On Using Financial Advisors and Consultants

Why do I need financial advisors?

Answer: There are several distinct reasons. Company owners often:
(I) require objective, specialist advice on where to look for investors or sources of capital;
(II) do not have the time to conduct a systematic capital raising exercise (investor search/ negotiation/closing of transaction), particularly when this also involves the coordination of lawyers and accountants;
(III) have a general idea what their business is worth, but do not have the technical arguments to support their views in front of professional investors;
(IV) want to strengthen their negotiating position by working through advisors, particularly if the investor has hired their own professional advice;
(V) prefer to utilize a third party who is not emotionally involved in the company, to lead the negotiations.

Do companies use professional advisors in more developed markets?

Answer: The use of external advisors is commonplace in such markets, for many of the reasons mentioned above. Even large companies with all the corporate finance skills relevant to capital raising and M&A prefer to out-source such work because it is time-consuming and they have to give priority to running their businesses.

Although large corporations have traditionally used established investment banks to provide financial advice, there is a trend to using investment banking boutiques because these can be more client-responsive (any one customer relationship is relatively more important to them than it is to a large firm) and typically less expensive. In the wake of the collapse of many establishment names and the breakdown in corporate governance in some cases in 2008 clients are comforted by the level of personal responsibility taken by partner owned boutiques.

Often Strategic Planning is performed with external consultants because it is outside the normal operations of a company and managers who are good line managers and good at controlling day to day operations may not have the skill set or aptitude for strategy. Conversely sometimes consultants help owners identify those managers within the organization who are strong at strategic planning and management. Sometimes a company realizes ıt needs to do ‘something different’ but lacks fresh ideas – an outsider’s fresh perspective can often help.

What are the differences between Investment Banks, Management Consultancy firms and the Financial Advisory practices of large Accounting firms?

Answer: In truth the ‘boundaries’ are blurred. Corporate Finance (typically selling, merging, buying, financial restructuring and finance raising of companies) services are commonly offered by Boutique Advisory firms (like Osprey Partners), by the Investment Banks (who focus on large transactions), by the Financial Advisory teams at the ‘Big 4’ and by the larger Strategic Consulting companies. However larger institutions may face “conflicts of interest” and cannot offer impartial advice on all matters to one client.

Investment Banks have the capability to offer ‘underwriting’ services and as with brokerage companies they can launch a company or ‘list’ the company on a Stock Exchange. Boutique firms like Osprey these days due to advances in IT have the same data research capabilities to the larger organizations and can offer advantages such as greater assurance to the client on independence and more personal attention from partners because each and every client really matters!