Corporate Finance 4.0 is the brainchild of Philippe Craninx, Managing Partner Corporate Finance of accounting and consulting service provider Moore Belgium. In this way, he sets the standard for how guidance should be provided in the realisation of acquisitions and setting up strategic corporate financing. The '4.0' suggests that this new approach is an upgrade that builds on a longer history of corporate finance transactions and research.
All the insights, concerns and expertise accumulated over the past fifty years in the world of strategic corporate finance and the acquisition business are paving the way to Corporate Finance 4.0. The stepping stones in a nutshell:
- In the 1970s - Corporate Finance 1.0 - cost of capital, working capital and discounting future cash flows were new insights. The theoretical foundation of how investors view companies soon became a basis for assessing acquisitions and valuing companies. Multinationals quickly mastered the idea, and consultants translated those insights to business leaders and owners of smaller companies.
- Corporate Finance 2.0 - the eighties. There was a growing understanding that the right approach to the actual process is fundamental to a successful acquisition. That period saw the emergence of concepts such as Long List, Short List, NDA (non-disclosure agreement), LOI (Letter of Intent), DD (due diligence or accounts audit), etc.
- The far-reaching impact of internationalisation and globalisation gave birth to Corporate Finance 3.0. Medium-sized companies also began to integrate cross-border M&A into their business strategy, either as buyers or as sellers. Their advisers followed this trend: a (semi-)integrated network of reliable M&A advisers across several countries became a conditio sine qua non.
Meanwhile, studies showed that acquisitions can also destroy value rather than create it. In that topsy-turvy world, one plus one does not make three, but one and a half. The research led to focus on pre- and post-merger integration. Then the global financial crisis in 2008 had a lasting impact on risk perception and management. A whole string of far-reaching financial, legal and fiscal regulations followed in the wake of the crisis. Not only the direct link between risk and cost of financing was strengthened; new forms of corporate financing emerged as well. We were introduced to every possible form of private equity and mezzanine financing.
Also the dynamics within corporate finance changed: risk management became integrated into the approach, identifying and managing the side effects of an acquisition became a critical success factor, as did a thorough multidisciplinary approach. Corporate Finance 4.0 came into being.
This is how Corporate Finance 4.0 works
A circle within a circle (see diagram) shows the 360° concept of Philippe Craninx in a simplified way. The inner circle contains six crucial specialisms. Three specialisms are proactive and process-driven: SME sales guidance ,mid-market M&A(guidance of national and international sales and purchase transactions) and funding (strategic financing through equity, long-term lending or hybrid instruments such as mezzanine financing).
The other three specialisms are more supportive: valuations, transaction services (due diligence or detailed analysis of a transaction or a company with a view to identifying inherent risk factors and remedial action) and shareholder advisory, where we support shareholders in their engagement with the company. It is not a selection menu and there is no hierarchy: each specialism is of paramount importance to secure a successful business acquisition that creates value for all parties.
Corporate finance is not a purely theoretical discipline (Corporate Finance 1.0) that takes place in a vacuum. Internal and external environmental factors impact on every capital transaction and determine the success of the process. They are part of the outer circle of the holistic 360° model. Risk management refers to the post-2008 culture of risk perception and management. Compliance refers to the growing number of rules imposed on companies and investors. Long-term sustainability assesses the long-term effects of every step of an acquisition. Shareholder value creation keeps a close eye on the creation of shareholder value.
This is how Corporate Finance 4.0 contributes to a successful business acquisition
Each of the sub-domains of the double circle has its specific complexity and requires specialised knowledge. Multidisciplinary teams must therefore see to the interplay between these various sub-domains in order to achieve a good result, i.e. make the deal.
Each expert weighs up risks and opportunities within his or her field in order to arrive at solutions. One 'process supervisor' is in charge.
With his generalist and specialist knowledge, combined with his interpersonal skills, the process supervisor translates the complexity to the world of the seller and the buyer, who can then make well-informed decisions and do business.
Spread over time
A business acquisition is not a hit-and-runstory. Certainly not when the aim is to achieve long-term success for all parties. Extensive research shows that a thorough preparation and a carefully arranged post-merger phase are crucial for a lasting result.
Corporate Finance 4.0 also makes a solid contribution here by entering the process much earlier and only stepping back once everything is optimally arranged.
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