Corporate Finance Fees and Quality of Service | Round Table Discussion

Neil Ackroyd

Selling a Business Welcome to Corporate Finance Television. My name is Neil Ackroyd, Corporate Finance TV Founder and managing director of Precision Corporate Finance. Today we are helping you with the knowledge to choose by hosting a round table discussion on fees and quality of service in corporate finance and corporate law. With me today is Chris Hale, head of corporate Travers Smith, a full service law firm best known for M&A work in private equity and public companies selling a business. Travers Smith are one of the leading firms in corporate finance in the UK and Europe, and have been voted Lawyers of the Year on numerous occasions. Also with me is Chris Williams, private equity specialist who spent 16 years with industry leader 3I leaving as a partner. Chris has invested in deals over the years from single figure millions to several hundred millions in enterprise value. Lastly we’re joined by Bob McNaughton who led two management buyouts of NCP Car Parks. First backed by Cinven and then 3I. Now, having successfully exited NCP he holds a number of non-executive positions helping boards of directors benefit from his vast experience.

Bob, if I could turn to you first, the first question that we wanted to discuss is what should you expect from your corporate finance lead advisor and, you know, in terms of skills, qualifications and also the role they perform on the transaction?

Bob McNaughton

I think that the most important thing for me has always been that they have experience, they know what they’re doing. One expects that you’re going to have a qualified advisor. Selling a business. I don’t think you look directly at qualifications, you look at their knowledge, their experience, their capacity to do the job. And from my experience their ability to deal, to work in a very pressurised and intense environment.

Neil Ackroyd

Super. Chris, what would you, what would you say?

Chris Williams

I would certainly echo that and I think I would make sure that they have relevant experience for the size of transaction, the nature of the transaction that you’re envisaging. So if it’s relatively small then make sure they’re somebody who has had that experience. If it’s large, if it has a very specialist sector, or if there’s some other nuance to what you’re planning that you get somebody who has, if possible, has done that before. Selling a business. And then you’ve got to find somebody who you can work with. I mean taking Bob’s point, you’ll be working intensively with this person, probably for three, six, nine months perhaps. You really need to get on with them and understand them. So spend time with them and make sure they’re somebody you can work with closely.

Neil Ackroyd

And Chris, I guess you know, you work with corporate finance lead advisors you know, every day of your career. You know, what’s your view on what should be looked for?

Chris Hale

Well I’d agree with what both Bob and Chris have said. The other thing that I look for as a lawyer interacting with them is their project management skills because they’ll be pulling the deal together and what I want to know is they’ve got somebody who is experienced, who knows what they’re doing, who are going to facilitate the process rather than interfere with it. And the danger is if they have somebody too junior doing that role we can find one selves in the latter position rather than the former.

Neil Ackroyd

Right so, you know, so a few grey hairs in terms of you know, in terms of having been around the block a few times. And what sort of roles and tasks should, you know, say if an owner manager is watching this, this discussion, what should they be looking for for their corporate finance advisor to take off them if you like in terms of responsibility with the corporate finance process, Chris.

Chris Williams

I think first of all they need to make sure they understand your business and that they can therefore present it in writing and verbally, and help you with presentations because it’s not easy to understand how somebody views your business until you are standing on the other side of a camera or sitting in front of them. So they need to help you in terms of the presentation. Selling a business. They need to make sure that the process is run efficiently because it will be a demanding process, and they need to be able to persuade the other parties involved from potential purchasers, to the other advisors, that they do their roles properly. So they’ve got to be quite firm and clear about what needs to be achieved and make sure it’s achieved.

Neil Ackroyd

So they need to be taking a lead on the process, I mean as lead advisors kind of suggests. But they need to be that kind of firm and in control individual that can kind of martial troops and quarter back the deal if you like.

Chris Williams

Absolutely.

Neil Ackroyd

Right, and Chris as, when you’ve been doing deals or both Chris’ when you’ve been doing deals throughout your career then it’s, those deals have kind of been your day job. But certainly Bob, you know when you’ve been, the deals that you’ve worked on, you know you’ve actually had a day job. So, you know, how important have your lead advisors over the years been in terms of you know, enabling you to make sure the deal goes through but also, but also you know, get that day job done very successfully.

