Firms measured about corporate finance revival

CORPORATE FINANCE has proved a big money spinner for firms of all shapes and sizes. Therefore the banking crisis, which led to a liquidity crash and subsequent halt in deals, and finance hit the profession hard.

The latest stats suggest that the good times might just be picking up. But is it merely big deals benefiting the big firms, or will this sentiment flow down to SME accountants? And what impact has the crisis had on the firms’ ability to build?

There’s no doubt the biggest firms are braced for a pickup in work but it is difficult to predict any one sector or aspect of corporate finance that is the key target area. What does seem clear is the breadth of experience many corporate finance professionals have gained in the last few years.

While this may sound counter-intuitive, what with the impact on work levels during the crisis, it must be remembered that firms made modest staff cuts while working hard to utilise staff wherever possible. Corporate finance professionals, the firms believe, have come out the other side having gained a broader understanding of business.

Jon Hughes, Ernst & Young’s UK & Ireland managing partner for transaction advisory services, said staff were now “less siloed”. Due to the success in moving staff around to limit redundancies, E&Y’s top graduates now go through a mandatory six-month rotation around the department. “Our people have loved it,” he said.

Mid-market mergers and acquisition services are picking up, according to all the firms, while initial public offerings (IPOs) could also revive after a disastrous 24 months.

The key driver for all deals, whatever the sector, is the state of companies’ balance sheets.

While debt finance is still a strong area for big firms to service clients, many companies have improved the structure of their balance sheets to such an extent that they can consider M&As. “Corporates are active, looking to use their balance sheets to push deal activity,” said Hughes.

Firms have eschewed big, bold statements about recruitment drives, partly for two reasons. Firstly, they kept hold of more staff than during the downturn that followed the dotcom bust. Secondly, general sentiment for the upturn is of a “slow but steady” return of work.

KPMG’s UK head of corporate finance, Richard Clarke, points to the second half of the year for work to pick up, which could include IPOs. The firm’s recruitment policy is one of specialist sector advice. With most deals crossing borders, KPMG is also building sector teams on a European-wide basis. Media, support services, transport & logistics are specialist areas for the firm.

In a similar vein to KPMG, Deloitte has also seen internal staff movement internationally. Deloitte corporate finance recruitment partner Nick Jeal reported the firm was “actively recruiting”. He said: “We’re generally busy, but perhaps not as manic as it had been.”

Smaller accountancy firms face a completely different set of threats and opportunities in corporate finance. For starters, the avenues for funding deals are fewer than at the top.

While Project Merlin intends to open up funding between the big banks and SMEs, anecdotally firms are unimpressed with current lending figures and have little faith that will improve in the medium term.

Advisers looking to offer corporate finance services must instead concentrate on other avenues for finance, whether for growth or to manage debt. Key debt finance in the past 18 months has been negotiations between the taxman and businesses owing tax.

While the vast majority of so-called Time To Pay agreements have been signed off by HM Revenue & Customs, allowing businesses to defer their tax bills, the general sentiment is that the reins will tighten as the government applies pressure to banks to open up.

Asset-based lending has also proved popular, according to Kirsty McGregor, head of the Corporate Finance Network – which brings together like-minded firms.

Owner-managers in smaller businesses looking to offload are refusing to accept that their company’s value has fallen over the past two years. But for some advisers valuation services could still prove a lucrative market.
Despite the problems there is a growing appetite for M&A at SME level, according to McGregor.

“Where there are clients needing a hand with succession planning, plus savvy entrepreneurs, there are opportunities for growth,” she said.

For small firms currently unable to provide a broad range of corporate finance services, Shelley Stock Hutter’s Bobby Lane suggests that rather than going down the lengthy and expensive route of building a team, advisers would be better off tying up with specialists.

“We bring in the experts when we need them,” said Lane. “We do the things we know. You can buy a team and invest but it takes time. Do the things you’re best at.”