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What is corporate finance?

This is a working definition of corporate finance, written by Shaun Beaney of the ICAEW Corporate Finance Faculty in April 2005 and revised January 2011. The faculty welcomes suggestions for additions to and refinements of this definition.

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General

The definition of “corporate finance” varies considerably across the world. In the US, for example, it is used in a much broader way than in the UK – to describe activities, decisions and techniques that deal with many aspects of a company’s finances and capital.

In the UK, the terms “corporate finance” and “corporate financier” tend to be associated with transactions in which capital is raised in order to create, develop, grow or acquire businesses

It is often associated in the UK with some degree of change of ownership in a business, connected to a corporate transaction that leads to the creation of a new equity structure or shareholder base, and the related issue, underwriting, purchase or exchange of equity (and related warrants) or debt.

Types of transactions

  • Raising seed, start-up, development or expansion capital
  • Mergers, demergers, acquisitions or the sale of private companies
  • Mergers, demergers and takeovers of public companies, including public-to-private deals
  • Management buy-out, buy-in or similar of companies, divisions or subsidiaries - typically backed by private equity
  • Equity issues by companies, including the flotation of companies on a recognised stock exchange in order to raise capital for development and/or to restructure ownership
  • Raising capital via the issue of other forms of equity, debt and related securities for the refinancing and restructuring of businesses
  • Raising capital for specialist corporate investment funds, such as private equity, venture capital, real estate and infrastructure funds
  • Financing joint ventures, project finance, infrastructure finance, public-private partnerships and privatisations
  • Secondary equity issues, whether by means of private placing or further issues on a stock market, especially where linked to one of the transactions listed above
  • Raising debt and restructuring debt, especially when linked to the types of transactions listed above

Professional roles

Corporate Finance advisers

In the UK, the term generally refers to those who act as advisers on the types of transactions listed above. This may also include sponsors or nominated advisers for IPOs.

Such lead advisers may be from investment banks, accountancy/professional services firms or independent advisory firms (sometimes known as "boutiques"). In some cases, they may also include individual consultants who specialise in such work.

Reporting accountants (ie those who carry out financial due diligence or transaction support)

Accountants employed by the buyer of or investor in a business or a specialist investment fund to ensure that the financial workings of the target company are fully disclosed and are in order. The scope of such work can be driven by the requirements of the investor/buyer, or by regulation, and the reports issued can be private or public, depending on the circumstances.

Lawyers

Solicitors who are primarily involved in advising on the types of transaction listed above, including legal due diligence.

Private equity providers

Private equity/venture capital professionals engaged in buying, selling and providing finance to businesses.

Debt providers/bankers

Bankers, other debt providers and debt-advisory specialists who are principally involved in the types of transactions listed above.

Brokers

Brokers who advise on and support raising capital for transactions (IPOs, acquisitions, disposals etc.)

Other due diligence

Other specialist advisers employed to support the types of transaction listed above, if they are primarily engaged in supporting such transactions. Examples include commercial due diligence, environmental due diligence, insurance and other types of consultancy work.

Company directors/executives

Directors and executives in companies who primarily focus on the types of transactions and projects listed above, in order to support corporate development.

If you have any comments or questions about this working definition of corporate finance, please email shaun.beaney@icaew.com