Recently we were pitching for an advisory mandate and the potential client seemed quite keen to have a number of transaction advisors and couldn’t see why this would not work, after all if each is geographically separated, can one not extend the possible reach?

In this sequel to our article “Do I actually need a Transaction Advisor?” we provide some practical advice to this approach, and to planning internal funding rounds.

The truth is that having multiple advisors is not ideal, and a simple example in another industry is real estate. If you have a multi real estate agent approach, each would quickly reach into their immediate circle and if the house was incredibly desirable or cheap then it may go, but if it has not sold within a week or two, I suspect that the agent would be moving onto the next opportunity, circling back only if he wanted to show the extent of the agent’s “portfolio” to prospective clients.

Moving back to our prospective client, another reality of today’s world in that geography does not separate business much at all any more. The internet, social media, cheap telecoms and business networks have put paid to the exclusive clubs that investors were reputed to inhabit, chatting to only one or two preferred intermediaries. Indeed investors are even advertising on the Internet for good business opportunities.

Also, if you are merely one of a number of advisors in a process, you are effectively wanting “your buyer” to win in order to earn the fee, which in essence means that you are really representing the buyer and not the seller.

Key to the success of an offering is the process. Professional advisors in the corporate world like to control the whole process, from definition of the sale proposition to actual closure. We would rather walk away from an opportunity than not be in charge of the entire event chain (obviously in partnership with our client). The reason is quite simple; you are able to manage risk. Very seldom will an advisor know before they start a process what appetite there will be for the shares on offer, and the reasons are often quite complex. This is the main rationale behind running a formal process to sell shares in a company or indeed the whole company. The advisor can change parameters such as quantum of investment, price, terms (types of shares), and a number of other parameters, including timescales.

A formal and professional process also allows an investor or buyer to know where they stand relative to others in the process and therefore know that the playing field is level. What do we mean by this? We have many times come across investors who know of opportunities being touted at any stage in time, but where it is not at all clear what the “rules of engagement” are.

Not having a clearly defined process, and by definition having someone internal or external running this, risks the wrong outcomes on all counts. The wrong investor discussions, the wrong issues being focused on and perhaps most of all, loss of focus on the business for the sake of a capital round.

One final thought is that a good advisor will have advisory relationships in different geographies or even industries, which they can leverage to enable warmer or more prominent relationships, or to cross regulatory challenges. This multi advisor scenario does not need to be of concern to the client as the fee split is negotiated between the advisors.

What about an internal round of investment? Does one need an advisor and how could this be remunerated?

Very often there are circumstances where existing shareholders are able to follow their rights to invest further into the business when fresh capital is needed. However, when all shareholders can or will not follow, the inevitable question will be around market value.

The easiest way of sorting this argument out is by introducing a new shareholder who is likely to only invest at a market value. But perhaps everyone agrees that bringing a new shareholder in is not appropriate, even if it gives an arms length view on value.

An external advisor can be very useful in instances like this. Of course, one can bring in a valuation professional or your accountant, but this exercise tends to be very clinical and does not reflect the way that an actual investment process would work, with its nuanced negotiations and outcomes which are not only about price.  This note may be contested by some reading this article, but my point is that a good transaction advisor could bring the insight and experience to bring a sensible outcome to bear in such a situation.

Corniche is always happy to discuss the planning of a capital raise with prospective clients. It may be that raising capital is not the right action at the time, or that a bilateral negotiation with the right investor is preferable to introducing a more open, competitive process.