Most com­pa­nies will at some point find them­selves need­ing to raise cap­i­tal or com­plete an M&A trans­ac­tion, and the respon­si­bil­i­ty for car­ry­ing out these tasks will typ­i­cal­ly fall large­ly on the company’s Chief Finan­cial Offi­cer (CFO). How­ev­er, even the most expe­ri­enced CFO can strug­gle to excel in these tasks in addi­tion all of their oth­er respon­si­bil­i­ties. Con­se­quent­ly, a rela­tion­ship with an invest­ment bank can be espe­cial­ly ben­e­fi­cial for CFOs, as it expands the work­force, accel­er­ates the process, and ulti­mate­ly reflects pos­i­tive­ly on the CFO when the project runs smooth­ly and effectively.

The invest­ment bank sup­ports the CFO’s objectives

After engag­ing an invest­ment bank, the begin­ning of the part­ner­ship will require a sig­nif­i­cant por­tion of the CFO’s time, as the invest­ment bank gath­ers infor­ma­tion and asks for the insights on the com­pa­ny. Once past this stage, the invest­ment bank takes on the day-to-day work of prepar­ing to raise cap­i­tal and man­ag­ing the process, with reg­u­lar touch­points to keep the CFO informed. At this point, the CFO is like­ly focused on com­mu­ni­cat­ing between the invest­ment bank and the exec­u­tive suite or board, set­ting expec­ta­tions, and pro­vid­ing guid­ance — all well with­in a CFO’s usu­al areas of responsibility. 

For the dura­tion of the rela­tion­ship, the invest­ment bank exists to sup­port the CFO, often with lim­it­ed con­tacts with oth­er offi­cers of the client com­pa­ny. This allows the CFO to remain the face of the work and sub­se­quent­ly claim respon­si­bil­i­ty for a well-exe­cut­ed project under the guid­ance and super­vi­sion of the CFO. 

Invest­ment banks are a source of exten­sive mar­ket intelligence

CFOs can ben­e­fit from the deep mar­ket intel­li­gence, trans­ac­tion expe­ri­ence, reduced risks, and greater cred­i­bil­i­ty which an invest­ment bank can bring to the table. Even if a CFO has a strong under­stand­ing of the cap­i­tal and M&A mar­kets, they gen­er­al­ly can­not match an invest­ment bank’s under­stand­ing and mar­ket intel­li­gence. Because invest­ment banks’ pri­ma­ry busi­ness func­tion is to mon­i­tor the mar­ket, raise cap­i­tal or com­plete trans­ac­tions, they have much deep­er insights into the ever-chang­ing mar­ket con­di­tions, which enables them to bet­ter pos­ture and present the oppor­tu­ni­ty and to tar­get the full range of like­ly coun­ter­par­ties. They can pin­point oppor­tu­ni­ties to improve on cap­i­tal struc­ture or uncov­er instances in which a com­pa­ny could com­plete an acqui­si­tion or sell assets.

Invest­ment banks per­form cap­i­tal rais­ing and trans­ac­tions much more frequently

Most com­pa­nies don’t com­plete cap­i­tal rais­ing or M&A trans­ac­tions every day. Mid­dle mar­ket com­pa­nies typ­i­cal­ly do not have ded­i­cat­ed cap­i­tal mar­ket teams that can han­dle such work. Con­se­quent­ly, CFOs are extreme­ly busy man­ag­ing the finances of a com­pa­ny amongst oth­er things, so they can’t focus on build­ing an investor net­work, man­ag­ing end­less band­width, and find­ing spe­cif­ic per­son­nel to man­age these types of tedious projects on their own. Con­verse­ly, an invest­ment bank per­forms cap­i­tal rais­es, M&A deals, or dif­fer­ent trans­ac­tions on a dai­ly basis, so they have con­tacts, the abil­i­ty to find funds, and a firm grasp of what banks or investors are look­ing for. In addi­tion, some invest­ment banks like Chi­ron Finan­cial are also able to work direct­ly with a company’s bank or oth­er lender to help get a rela­tion­ship back on track or pro­vide oth­er worth­while solu­tions. Also in some cas­es, a third par­ty review and pre­sen­ta­tion of the finan­cial pic­ture, which Chi­ron can also per­form, can make the dif­fer­ence between achiev­ing the goal and falling short.

“Know­ing how to present infor­ma­tion in a way that attracts banks and investors is incred­i­bly help­ful for CFOs,” explains Alex­ei Rat­nikov, Man­ag­ing Direc­tor at Chi­ron. ​“It ensures the trans­ac­tion pro­ceeds smooth­ly and effi­cient­ly, which in turn shines a light on the CFO’s job performance.”

