Advisers—What They Do, What They Don’t Do
It would be perverse not to believe that corporate finance advice is valuable. Here is one casual, empirical data point that supports this view: Private equity firms, many themselves ex-corporate financiers, and whose core business is buying and selling companies, almost always use advisers. The question is not whether to appoint advisers; it is what should they be tasked with doing, and what is the limit of their role. Their role is not to make decisions. They are there to limit the number of decisions the vendor has to make regarding the key commercial factors that make deals happen. Good advisers should be prepared to debate decisions and use their experience to guide their clients toward the paths of least resistance. However, only the owners can make the final decisions.
Having described what advisers don’t do, the natural question is: So what do they do? The answer to this is—pretty much everything except making the final commercial decisions. Expect advisers to prepare, collate, and analyze data that will be presented to potential purchasers. They should project manage every aspect of the sale process, providing a clear and coherent strategy to achieve a successful outcome with an acceptable level of risk. This is the necessary skill set of any adviser and it enables the company to concentrate on delivering to its customers, not preparing itself for sale. As the saying goes, “Don’t buy a dog and bark yourself.”
The added value in corporate finance comes in three ways. First is the ephemeral thing called judgment. As one partner of a major British practice used to describe it, having a good “bullshit detector” helps. Second is the ability to take the burden away from the client. Advisers should do all the heavy lifting, leaving their clients to concentrate on the business itself and the key decisions. Finally, and of crucial importance in many deals, advisers need to be able to access the right people in the right places who may wish to acquire the business.