With the growing importance of investment banking across the globe, its advisory functions are beginning to find worldwide acceptance. People are looking at these advisory functions, with increased confidence. One of such functions is corporate advice. However, these services are spread over a vast spectrum of corporate activity. Some of them are very well suited for investment banks, with the rest finding place with specialist advisory firms. The essence of corporate advisory services for investment banking relates to Business advisory, Restructuring advisory, Project advisory and Merger & Acquisition advisory.
Corporate Advisory Services is an umbrella term that encompasses specialized advice’s rendered to corporate houses by professional advisers such as accountants, investment banks, law practitioners and host of similar service providers.
Importance of Corporate Advisory Services
The factors that necessitate the need for corporate advisory services are.
- With the world growing at a rapid pace, the company would not want to lose out on some vital opportunities. It may look out for expansion opportunities, go in for strategic alliances, seek profitable mergers and acquisitions etc, to improve upon its current standing. The transactions and formalities involved in such a case need to be professionally handled and there tends to be a need for a specialist intermediary to the proposed transaction. Such specialists enable a hassle free service, which in turn will enable the company to get done with the job easily and effectively.
- A company may have thousands of complex business processes to be handled and much of it can even be on a daily basis. A majority of these transactions can have several implications e.g. business and legal angles, and so as to arrive at an effective structure that can further the interests of the company. Besides, the above activities will be better done with someone with the requisite experience and expertise. It is here that corporate advisory services find a place.
- There may be several areas (which are of interest to the company) that may need specialized advice before initiating a business plan. Suppose a person X plans to start a business. He may have to study the feasibility of the project, the environmental conditions, the political aspects, sources of financing and many similar aspects. All this needs specialized handling and may not be done very efficiently by anyone and everyone and demand professionals with exposure in such areas of service.
- Often a company finds itself in the need of restructuring its operations or its financial statements, with a motto to revamp its current state of affairs or to bring about a much-needed change in the current state of affairs. On the other hand, it might just be a financial compulsion. But no matter what the reason is, restructuring has to take place and need be looked at from business and financial (and legal) perspective. Corporate advisers in such cases come in as very handy in meeting these considerations.
Scope of Corporate Advisory Services
The functions that are covered by the corporate advisory services fall under a broad spectrum and address a wide range of corporate objectives; they also necessitate a multi-disciplinary approach. There are many professional bodies that provide such services. These professional bodies can be classified under three broad categories.
- Starting with professional firms such as company secretaries, chartered accounting firms, law firms etc, who provide corporate advisory services. The services of these firms are mostly two fold:
- Firms that provide a specialized service (which matches their core competency) in the form of complete solution. Some of these services can be taxation advice, legal vetting, statutory compliance work, evaluating a business proposal etc.
- There are other firms who provide complementary services wherein the investment banks provide the necessary transaction support. For example, two companies X and Y (who have their own investment banks for advise) have agreed on a merger. Now these firms can rope in accounting firms to provide for the necessary paper work like company valuation etc. Similarly, a law firm can also be roped in to look after the legal aspect connected with the merger.
- There are sets of Investment banks and other financial institutions with merchant banking licenses. The important advisory services provided by these investment banks and merchant banks relate to numerous services like business advisory, restructuring advisory, project advisory etc. Companies do appreciate the expertise, which investment banks bring along with them in dealing with such issues.
- Lastly, we have a set of pure advisory firms that provide a wide range of corporate advisory services. These firms are specialists in some selected verticals. We have Mckinsey & Co., which specialize in strategy consulting and advise governments and corporates on strategy and policy issues. Likewise, there may be firms specializing in technology, marketing, human resource, risk management, foreign exchange etc. In some case these consulting firms also take up issues of providing advice on M&A, joint ventures, formulation of business plan (which are primarily investment banking activities).
Services that make up the Business Advisory Services
Business advisory services relate to considerations involved in corporate restructuring, joint ventures and collaborations and cross-border investments. This entails rendering of corporate advisory services pertaining to a company’s present and future businesses from a strategic and financial perspective. Investment banks render the following services:
Entry Strategy Plans: This advice is required by a company when it plans to venture in to a new business either in a new line of business or existing line of business in a new market be it local or international. The strategy can be in terms of corporate structure of a product and pricing strategy, target market segment, strategic alliance etc. Let us consider an example of an Indian company planning to set shop in a foreign country. The strategic recommendation required by the company can be a decision between establishing a wholly owned subsidiary vis-à-vis a joint venture with a local partner.
Project Feasibility Plans: The viability of a proposed business has to be examined from a business, technology and financial perspective before any fund raising activity is carried out by the corporate. Investment banks have the capability to conduct such feasibility studies from a business and financial perspective since they have in-depth information on each industry space.
Corporate Plans: Companies need to formulate medium to long-term corporate plans in order to carry out their expansion and business strategy. Those companies which do not have in-house corporate planning department, depend on investment banks for these services and those companies which have an in-house corporate planning department, believe in getting the same vetted by an investment bank. The formulation of corporate plans involve:
- In-depth examination of the industry
- In-depth examination of the business
- Identification of growth drivers
- Market positioning
- Product policies
- Diversification strategies
- Corporate and group structure etc
Business Alliances: This relates to joint ventures, collaborations and other such strategic relationships between two corporate entities that are brought about due to business compulsions or to harness synergies and complementary strengths. Investments bankers carry out the following tasks in this regard:
- Identification of partners with complementary strengths or synergies
- Due diligence and valuation aspects
- Negotiation and deal making
Cross-Border Investments: Strategic business investments are made in foreign entities owned or controlled by the investing corporate in the parent country or in other foreign entities. Investment banks carry out an in-depth examination of the financial and regulatory issues that are necessary to arrive at the optimum size of the investment, valuation methodology, investment structure and taking necessary regulatory clearances.