As an inde­pen­dent third par­ty, invest­ment banks reduce the CFO’s risk

For a CFO, any big trans­ac­tion — fail­ure or suc­cess — is a risk in terms of career and posi­tion in the com­pa­ny, and in worst cas­es a risk of lit­i­ga­tion with company’s equi­ty hold­ers and cred­i­tors. In some stressed sit­u­a­tions, a CFO may be reluc­tant to take on this risk, know­ing that their deci­sions will be scru­ti­nized by investors, share­hold­ers, and exec­u­tives. How­ev­er, no mat­ter the finan­cial posi­tion of the com­pa­ny, part­ner­ing with an invest­ment bank reduces that risk. First, an invest­ment bank takes an objec­tive look at the company’s cur­rent sit­u­a­tion, where­as an in-house employ­ee may find their judg­ment cloud­ed by their per­son­al his­to­ry or inter­ests with­in the com­pa­ny. And sec­ond, the invest­ment bank bears the respon­si­bil­i­ty of answer­ing those share­hold­er ques­tions and jus­ti­fy­ing their actions. Even in the most trou­bled sit­u­a­tions, hir­ing a third par­ty expert demon­strates a choice to make every effort to reach the best pos­si­ble result.

Invest­ment banks lend addi­tion­al cred­i­bil­i­ty to a transaction

Final­ly, hav­ing a part­ner­ship with an invest­ment bank gen­er­ates more cred­i­bil­i­ty. Opti­cal­ly, it shows investors and oth­er banks that the com­pa­ny is seri­ous about find­ing a way for­ward. It also sends a mes­sage to inter­est­ed par­ties that the oppor­tu­ni­ty is being broad­ly and pro­fes­sion­al­ly offered to numer­ous poten­tial investors, lenders, or buy­ers and implic­it­ly that they will need to present the best pos­si­ble terms in order to win the com­pe­ti­tion for the pro­posed transaction.

“When banks see a com­pa­ny has brought in an invest­ment bank, they under­stand that you want to rec­ti­fy the sit­u­a­tion if you’re in dis­tress or under­col­lat­er­al­ized,” explains Melis­sa Hop­per, Direc­tor at Chi­ron. ​“For exam­ple, because of COVID and gen­er­al mar­ket trou­ble, a client of ours was overex­tend­ed on their line of cred­it. We were able to bridge the com­mu­ni­ca­tion gap between the lender and our client, and ulti­mate­ly work to put togeth­er a sophis­ti­cat­ed bud­get that we could take to lenders to recap­i­tal­ize them.” The client has now been using that lender for the past 18 months with no major issues. 

For many com­pa­nies, the main cri­te­ri­on for CFO suc­cess is their abil­i­ty to raise cap­i­tal, which makes part­ner­ing with the right invest­ment bank ben­e­fi­cial for a CFO’s career. In this type of rela­tion­ship, the CFO acts as the expert con­cern­ing the com­pa­ny and as the trans­ac­tion leader with­in the com­pa­ny, while the invest­ment bank is the expert on the mechan­ics of a trans­ac­tion or cap­i­tal raise. The end result is a part­ner­ship in which the client com­pa­ny — and the CFO in par­tic­u­lar — reaps the ben­e­fits of an invest­ment bank’s expertise. 

Invest­ment banks as a crit­i­cal resource in stressed situations

Some CFOs may not be aware of how quick­ly their bank lender may turn cold to extend­ing cred­it when things go sour. It is quite com­mon that CFOs start see­ing trou­bling signs in the busi­ness way before it is being com­mu­ni­cat­ed to the lender. Try­ing to get the com­pa­ny back on the right track and hop­ing for bet­ter mar­ket sit­u­a­tion, some CFOs even­tu­al­ly find their com­pa­ny to be in breach of covenants and the for­bear­ance let­ter from a lender is quick to come. At that point, it is usu­al­ly too late to start inves­ti­gat­ing alter­na­tive financ­ing options and most time is being spent on man­ag­ing rela­tion­ships with exist­ing lenders and creditors. 

Invest­ment banks can ben­e­fit a com­pa­ny and help CFOs in two ways. First­ly, it is always bet­ter to find alter­na­tive sources of financ­ing and improve funds avail­abil­i­ty before the com­pa­ny is in default on exist­ing loans. Invest­ment banks can run an effi­cient mar­ket­ing process behind the scenes and iden­ti­fy alter­na­tive cap­i­tal providers will­ing to step in and replace exist­ing lenders. This exer­cise does not cost much to a com­pa­ny pri­or to com­ple­tion, as invest­ment banks are usu­al­ly com­pen­sat­ed based on a closed refi­nanc­ing trans­ac­tion. Also, if an invest­ment bank is engaged ear­ly in the process, it might be pos­si­ble to rene­go­ti­ate some terms of exist­ing loans and avoid a loom­ing default alto­geth­er. Sec­ond­ly, when a com­pa­ny oper­ates under for­bear­ance it is always crit­i­cal and in most cas­es is man­dat­ed by a lender that a com­pa­ny hires an inde­pen­dent advi­sor to help nav­i­gate through the sit­u­a­tion. At that point, quite often an incum­bent lender wants to ter­mi­nate the rela­tion­ships and get refi­nanced. Hir­ing an invest­ment bank like Chi­ron Finan­cial that can both pro­vide required account­ing inten­sive report­ing and fore­cast­ing work and also han­dle the restruc­tur­ing and/​or cap­i­tal rais­ing can save cost and has­sle of deal­ing with two or more advi­sors. Being pro-active and engag­ing a third-par­ty con­sul­tant before receiv­ing a call from the bank puts a CFO in a good light and helps man­age cred­i­tors’ expec­ta­tions more efficiently.