Corporate Finance is a term associated with the act of maximising shareholder value and expanding business through long-term and short-term financial advisory and implementation of strategies. Short-term investment includes management of current assets and current liabilities. On the other hand, long-term investment includes new capital purchases and investment. Ultimately, the service includes equity and debt financing, deal sourcing, developing financial strategies and Mergers & Acquisitions advisory.
You can divide the roles within Corporate Finance into two broad categories: client teams and product teams. The client team focuses primarily on advising clients on mergers & acquisitions. Conversely, the product team is mainly involved in specialising and developing financial products for clients. Both roles complement each other, as the client team needs to work with the product team to come up with solutions that specially cater to the client’s needs.
There are four main types of areas that the solutions are focusing on. 1) Merger & Acquisitions, 2) Structured Financing, 3) Equity Capital Markets; and 4) Debt Capital Markets.
Merger & Acquisition
Merger & Acquisition is an area of corporate finance dealing with purchasing and taking over other companies to increase the total shareholder values. In a merger situation, two organisations join together to become a new business. This is usually the situation where both companies are of similar size and status. On the other hand, an acquisition involves the buying over or buying out of a second and smaller company, which is either purchased into the parent company or run as a subsidiary.
Structured Financing is a service that involves highly complex financial transactions, offered by large financial institutions for companies with unique financing needs. Unlike conventional financial loans, structured financing involves trading collateralised bond obligations (CBOs), collateralised debt obligations (CDOs), syndicated loans and synthetic financial instruments. By doing so, it helps to minimise the risk of investment.
Debt Capital Market (DCM)
The Debt Capital Market team, usually referred to as a DCM, is responsible for advising clients on the raising of debt for debt refinancing and restructuring as well as acquisitions. They work closely with clients to develop and implement debt solutions. These involve processes such as underwriting debt, syndicating debt, fixed rate bonds, floating and variable rate notes.
Equity Capital Market (ECM)
Similar to their DCM counterparts above, ECM is a market that acts as a platform for companies to raise equity capital for financing. The ECM team is responsible for advising clients, however, they deal with equity instead. This involves block trades, rights issues and offerings.