Introduction
As the business expands, you are required to execute mergers and acquisitions, restructuring, joint ventures, and divestitures, among other complexities. You must also manage these complex legal, financial, and operational procedures, which are as complicated as other business challenges.
In today's highly competitive business environment, it is imperative to seek the assistance of service providers for all aspects of business operations, including business transactions. Transaction advisory services (TAS) can help you mitigate these business operations with their expertise in specific business transaction processes.
Do you know what transaction advisory services are? What are the types of it? When does your business need it? Why is it important for businesses? How does it work?
This blog discusses all you need to know about transaction advisory services. Let’s go ahead.
Transaction Advisory Services
Transaction advisory services are a special set of advisory services provided by professional firms to support complicated business transactions such as mergers & acquisitions, restructuring, and joint ventures.
There are various types of transactions covered by Transaction Advisory Services, as follows:
Scope of Transaction Advisory Services
Transaction advisory services have a broad range of activities including due diligence, valuation analysis, deal structuring, tax advisory, and integration support, etc.
The client companies avail these services from expert transaction advisors with constant support and guidance. Transaction advisory plays a crucial role throughout the transaction lifecycle from transaction planning and execution to after transaction integration.
Types of Transactions Covered by Transaction Advisory Services:
1. Mergers & Acquisitions (M&A)
M&A transactions are done by merging two or more companies as a single entity, while acquisition is the process of acquiring one company. In this process, transaction advisory works closely on operations such as:
- target company identification and screening,
- business valuation analysis and financial modeling
- Due diligence
- Deal structuring and negotiation assistance
- Integration strategy and post-integration support
For instance, if Company A is acquiring Company B, then Company A's transaction advisors will conduct thorough due diligence on the target Company B.
They will provide a simplified analysis of Company B’s financial position, the potential risks of acquiring it, and the legal and regulatory role in the acquisition.
2. Divestitures and carve-outs
Divestiture is a process where a company sells or divests its business unit, product line, or subsidiary. Carve-outs are a type of divestiture in which the parent company separates its business unit or product line to make it an independent entity.
Transaction advisory helps here with services such as:
- preparing financial statements and legal papers for the carve-out entity’s separation.
- Due diligence on the business unit and divested assets.
- Business valuation and price analysis
- identifying potential buyers or investors.
- Negotiation and structuring of the transaction
For example, if company A is separating or divesting a business unit, the transaction advisors will prepare the financial and operational separation, conduct due diligence on the business unit, make its valuation, and facilitate the sale process.
3. Joint Venture & Strategic Alliance
Joint ventures and strategic alliances come into existence when a company forms a collaboration or partnership with another company for a specific business opportunity or objective.
Transaction advisory helps these deals by providing services such as:
- Conducting due diligence on potential partners
- Structuring and negotiating a joint venture or strategic alliance agreement
- Valuation and financial modeling for joint ventures
- Consulting on governance and operational structure
- Guidance on regulatory and legal compliance
For example, Company A and Company B are partnering with each other as a joint venture to develop a new service. Transaction advisors will help them by conducting due diligence on both parties, structuring the partnership as a joint venture, and assisting them in making a government and legal structure for the partnership.
4. Reorganization and Restructuring
Restructuring or reorganization of a company requires a lot of changes in the operational and financial structure of the company.
Transaction advisory can help your company with restructuring by:
- Conducting financial and operational due diligence
- Developing a restructuring plan and strategy
- Advising on debt restructuring, asset selling, and business reorganization
- Assisting with bankruptcy and insolvency proceedings, if applicable
- Guiding legal and regulatory compliance
For instance a company needs to restructure its debts or operations, then transaction advisors will help the company with due diligence and restructuring strategies, advise on debt restructuring, and also guide them to comply with relevant regulations.
5. IPOs & Capital Market Transactions
When a private company turns to the public by issuing shares for the first time on the stock exchange, it's called an initial public offering (IPO).
Transaction advisors can assist with IPOs and other capital market transactions via:
- Conducting due diligence on the company’s finances and operations
- Supporting financial reporting and compliance requirements
- Valuation and pricing of the offering
- advising on regulatory and legal requirements
- Assisting in marketing and investor relations
Importance of Transaction Advisory Services
- As the business grows, the company’s expansion, dealings, structuring, mergers, acquisitions, partnerships, etc. proceedings accelerate, which needs support.
- Transaction advisory plays that supportive guide role by advising on the company’s legal, operational, and financial matters.
- Transaction advisory works on transactions from the start to the end of the company lifecycle.
- Transaction advisors help businesses streamline their transactional procedures with their expertise in business administration and experience in various fields.
- They identify the potential risks and near-future issues for organizations with their analytical approach and market research.
Thus, in many ways, transaction advisory is important for businesses that are growing continuously, but how does one identify the need for transaction advisory in a business? Let’s discuss.
Why Does Your Business Need Transaction Advisory?
1. Market Expansion
When the business market expands in terms of geographical locations, business operations, and consumer segments, transactions related to valuation, due diligence, risk management, etc. become necessary to perform for any business.
