Deal Advisory: Definition, Scope, and Examples
Digital disruption, industry convergence, and increasing regulatory oversight have led businesses to rethink their approach to value creation in deals. Deal negotiation and structure are crucial for value creation.
What is Deal Advisory, and Why Do You Need It?
A Deal advisory is defined as a category of strategic financial services that helps businesses evaluate and navigate deals to maximize value creation. These services guide businesses on growth, and functional capabilities and develop a competitive edge over their peers. Deal advisory firms facilitate connections between businesses and seasoned financial advisors who leverage data-driven insights to guide strategic transactional decision-making.
Deal advisory professionals look at the entire lifecycle of the deal, and the business as a whole, to provide actionable, and practical advice designed to help businesses raise, invest, and preserve capital, minimize risks, deliver stakeholder value, and meet long-term business goals. They have profound experience in transactions, restructuring, and corporate finance across a range of disciplines and industry sectors. They focus on helping their clients identify, evaluate, and employ growth strategies and maximize returns.
Scope of Deal Advisory Professional Services
Deal Advisory professionals assist their clients throughout the deal life cycle and typically offer the following services:
1. Due Diligence Advisory:
The process of due diligence involves two key perspectives:
Financial due diligence:
It includes a careful analysis of the organization’s historical financial performance, financial position, liabilities, recorded and unrecorded contingencies, working capital, fixed assets, balance sheet adjustments, and core financial terms of the existing business contracts. Financial due diligence involves tax and legal, due diligence, business valuation, human resource, IT, and environmental due diligence.
Commercial due diligence:
Deal advisors examine the target business’ relative market position, market conditions, and its ability to deliver predicted results. They identify critical business factors such as market trends and outlook, macroeconomic influencers, regulatory environment, the competitive position of the client company, and relationships with key customers and suppliers. The integrated approach of combining commercial, financial, and tax due diligence services gives the client a better view of the business.
Check our blog Ultimate Due Diligence Checklist for your Startup to get prepared for your next fundraiser!
2. Buy-side Advisory:
Acquiring an existing business is one of the easiest ways to get a head start in developing your market. Buy-side advisory helps you assess the business potential, screen targets, strategically evaluate targets, initiate discussions between the parties, execute the transaction, and close the deal. For example, a corporation that needs to raise money to build a new factory calls the deal advisor to understand the best option so their investment bank can issue either debt or equity to invest in the factory.
Read our e-book What’s Your Startup Worth? Find out now to get started on getting the right valuation for your startup.
3. Sell-side Advisory:
When selling or divesting a business, advisors act as key links. They prioritize your objective for sale or divestment and develop the process accordingly. They are experts in cost calculations, and legal compliance, help identify various types of buyers, and manage other aspects concerning a sale. For example, an asset management firm runs a fund that invests its high-net-worth clients’ money in alternative energy companies. Deal advisors help the firm look for opportunities to put that money to work by investing in the most attractive companies in the industry.
Read our insight on Creating a Compelling Pitch Deck with Financial Storytelling to get you started on your fundraising exercise.
4. Debt & Equity Advisory:
Advisors guide you through the complete process of identifying the right form of finance, and the right package of information, by skillfully sourcing the finance and negotiating the terms. They focus on some issues like recapitalization; financing or refinancing; acquisition financing; raising funds; and financial restructuring. Say, company ABC has a $100 million debt that it is unable to operate. The company offers 25% percent ownership to its two debtors in exchange for writing off the entire debt amount. By this, the company exchanges its debt holdings for equity ownership by two lenders in a debt-for-equity swap.
Deal advisory firms provide actionable and practical insights to resolve stakeholder matters and integration issues to help the client minimize the risks involved and preserve value for the business. Deal advisory professionals help businesses plan and implement strategic changes to increase their portfolio and deliver tangible results.
They bring deal success anticipated by their clients and see what they gained from the deal at hand, and what they want to get from the next deal down the road. Deal advisory services are offered by most major financial consulting firms and CFO services firms and are often provided as a part of a larger advisory offering.
Spice Route Finance is a leading firm with deep expertise in deal and M&A advisory. Check us out to understand how we can help you scale growth and achieve profitability today!