Latest News

The DIY disasters of corporate finance

By Susannah Adams, Milsted Langdon’s senior manager, corporate finance

The more experienced and knowledgeable you are, the more tempting it is to have a go at corporate finance deals yourself, but doing it yourself is not always a good idea.

Below are some common mishaps resulting from DIY corporate finance and reasons why appointing specialists – like the author of this article or my colleague David Fawcus, our consultant specialising in corporate finance – is always a safe and surprisingly cost-effective remedy.

Problem	Cause	When it happens	Symptoms	Remedy: use a CF specialist because…
Expectation gap	“Back of fag packet “valuations	Offer stage	Sceptical buyers, disappointed client	CF specialists follow an orderly transaction process, including early setting of price expectations.
No buyer appetite	Ineffective marketing	Early in marketing process	No buyers, disappointed client	CF specialists have extensive information databases and contacts within the corporate transaction world.
Costly economies	Inadequate, ineffective dissemination of information (“Just send out some accounts and a link to the website.”)	During the marketing process	Extra work created by responding to buyers’ different information demands	CF specialists create a comprehensive, professional, perfectly pitched information memorandum suited to client’s size and budget.
Excessive work in progress (WIP)	Ineffective treatment of “no buyer appetite”	Later in marketing process	No buyers, disappointed client, massive WIP	Using a CF specialist on a shared fee basis can be much more cost-effective than doing it yourself – they do the work, you still receive a fee.

Problem	Cause	When it happens	Symptoms	Remedy: use a CF specialist because…
Under-recovered WIP	Unsuitable billing process (“Let’s see how we get on.”)	Even later in marketing process	Having set a success fee, payable on completion, you’ve done a lot of work you haven’t been paid for and initial enthusiasm wanes.	Orderly CF transaction process sets milestone achievements and agrees a fee at each stage.
Crowded agenda	Too many ongoing issues with one client	Serious cases can result in dropped clangers	Loss of perceived value in CF service as very basic compliance matters and transaction issues dealt with in same meeting/ correspondence	Using a CF specialist keeps a distance between the two, making it easier to charge a premium fee for premium services.
Unclear profile in the market	Perception in the market as a jack-of-all-trades	Partners’ meetings	Lack of CF referrals from other external sources and reputation amongst fellow partners as seller of firm’s “jewels”	Other professionals, including banks and solicitors, are more comfortable referring business to dedicated and well known CF experts.
Dropped clanger	Inexperience of common transaction pitfalls (see also Crowded agenda)	Heads of terms/ contract	Often occurs in contract negotiations, creating tension between buyer and seller	CF specialists have extensive transaction experience (and the occasional battle scar).
General practice (GP) bottleneck	Pressure from transaction	Transaction nearing completion	Unhappy clients, lack of progress with GP portfolio	CF specialists are transaction-focused.
Stalled transaction	Pressure from GP portfolio	General practice compliance deadlines	Inability to complete a transaction in January.	CF specialists do not have these additional distractions.

If you would like to discuss in more detail how we can work with you on corporate finance, please contact the Milsted Langdon team

RELATED LINKS