Transaction Advisory Services

Preserving capital

Every business needs to continuously assess the potential impact of evolving market conditions on the performance of its operations and its capital base.

Even in a recovering market, companies believing themselves in a stable position can find their situation can deteriorate quickly.

The preservation of capital requires that companies continuously scour their strategies, markets and balance sheets, to reassess strengths and weaknesses.

Such reviews should extend beyond the business to include the health of both its supplier and customer base. Analysis should include:

• Cash flow and working capital management
Sound cash flow management and forecasting practices are critical to the survival of a business.

• Managing debt and liquidity 
In today’s climate, lenders are understandably reducing risk while raising margins. Those businesses needing to refinance debt facilities can expect challenges aplenty.

• Stakeholder management
Balancing the often competing interests of stakeholders is challenging at the best of times, sometimes formidable.

• Cost reduction 
Managing and reducing costs has always been a key business priority, but for stressed businesses in the post-recession economic environment, it’s critical.

• Managing risks across the value chain 
Vendors and customers may be a company’s lifeblood but as a result are also sources of considerable risk. Leading companies are learning to proactively identify, measure, monitor and ultimately mitigate potential disruptions.

• Uncovering cash in tax 
It’s almost unavoidable — as economies sour and operating conditions evolve, companies wind up with less than efficient tax structures and practices. As such, wise businesses are reviewing their tax strategies to reduce expense and uncover liquidity.

• Seeking protection 
Preserving capital and the value of the business can also mean seeking protection owing to cash flow constraints, creditor pressure or the withdrawal of funding.

• Corporate efficiency 
Legal entity rigor is part of any high performance organization. Companies should look internally and examine both the size and complexity of their legal entity structures.

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Optimizing capital

Today’s economic climate is forcing businesses to candidly assess their financial fitness.

More than a mere review of operations, companies today must conduct objective assessments of the alignment of their business strategies to their accompanying asset portfolios. The goal: the optimal allocation of capital.

A growing number of boards are focusing greater attention on the key drivers of efficient capital allocation. They’re asking for greater discipline in terms of operational efficiency, and they’re asking firms to identify opportunities to release excess cash and optimize working capital.

In turn, companies are learning that earlier identification of problem areas can lead both to better capital preservation and to more optimal allocation.

And companies are recognizing the importance of more effective integration within their acquisition strategies. Increasingly, acquisition or merger strategies are being pitched to investors based on expected synergies.

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Investing capital

Investors in your organization want to know why: why this transaction, why at this price and why now?

Complicating matters, differing stakeholders increasingly bring differing expectations of investments as well as timelines for returns.

Investors today are more closely scrutinizing the investment of capital. As a result, businesses must work harder to define and communicate the value proposition and/or potential synergies of capital investment decisions. They must demonstrate in-depth and varied scenario analysis around investment decisions, as well as detailed integration planning.

In response to these pressures, leading companies are implementing a range of actions. They’re considering a wider range of strategic options, developing tailored stakeholder communications, and they’re focusing due diligence efforts on key drivers that will enable them to realize opportunities and mitigate of risks.

• Evaluate investment opportunities
Identifying the right investments and putting clear due diligence, integration and risk management plans in place is essential to successful investing.

• Perform scenario analysis around investment decisions 
Effective scenario modelling helps to develop and refine the value proposition and/or potential synergies of capital investment decisions.

• Identify opportunities and integration planning
Speed to value starts with highly focused pre-investment planning and due diligence. An enhanced focus on operational and commercial due diligence to challenge revenue and cost synergies allows for improved realization post-investment.

• Mitigate risk and validating investment drivers through due diligence 
The increasing complexity of investments highlights the need for more focused and thorough due diligence. Companies with the ability to perform highly focused due diligence leveraging strong sector insights will gain competitive advantage.

• Evaluate investment structures
Capital investment decisions are not strictly limited to acquisitions. Alternative mechanisms (such as JVs or partnerships) may allow companies to invest capital with less risk.

• Uncover cash in tax 
It’s almost unavoidable — as economies sour and operating conditions evolve, companies wind up with less than efficient tax structures and practices. As such, wise businesses are reviewing their tax strategies to reduce expense and uncover liquidity.

• Manage heightened expectations 
Effective communication to stakeholders is essential to gaining and maintaining investor confidence. While all stakeholders will need to understand the key business drivers and the value story surrounding an investment — stakeholders will have differing expectations of investments as well as varying timelines for returns.

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Raising capital

A company’s ability to raise capital quickly and effectively is integral to its growth potential and financial well-being. This is true in good times and in bad.

Whatever the motivation for raising capital, companies can access new funds more effectively if they have planned ahead. They should know how and where they could access capital, if they need it.

The key is taking a holistic view of the company’s capital needs – looking at their operations through the eyes of potential lenders and investors.

Companies prepared with that perspective will improve their access to capital and the terms on which capital is offered. Time invested in evaluating potential capital sources in advance may be repaid many times over.

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