Bob McNaughton

Well I think that the success of a transaction will be very firmly underpinned by the ongoing success of a business and the best advisors are always very conscious of that. They are often critical activities going on through a process and the best advisors were, because they took an interest and had a knowledge in the business, they would be aware of those things. So they would be pushing you to make sure you weren’t neglecting that part of things and that you were focused on the business. But there is no doubt, as an owner of a business or a proprietor of a business involved in a transaction, it is a very very intensive and unsustainable process. It’s not something that you can do for a long long time.

Chris Hale

And what I’ve seen on a number of transactions is that timetables have sometimes been too protracted and however skilful the advisors are there’s inevitably going to be a lot of time input required from the senior management team, particularly the CFO, the FD. And if the timetable is protracted the team can take its eye off the ball of running the business, and on occasions I’ve been businesses performing poorly as a result of that as the months go by. That then destabilises the whole process because the buyers see the business deteriorating, they think well what’s going wrong and the deal can then fall apart. So there’s an element of skill on the corporate finance advisors part in understanding that might happen and managing it, and managing expectations, and managing the timetable.

Neil Ackroyd

So would you say in that case that there’s also a benefit, I mean we have a bit of a tendency in the, in the UK to have lead advisors who are also, for example, chartered accountants and I’m kind of, I don’t admit to it at parties but I’m one of those. And you know, would you say that’s a benefit then in terms of, you’re right, the CFO or the finance director has a huge draw on them if the lead advisory firm can take pressure off, you know some of those numbers and some of the transmission of those numbers and some of the understanding and analysis of those numbers. Would you say that’s a big benefit?

Chris Hale

Well Bob and Chris are probably better placed to comment on that, particularly Bob from within. But from without yes definitely.

Neil Ackroyd

And Bob?

Bob McNaughton

Well I would take the view that as a senior executive in any organisation should be very numerate and have a very strong grip of the numbers so, I actually found a benefit, a collateral benefit of being involved in the process. It actually made you look at your numbers again and again, and again and there were actually some collateral benefits in doing that. I would never see the situation that you are outsourcing the numbers to the advisors because then you can’t own them and then the process is becoming something which is manufactured and artificial, and that you know, I think that does happen, I’ve seen it. I think that it is absolutely essential that the management team, not just the CFO but the whole of the management team own those numbers and are able to articulate them very well when they are dealing with the potential acquirer for a business.

Neil Ackroyd

I think that’s a very interesting point. I mean certainly in my experience that there is a trade off isn’t there. You want your advisor to be able to understand, in some depth you know, what’s going on in the business and to be able to commit, be able to transmit that to people but you don’t want, and certainly Chris, I’m sure you’ll echo this a private equity specialist. You know, a private equity player doesn’t want to feel that the advisor is driving the numbers and that they’re not owned by the management team.

Chris Williams

No absolutely. I mean they do have to be owned by the management team and to extend the private equity house but the advisor needs to understand those and understand how they should be presented to the best effect to the potential purchasers. And that involves the advisor really getting you know, under the skin of the management team and those numbers and if they don’t do that they won’t be able to present it properly, they won’t be able to help the management team to present it well.

Bob McNaughton

I think there’s a good point Chris makes about, where the advisors, they don’t create the numbers but they are very good at how to present them best in the circumstances of the process that you’re going through and that is where, you know, their input is invaluable. Numbers aren’t always presented in a single way, there are different solutions to how you present different parts of a business for example, or how you structure them. But underlying the numbers absolutely have to be the management teams.

Neil Ackroyd

I kind of agree with that, I always say that the corporate finance transaction is more of an organic beast, it has to be, it kind of has a life of its own and a big part of the corporate finance advisors job, in my opinion, is to kind of manage that beast and kind of you know, keep it alive and keep it healthy. And it kind of grows and changes as it goes along. So I agree, a bit part of that is you know, is how to you know, how and when to put information forward. So we’re getting a bit of a theme here from everybody in that it’s clearly very important that the lead advisor is involved in, you know, in all the detail of the process and therefore I guess has to be you know, suitably intelligent and suitably qualified to be able to demonstrate that they have an in depth grasp of businesses and can move from one business in one sector to another business in another sector. Would you agree with that Bob?

Bob McNaughton

Well I think there are a broad set of skills which are transferable. I think the top of those skills is how you deal with people, so those interpersonal skills in a pressured environment are absolutely critical but still sector experience and sector knowledge is still very valuable because there are relationships and knowledge which inevitably will come out through a process.