Introduction
As the business expands the change of the structure of the business is a part of the process. As your business operations go up, you may find deals of mergers and acquisitions, restructuring, joint ventures etc.
These are all large transactions between two or more companies for mutual growth, and it’s the phase where your business requires an expert consultant to go ahead, known as transaction advisory.
Transaction advisory services firms provide the A-To-Z guidance in the process of big transactions of your business. Whether you’re merging with another company, making a large investment in any company, or restructuring your own business for one-step further growth, transaction advisory services provide spotlight the best path to do so!
Let’s learn more with this complete guide blog that discusses all you need to know about transaction Advisory Services, its scope, importance, benefits, types, etc.
What is Transaction Advisory Services?
Transaction advisory services are a special set of advisory services provided by professional advisory firms to support business transactions such as mergers & acquisitions, restructuring, and joint ventures.
Transaction advisory services have a broad range of procedures including due diligence, valuation analysis, deal structuring, tax advisory, integration support, etc.
Professional transaction advisors serve the client companies with constant support and guidance in business transactions. A transaction advisory firm plays a crucial role throughout the transaction phase from transaction planning and execution to after transaction integration.
Types of Transactions in Transaction Advisory Services
Here are various types of transactions covered by transaction advisory services:
1. Mergers & Acquisitions (M&A)
When two or more companies merge as a single entity it’s called a merger, while acquisition is the process of acquiring one company. In M&A, transaction advisory works on operations such as:
- Target Company Identification and Screening
- Business Valuation Analysis and Financial Modeling
- Due Diligence
- Deal Structuring and Negotiation Support
- Integration Strategy and Post-Integration Support
For example, if Company A is acquiring Company B, then Company A's transaction advisors will conduct complete due diligence on the target Company B. Transactions advisors will analyze B’s financial position, potential risk, and legal and regulatory outcome of the acquisition.
2. Divestitures and carve-outs
When a company sells or dissolves its business unit, product line, or subsidiary, it is called divestiture. Carve-outs are a type of divestiture where the parent company separates its business unit or product line to make it an independent entity.
Transaction advisory helps here with:
- Preparing Financial Statements and Legal Papers.
- Due Diligence on the Business Unit and Divested Assets.
- Business Valuation and Price Analysis
- Potential Buyers or Investors Identification
- 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 handle the sale process.
3. Joint Venture & Strategic Alliance
When a company establishes a collaboration or partnership with another company for a specific business opportunity or objective, that is known as a joint venture or strategic alliance.
Transaction advisory assists here in:
- Conducting Due Diligence on Potential Partners
- Structuring and Negotiating of Agreement
- Valuation and Financial Modeling
- Consulting on Governance and Operational Structure
- Guidance on Regulatory and Legal Compliance
For example, if Company A and Company B are partnering with each other as a joint venture to develop a new service.
Transaction advisors will assist them by conducting due diligence on both companies, structuring the partnership as a joint venture, and advising them in making a governmental 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 example, if a company needs to restructure its debts or operations, transaction advisors help it with due diligence and restructuring strategies, advise on debt restructuring, and also lead it 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. become usual and grows too. These transactions need expert support and guidance to advise the company about legal, operational, and financial matters.
Transaction advisory works on transactions from the start to the end of the company lifecycle and helps businesses speed up the transactional procedures with their expertise in business administration and experience in various fields.
Transaction advisors identify the potential risks and near-future issues for organizations with their analytical approach and market research. In many ways, transaction advisory is important for businesses that are growing continuously, but when does your business need transaction advisory?
Let’s discuss it.
When Does Your Business Need Transaction Advisory?
1. Market Expansion
When the business market expands in terms of geographical locations, business operations, and consumer segments, transaction advisory provides valuation, due diligence, and risk management that are become necessary to perform.
2. Latest Technology
When a company acquires the latest technology or upgrades its operation capability, that results in restructuring phase for the company, and it requires transaction advisory services 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 separate product range from one another, that phase also needs transaction advisory services in operations, financial strategy, and legal structure.
Transaction Advisory Services Advantages
1. Expert Guidance & Support
One of the most compelling advantages of transaction advisory services is their guidance and support in the transaction procedures. Their expertise in managing legal, financial, and operational issues in varied situations helps the company to not worry about the transaction lifecycle.
2. Objective and Independent Advice
The independent and experienced transaction advisors give objective, unbiased and free from conflicts of interest advice so that you can make an accurate decision.
