Magazine article Management Today

Figuring on Fortunes

Magazine article Management Today

Figuring on Fortunes

Article excerpt


Accountants have always had a role to play in corporate finance. True, when a company goes public or makes an acquisition it is the company chairman and his merchant banker who receive star billing, the former declaiming sonorously on strategy and synergy while the latter, very often, writes the script; but you have only to read the small print to be reminded of the teams of accountants behind the scenes, totting up and vouching for the figures which underpin the prospectus, or scrutinising the accounts of the target company with suitably beady eyes.

This backstage work in `due diligence' and investigation has been in heavy demand in recent years, what with the continued trend towards mergers and acquisitions among the major public companies, the Government's privatisation programme, and now the rush to rationalise across Europe. Of late, however, the accountancy firms have also been moving into the spotlight - raising finance, handling disposals, acquisitions and buyouts, and proclaiming their achievements in their newspaper advertisements.

So far, their chosen province in the realms of corporate finance lies mainly with the smaller, unquoted companies and the less grandiose transactions among public companies. `The merchant banks will continue to dominate with medium and large-sized companies,' says Tom Wilson, corporate finance partner at Price Waterhouse, `but they haven't looked after the smaller companies particularly well - and their requirements are enormous. The accountants are moving in to fill a vacuum in the market.'

Of course, every merchant banker dutifully assures you of his undying concern for the smaller company; and some merchant banks, like BZW, for example, have started smaller business units to cater for this sector. However, according to Richard Mead, corporate finance partner at Arthur Young, `The key test is, if you do one deal for hundreds of millions of pounds, and another for 5 million, which team do you field for the smaller deal? We field our first team.' The merchant he suggests, may not. Other accountants point out that the ability to handle the 500-million transaction does not necessarily presuppose the ability to handle the 5-million deal, the personalities involved being so very different in each case.

At Deloitte Corporate Finance, Peter Hazell suggests that the accountants - are also responding to a further demand from clients: the need for `independent financial advice'. Deloitte is recognised as one of the most ambitious among the corporate finance wings of the accountancy firms (operating as an entirely separate company from its parent, Deloitte Haskins & Sells, and regulated by the Financial Intermediaries, Managers and Brokers Regulatory Association rather than the Institute of Chartered Accountants). In the mergers and acquisitions fields, its 15 partners have been so active in acting for private companies and the subsidiaries of public companies who might wish to sell, that Hazell expects Deloitte to feature in this year's league of UK takeovers: already, during the first half of 1988, it made a brief appearance in the Acquisitions Monthly charts. On the financial advisory services side, meanwhile, Deloitte has recruited two former merchant bankers, and provides financial advice to companies, both public and private, whether these are the targets of a bidder or are making capital issues.

`We act just like a merchant bank,' says Hazell, `except that we can't provide any money [all accountancy firms being partnerships, with no capital]. If the transaction is being financed by cash, this is no problem; if by shares, we form a relationship with a broker or bank; or we can't act. But there are an awful lot of transactions dependent on cash offers, or where two or three major shareholders hold all the shares.'

This financial advisory service, he says, was set up in 1985, in direct response to demand from clients perturbed by the approach of Big Bang - by the way that `a lot of merchant banks were changing, and becoming parts of larger institutions: they weren't sure they would be getting independent advice any more, whereas we don't broke stock, we just trade on our advice'. …

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