Published on 18/09/2008

Corporate Finance has many roles to play in a company’s pursuit of growth and increased profitability. At Moore Stephens, we understand the importance of strategic growth and the use of Corporate Finance to achieve a company’s objectives. Without consistent strategic growth in revenue, a business cannot improve its profitability over and above a one off cost reduction program. There are a number of forms of growth that a company will undertake during its life cycle.

Organic growth: this involves increasing the penetration of current products into current and new markets as well as the introduction of new products. In the current economic climate, where consumer demand has softened due to a myriad of social and economic reasons, and companies have maximized their market share, this is a difficult path to pursue. However, what we do know from extensive research is that companies who invest in their marketing effort will come out of tough times in a far stronger position than their competitors.

Merger: as indicated, this occurs where two like-minded organizations combine their respective resources to gain a stronger foothold in a market or expand into new areas. The question invariably becomes, can 1 + 1 = 3? Merging diverse cultures can often be more difficult than the physical aspects of the respective businesses. The challenge in this scenario is to find a like-minded partner.

Acquisition: as the economic climate tightens, companies are finding it increasingly difficult to maintain, let alone grow their revenues and subsequently, profitability.

Consequently, this avenue of growth has become an important part of the strategic planning process. Secondly, the scene has changed over recent times as a significant amount of private equity funding has dried up amidst the global credit ‘squeeze’.
This had lead to a higher proportion of what is referred to as ‘trade sales’, where a company acquires another, usually in the same or similar market where synergies can be achieved through the core activities of marketing, sales and distribution. Coupled with a tight economy and the decrease in the amount of active purchasers, including private equity, there has been a noticeable reduction in the value paid for businesses. The challenge with this activity is to find a profitable business with good growth and synergistic prospects. It is important to keep in mind that businesses lose money for very good reasons, and the length of time to turn such businesses around cannot be underestimated. As a result, these types of businesses should be avoided.

Moore Stephens Corporate Advisory Service works with companies in all of these areas, providing the right strategic and resultant finance solution to ensure success. This commences with an in depth analysis of the company’s financial resources, assets, liabilities and cash flow limitations in light of the strategic direction of the company and future health of the balance sheet . There are many cases at hand where public companies, for example, have borrowed extensively to expand, without due recognition of a viable future and in recognition of these factors.

Whether the raising of finance relates to a capital expenditure program to build a new factory, purchase new equipment or to enable the company to complete a merger or acquisition, we at Moore Stephens are in an ideal position to assist.

To find out more about how we may be able to assist, please contact your nearest member firm.

Geoff Dart, Melbourne
mailto:gdart@moorestephens.com.au