3. Specialized Knowledge and Industry Expertise
The transaction advisors provide complete access to specific industry knowledge due to their vast experience in various industries and proven expertise in transaction proceedings. You can get the benefit of their industry-specialized knowledge as per your business interests and priorities.
4. Potential Risks Identification
Transaction advisors help businesses identify potential risks and upcoming challenges. The expertise of transaction advisors provides accurate low-risk strategies to deal with these risks and challenges.
5. Improved Decision-making
Transaction advisory timely advice on the business matters of your company so that you can make informed decisions. Their industry experience assists your business on the path of accurate decision-making, the right strategy, and better negotiation.
6. Precise Integration Process
Joint ventures and M&A transactions require a straightforward integration process after collaborating. The transaction advisory services help businesses recognize the advantages of integration with a precise integration strategy.
What are the Potential Transaction Risks?
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 may become a negative decision.
2. Operational Risks
The operational risk of transactions is one of the challenges for businesses to lower because many businesses find it difficult to get the exact benefit of operations from transaction proceedings.
3. Strategic Risks
When a company’s transaction decision does not correlate with the overall business objective, or it depends on the near-future market changing after the transaction, it is called strategic risk.
4. Regulatory and Compliance Risks
Transactions, especially cross-border transactions, face strict 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 damage the 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.
8. Technology Risks
Technology risks such as cybersecurity, intellectual property issues and privacy issues also impact transaction deals.
How Transaction Advisory Services Helps to Avoid Transaction Risks?
1. Handling Financial Risks
Transaction advisors conduct accurate due diligence, get to know the targeted company’s financial statements, liabilities, and future projections, and identifies hidden financial risks if involved.
2. Addressing Operational Risks
Transaction Advisors support the integration companies in addressing operational risks of strategies, processes, systems, and operation structures and help to eliminate operational risks.
3. Strategic Risk Management
Transaction advisors coordinate with the top-level management of the company and help them with the strategic goals by identifying the risks involved.
4. Managing Regulatory and Compliance Risk
Transaction advisors have expertise in legal and regulatory aspects, especially cross-border transactions where they handle 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. Transaction advisors conduct cultural due diligence to understand both teams' differences, similarities, and mindsets.
6. Reputation Risk Management
Transaction advisors can help organizations collaborate with stakeholders, such as investors, consumers, and employees, throughout the transaction process and have a positive impact on the involved companies’ reputations.
7. Market Risk Assessment
Transaction advisors analyze market environments and economic trends to help companies know about the market risks involved in the transaction and assist in planning, risk assessment, and preparation for evolving market dynamics.
8. Technology Risk Mitigation
Transaction advisors help companies deal with privacy concerns, intellectual property issues, and cybersecurity risks in the transaction process and provide integrated strategies for lowering technological risks and protecting digital assets.
Role of Transaction Advisory in the Due Diligence
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 Handled by Transaction Advisory Services
- Financial Due Diligence
- Operational Due Diligence
- Legal and Regulatory Due Diligence
- Tax Due Diligence
- Commercial Due Diligence
How to Choose the Right Transaction Advisory Firm?
Selecting the right transaction advisory is a crucial decision for your business because of its role in achieving business objectives and simplifying the transaction process.
Here are the top six factors to consider when selecting a transaction advisory firm:
1. Expertise and Experience
Ideally, you should consider the expertise and experience of the transaction advisory in handling the transaction process when you are listing out.
2. Track Record
The track record of transaction advisory in the successful transactions is equally crucial to look at when you choose a transaction advisory firm.
3. Subject-Matter Experts
Whether a transaction advisor possesses specialized resources or subject-matter experts or not is also an important factor to look after when you select a transaction advisory firm.
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
You should check the fee structure, charges, and other remunerations and the cost-effectiveness when deciding on the transaction advisory.
How Does Transaction Advisory Services Differ from Other Consulting Services?
Transaction advisory services differ from other consulting services in many ways, like it only deals with complex transaction processes that require expertise and proven experience in transaction procedures.
Transaction advisory services consist of a multidisciplinary approach and combine finance, tax, accounting, and legal experts to proceed with tight deadlines and require on-time decision making.
Conclusion
To cut a long story short, transaction advisory services can make your complex transaction process simple and easy with its clear approach.
If you are searching for the ideal transaction advisors to help you with the best transaction advisory services, Contact Us.
Virtue CPAs is a well-known professional accounting and advisory service firm in Atlanta, USA. Our wide range of transaction advisory services consists of cost segregation, post-close services, valuation, due diligence, and more to support your transaction proceedings.
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