Capital, Mergers and Exits: The Role of Transaction Advisory Services

If you’ve watched “Dragons’ Den” and “Shark Tank,” you’d have heard entrepreneurs offering these shows’ venture capitalists a 35% stake in their businesses for GBP 350,000 or a 10% share for $100,000. Have you ever wondered how they came up with these figures?

If they were wise, they’d have obtained transaction advisory services for helping them arrive at these numbers. It would have made them more confident in their business valuations and, subsequently, their investment pitches.

What Are Transaction Advisory Services?

Transaction Advisory Services (TAS) refers to the specialized guidance business advisors provide to organizations on high-stakes business transactions. These transactions include raising capital, merging with or acquiring another company, and planning an exit.

Transaction advisors have extensive experience that enables them to provide an objective and expert perspective on key transactions. Their assistance will allow you to engage in transactions with assurance and ease.

Entrepreneurs on “Dragons’ Den” and “Shark Tank” or seed funding rounds can be confident at the pitching table. Armed with a valuation calculated using standard applicable valuation parameters and metrics, they can answer readily and with certainty no matter which way the VCs ask about the value they put on their businesses.

Providing business valuations is just one of the things transaction advisors do. Business valuations are typically one of the components that comprise the following critical activities on a business consultant’s transaction advisory wheelhouse.

Raising Capital

Raising capital is securing funds to finance business operations, expansion or specific projects. Businesses can raise money primarily through debt financing and equity financing.

Debt financing is borrowing money at an agreed-upon interest rate. Companies can do this by borrowing money from a lender (e.g., bank, credit union, private lenders) or issuing corporate bonds. In either case, the company has to pay the lender or bondholders the full amount borrowed plus interest in installments or one lump sum at the specified loan/bond maturity date.

Equity financing is what happens in “Dragons’ Den” or “Shark Tank.” Investors provide funds in exchange for a percentage ownership stake in the company. Public companies can get financing by offering shares through the stock market, while private companies usually give private investors a percentage of ownership in exchange for their investment.

How Transaction Advisors Can Help

Transaction advisors provide a systematic approach to identifying suitable sources of capital, be it debt, equity, or hybrid financing. They leverage industry insights and financial modeling to determine the optimal capital structure.

Additionally, transaction advisors can help you develop a realistic and logical valuation of your company through historic and forecast modeling. A business valuation is essential when raising funds to prove that you’re good for the loan you want or offering the rightful ownership stake given your capital ask.

Getting a business valuation from transaction advisors ensures you do not undersell yourself or give away a bigger portion of your business than you should. Likewise, it helps improve your chances of getting financing because your pitch will be realistic and backed by numbers and data.

Transaction advisory ensures an efficient capital-raising process, access to a broad network of investors, and negotiating favorable terms that align with your business’s strategic goals. Without professional transaction advisory assistance, you may struggle to identify the right funding sources, causing you to settle for suboptimal financing structures, higher costs, and potential misalignment with long-term objectives.

Mergers, Acquisitions and Divestitures

An acquisition is a business transaction that involves one company (the acquirer) wholly or partly purchasing another company (the target). An example is the acquisition of NAQEL Express by Saudi Post (SPL). The takeover can take many forms. The acquiring company as itself or through a subsidiary company can buy the assets of the target company or the target company’s shares from its shareholders.

A merger pertains to the consolidation of the assets of a company (or its subsidiary) with another company (or that company’s subsidiary) to create a new legal entity. The new company may be named after one of the companies or have a new name entirely. Typically, mergers occur between companies of similar size and power. They are a way for companies to achieve synergy by leveraging each other’s unique strengths.

A divestiture refers to a company divesting itself of or selling a subsidiary, division or business line to another entity. Divestiture involving a business unit or subsidiary becoming an independent company instead of being acquired by a third party is a spin-off.

How Transaction Advisors Can Help

Transaction advisors help companies in the entire merger and acquisition (M&A) lifecycle.

If working buy-side, they can help you research, identify and communicate with acquisition targets. They can advise you on the best M&A structure and help negotiate offers and purchase agreements.

If working sell-side, transaction advisors can work on a business valuation, prepare the investment teaser, create the confidential information memorandum, and identify prospective buyers. They can advise you on the M&A structure and help negotiate offers and purchase agreements.

In divestitures, transaction advisors can ensure a strategic divestiture process, focusing on value preservation and seamless transition. They can also do everything they do in M&A – provide advice on structuring deals and help negotiate offers.

Overall, transaction advisory ensures alignment with strategic goals, identification of synergies and mitigation of risks in mergers and acquisitions. It also enhances focus on core business, efficiently allocates resources, and minimizes potential value leakage in divestitures.

Creating an Exit Plan

An exit plan refers to an entrepreneur’s or an investor’s roadmap for selling their stake in and exiting a business. A strategic exit is just as crucial as starting or investing in a company. It ensures not only the exiting party’s financial interests but also the continuity of the business he’s leaving behind.

How Transaction Advisors Can Help 

A misstep can lead to unpleasant repercussions, so there’s a need for a strong exit plan. Transaction advisors can help with such a plan.

Transaction advisors can evaluate your company and suggest operational and organizational improvements that will enhance your company’s value. Not only will this allow you to exit at the best possible financial position, but it will also ensure a smooth transition and set the business up to thrive post-exit.

Transaction Advisory: Maximizing Value and Avoiding Missteps

Transaction advisors offer comprehensive support in complex transactional endeavors. Whether raising capital, planning an exit or navigating mergers, acquisitions and divestitures, transaction advisory leverages industry insights and business expertise to provide tailored solutions and valuable advice that can minimize problems and lead to better transaction outcomes.

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