In this market expansion phase, the transaction advisory can provide the necessary advice, guidance, and support to the business.
2. Acquiring the Latest Technology and Capabilities
Technology is constantly upgrading, and businesses are in search of efficient technological ways to enhance their operations. When a company acquires the latest technology or upgrades its operation capability, that becomes restructuring time for the company.
The restructuring of the company requires transaction advisory to assist them in the process of making a restructuring strategy, legal and regulatory compliance, discussion with stakeholders, and financial auditing for the restructuring.
3. Diversification of Products
When a company introduces new products or makes diversified product ranges from one another, that time also needs a sort of reorganization in operations, financial strategy, and legal structure.
Transaction advisors here help with legal compliance, restructuring operations, and financial decision-making for the company.
Advantages of Availing Transaction Advisory Services
1. Expert Guidance & Support
One of the most compelling advantages of transaction advisory services is their expertise, guidance, and support in the transaction process. The expertise in managing legal, financial, and operational issues in varied situations allows the company to not worry about the transaction lifecycle.
The companies can learn and act on complicated finance, legal, and operational aspects with the help of transaction experts. These become back for you where you get complete guidance and support whenever needed in transaction-related challenges.
2. Objective and Independent Advice
The transaction consultancy advises you objectively. The independent advisors give advice that is unbiased and free from conflicts of interest. You can make an accurate decision because of the objective advice from the transaction advisory.
The transaction advisors help you with their experienced advice to fill up your requirements related to transactions. You get objective advice to make important decisions.
3. Access to Specialized Knowledge & Industry Expertise
Because of their vast experience in various industries and expertise in transaction proceedings, the transaction advisors provide complete access to specific industry knowledge. You can get the benefit of this industry-specialized knowledge as per your business interests and priorities.
Access to the experts’ specialized knowledge and industry expertise, helps you to adopt valuable business via transactions and avoid such transactions. Their expertise and support can also ensure precision in choosing the right strategy for finalizing the transaction process.
4. Identification and mitigation of potential risks & challenges
Transaction advisors help businesses identify potential risks and upcoming challenges. The expertise of transaction advisors provides accurate solutions to mitigate these risks and challenges.
Transaction advisory can help you prepare low-risk strategies for transactions. The most valuable benefit of transaction advisory is the experience of taking transaction-related challenges and making them feasible.
5. Improvement in Decision-making
Transaction advisory helps improve your decisions. You can make decisions with the help of a transaction expert’s advice on the business matters of the company. Their industry experience assists your business on the path of accurate decision-making, the right strategy, better negotiation, etc.
Their expertise in understanding cost benefits, transaction value, and revenue opportunity helps businesses to make viable decisions. Thus, decision-making can be done with ease because of the consistent support of transaction advisory.
6. Facilitation of a smoother integration process
Joint ventures, mergers, and acquisitions, like transaction proceedings, require a smooth integration process after collaborating. The transaction services help businesses realize the synergies of integration. Businesses can easily integrate with operations, teams, and targets with the assistance of transaction advisory.
The post-transaction stage requires the seamless integration of companies where transaction advisory enables the effortless integration strategy. Their expertise integration makes more cooperation between the companies.
Common Transactions Risks that Transaction Advisory Helps Mitigate
1. Financial Risks
One of the most influential risks involved in the transaction process is financial. If an organization fails to identify the potential financial risks in transaction proceedings, then the transaction can become a negative decision.
2. Operational Risks
Businesses also find it difficult to get the exact effect of operations from transaction proceedings. The operational risk of transactions is one of the challenges for businesses to mitigate.
3. Strategic Risks
When a company’s transaction decision does not align with the overall objective or involves the market evolving differently after the transaction, that is called strategic risk.
4. Regulatory and Compliance Risks
Transactions, especially cross-border transactions, face hard regulatory and compliance risks that challenge the overall transaction process.
5. Cultural and HR Risks
The risk of cultural fit and team members can lead to mismatching in mergers, employee dissatisfaction, or high turnover.
6. Reputation Risks
Before performing transactions, the companies should learn about the associated reputational risks. Even a single misstep in the transaction process can affect the stakeholders’ expectations and harm their reputation.
7. Market and Economic Risks
The transaction process can also lead to market and economic risks. If the transaction is performed without analyzing the involved market risks, then it can have an impact.
8. Technology Risks
Technology risks such as cybersecurity, intellectual property issues, privacy issues, etc. also impact transaction deals.
How does Transaction Advisory help to avoid common transaction risks?
1. Mitigating Financial Risks
Transaction advisors conduct accurate due diligence. They get to know about the targeted company’s financial statements, liabilities, and future projections. The valuation by transaction advisory also identifies hidden financial risks if involved.
2. Addressing Operational Risks
Advisors support the integration companies in addressing operational risks such as the integration of strategies, processes, systems, and operation structures. All these integrations are handled by the transaction advisors, and they help to mitigate operational risks.
