all relevant products that are available. These businesses also have many other activities, equity and debt sales and trading, stock broking, market-making and principal trading. Global examples include Goldman Sachs, Morgan Stanley, Merrill Lynch, CSFB, Lehman, Citigroup, JP Morgan, UBS, Deutsche Bank. In addition, a number of regionally based investment banks also exist, including Macquarie (Australia), Societe General and BNP Paribas (France), ABN Amro (Netherlands).

In contrast, specialist corporate advisory firms offer solely M&A advice. These businesses have emerged in part as a response to the conflicts of interest that are inherent in the full service investment bank model, where an investment bank may simultaneously:

• advise a corporate client on a transaction
• provide or raise financing to support the transaction (either on its own balance sheet or by sourcing capital from clients of the bank)
• trade in the shares of both the bidder and the target
• offer equity research on both the bidder and the target
• provide prime brokerage to hedge funds and other investors wishing to trade in the shares of the bidder or the target
• make a market in the shares of the bidder or the target or otherwise invest its capital in trading positions that may be impacted by the transaction.

Typically corporate advisory firms are run by senior M&A bankers with substantial amounts of transaction experience. Given the exclusive focus on M&A advice, their principal day to day relationships are typically with the Boards, CEOs and CFOs of the companies in question. As a result, it is natural for such firms to seek and earn the role of most trusted adviser to the companies in question.

Corporate advisory firms may be retained as sole advisor on transactions. Alternatively, particularly where a significant capital raising may be required as part of the transaction, or where a broader advisory team is desired, they may be hired as co-advisors with a global investment bank or other advisory firm.

Who are the major corporate advisory firms?

Over the last twenty years, a small number of specialist corporate advisory businesses have emerged in most major developed markets and over time, the market share of such businesses has grown. Multinational examples include Greenhill and Evercore, and national examples include Caliburn and Pottinger (Australia), Arjil (France) and Gleacher Shacklock. Historic examples include Wasserstein Perella(or Wasserella), which was acquired by Dresdner Kleinwort Benson. One of its founders, Bruce Wasserstein, is currently CEO of Lazard.

What happened to the merchant banks?

Historically, the corporate advisory sector in Europe was dominated by the so-called merchant banks, which included Lazard, Barings, Warburg, Kleinwort Benson, Schroders and Rothschild. Most of these have subsequently been acquired, including Barings (by ING), Warburgs (by UBS), Kleinwort Benson (by Dresdner Bank and subsequently by Allianz) and Schroders (by Citigroup). The remaining two, Lazard (Lazard Carnegie Wylie in Australia) and Rothschild continue to provide corporate advisory services, as part of a wider service offering which also includes significant funds management and private banking operations.

The corporate advisory divisions of the larger audit firms have established a significant presence in advising on smaller, private transactions, but have a minimal presence in advice on public transactions. In addition, there is a a large number of other companies that offer some form of corporate advisory service, but increasing regulation in many markets has restricted the scope of activities of such companies.

See also

• M&A
• Investment bank