In the business world, corporate finance is a frequently used term. Literally translated, corporate finance means "entrepreneurial finance", but what exactly is meant by this and what issues are involved? In this blog we will go deeper into the concept of corporate finance and we will look at the various aspects that are involved.
What is corporate finance?
Corporate finance is a broadly defined term and basically encompasses everything to do with the financing and financial activities of a company. Companies of all shapes and sizes have to deal with corporate finance. Corporate finance involves both long-term and short-term decisions. Long-term decisions may involve selling a company or buying one in order to achieve growth. Short-term decisions may involve attracting growth finance for the company.
What is the purpose of corporate finance?
The aim of corporate finance is to optimise the value of shares. It is important to follow a sustainable strategy to optimise shareholder value in the long term. Strategic planning for both the short and long term plays an important role here.
"Corporate Finance is all about complicated financial issues"
Corporate finance issues
As a corporate finance boutique we support entrepreneurs in complicated issues in the field of corporate finance. Hereby you should think of, among others;
- Mergers and acquisitions can be a good strategy to optimise the shareholder value of a company. By bringing two companies together, synergy benefits can be achieved, for example in the area of financing costs, because the optimal capital structure can be achieved through a merger or acquisition. In mergers and acquisitions, valuation plays an important role in the process.
- In the case of a Management Buy In (MBI) , one or more external buyers buy in the company by acquiring part or all of the owner's shares. An MBI is a complicated process in terms of valuation and financing.
- Unlike the MBI, in a Management Buy Out (MBO) the shares are bought by the incumbent management or other employees of the company. A major difference with the MBI is therefore that the buyer of the shares already knows the company well.
- There can be various reasons why a company decides to restructure. In some cases, restructuring of the company is necessary to safeguard the continuity of the company. A restructuring, for example, is carried out from a fiscal perspective.
Different forms of financing
In order to realise the above issues, financing is required. In order to achieve the right financing mix, it is important to carefully weigh up the risks and returns. It is also important that the form of financing matches your organization and business strategy in order to optimize shareholder value. There are various ways of financing investments;
- Venture capital literally means venture capital and is therefore a form of financing that involves high risks. With this form of financing, investments are made in start-ups. This means a higher risk, because start-ups often generate low turnover and do not yet make a profit. To compensate for this risk, investors often receive a high return if there are successes.
- Private equity is a form of financing that takes place outside of the stock market. In such cases, investors put money into a fund, which is then invested in various companies. In addition to money, private equity parties often also bring the necessary knowledge and experience to help a company grow.
- Another form of financing are mezzanine loans. These are subordinated loans which lie between the bank credit and the equity. This type of loan combines elements of debt and equity. Interim repayments are not required for a mezzanine loan, because the debt is repaid in one go at the end. On the other hand, the lender often charges high interest rates for a mezzanine loan.
- The best known form of financing is bank financing. Credit lines from the bank are often linked to collateral or variants thereof, such as government guarantees or a personal surety.
- Asset based financing is a form of financing that involves financing based on a certain collateral as a counterweight. The more collateral and/or the more secure the collateral, the cheaper the loan and the loan options. Another name for this form is also called factoring. In factoring we talk about debtors, stocks, purchase orders or creditors. Financing for tangible fixed assets is also called lease, where two variants, operational and financial lease can be distinguished. With financial leasing, the entrepreneur is the owner of the leased asset from the start of the contract, whereas with operational leasing the asset remains the property of the lessor.
Corporate Finance involves complicated work. Florijnz Corporate Finance is a Corporate Finance Boutique that can support you in issues in this area. Whether it is about realizing the right financing, an acquisition process or restructuring, we have the right knowledge and experience to guide you through the entire process.