3. Strategic Risk Management
Transaction advisors work closely with the top-level management of the company. The strategic goals of company leadership help transaction advisors identify the risks involved.
4. Navigating Regulatory and Compliance Risk
Transaction advisors have expertise in legal and regulatory aspects, especially cross-border transactions. They navigate regulatory and compliance risks for integration companies and save them from financial and legal penalties.
5. Cultural and HR Integration
The cultural fitting of integration company teams is very challenging. Therefore, advisors track cultural due diligence to understand both teams' differences, similarities, and mindsets.
6. Reputation Risk Management
Transaction advisors help organizations communicate with stakeholders, such as investors, consumers, and employees, throughout the transaction process. These have a positive impact on the involved companies’ reputations.
7. Market and Economic Risk Assessment
Transaction advisors analyze market circumstances and economic trends to help companies know about the market risks involved in the transaction. They assist companies in planning, risk assessment, and preparation for changing market dynamics.
8. Technology Risk Mitigation
Transaction advisors help companies deal with privacy concerns, intellectual property issues, and cybersecurity risks in the transaction process. They provide integrated solutions for mitigating technological risks and protecting digital assets.
Role of Transaction Advisory in the Due Diligence Process
Due diligence is the process of carefully checking all the details of a business or investment before proceeding with the deal. This process involves looking at the company’s finances, legal issues, operations, and anything that could affect the deal.
Due diligence aims to make the right decisions, analyze the deal's risks and benefits, and avoid unexpected problems later.
Transaction advisory plays a pivotal role in due diligence and assists companies in making the right decisions. Their expertise, proven experience, and industry knowledge in analyzing every detail of companies help transactions be more effective.
However, you may ask what type of due diligence is covered by a transaction advisory. Let’s discuss:
Types of Due Diligence Covered by Transaction Advisory Services
1. Financial due diligence
Advisors analyze financial statements, accounting policies, and projections.
2. Operational due diligence
Hare, transaction advisory, prepares assessments on company operations, management, supply chain, and administration.
3. Legal and regulatory due diligence
Advisors review contracts, agreements, legal compliance, and regulations.
4. Tax due diligence
The advisory evaluates tax returns, benefits, and structuring.
5. Commercial due diligence
Transaction advisors analyze market changes, competitions, and opportunities.
How to Choose the Right Transaction Advisory Firm?
Selecting the right transaction advisory that aims at your business targets and streamlines the transaction process is a crucial decision for any company.
Here, you can learn more about which factors should be considered when selecting a transaction advisory.
Factors to consider when selecting a transaction advisory firm:
1. Expertise & Experience
Ideally, you should consider the expertise and experience of the transaction process when you are listing out the transaction advisory.
2. Track Record
The track record of transaction proceedings is equally crucial to look at when you choose a transaction advisory.
3. Specialized resources and subject-matter experts
Advisors can provide specialized resources or subject-matter experts when needed in transactions, which is also an important factor to look after when you select a transaction advisory.
4. Global reach and capabilities
Cross-border transactions require transaction advisory services with global reach and capabilities to handle a range of legal, and financial issues.
5. Alignment with business values and goals
You should pick the transaction advisory that aligns with your business values and projected goals.
6. Fee structure and cost-effectiveness
As a business, you should check the fee structure, charges, and other remunerations and the cost-effectiveness when deciding on the transaction advisory.
What expertise and experience should transaction advisors possess?
- An educational degree specialized in A degree in a finance-related subject involving accountancy
- An ACA (Associate Chartered Accountant) certificate completed or will be completed or a similar qualification
- Minimum one and a half years of work experience, especially in the United Kingdom
- Expertise in MS Office
- Evidence and Proof of Report Writing Skills
- Audit or Transaction experience consisting of due diligence
- Knowledge of various apps such as Power BI and Power Query
How do transaction advisory services differ from other consulting services?
Transaction advisory services differ from other consulting services in several ways, such as:
These services only deal with complex transaction processes that require keen expertise and proven experience in transaction procedures.
Second, these services are time-sensitive with tight deadlines and require on-time decision-making.
Furthermore, these services consist of a multidisciplinary approach and combine finance, tax, accounting , and legal experts to proceed.
How to evaluate the quality of transaction advisory services
You can check the quality of transaction advisory services by reviewing the firm’s track record of transactions, clientele, and case studies. You can also evaluate the firm’s experience in transactions and the qualifications and expertise of team members.
Additionally, you can request presentations and proposals from various transaction advisories and compare their approaches, methods, and strategies.
Conclusion
To cut a long story short, transaction advisory can make the complex transaction process straightforward with its simplified approach for a seamless transaction.
If you are searching for the ideal transaction advisors to assist you with the foremost transaction advisory services, Contact Us.
We, Virtue CPAs & Advisors , are a professional accounting and advisory service firm in the US. Our wide range of transaction advisory services consists of cost segregation, post-close services, valuation, due diligence, and more to support your transaction proceedings.
Let’s connect!
