What is corporate finance?
This is a working definition of corporate finance, revised by Shaun Beaney, Katerina Joannou and David Petrie of ICAEW’s Corporate Finance Faculty in September 2020.
The Corporate Finance Faculty welcomes suggestions for additions to and refinements of this definition, which was first written by Shaun Beaney in April 2005 and previously revised in 2011.
The definition of corporate finance varies considerably across the world. In the United States, for example, it is used in a broader way than in the UK to describe activities, decisions and techniques that deal with many aspects of capital allocation – including funding of new activities, investment in and divestment of assets, and the generation and management of cash.
In the UK and many other countries, the terms corporate finance and corporate financier tend to be associated with transactions in which existing capital is utilised and new capital raised in order to create, develop and grow new projects and ventures, and to acquire other businesses.
Corporate finance is often associated with corporate transactions that lead to the creation of new capital structures and/or change of ownership.
Types of corporate finance activity
- Mergers and acquisitions (M&A), and demergers involving private companies.
- Mergers, demergers and takeovers of public companies, including public-to-private deals.
- Management buy-outs, buy-ins or similar of companies, divisions or subsidiaries – typically backed by private equity.
- Equity issuance by companies, including the listing of companies on a recognised stock exchange by way of an initial public offering (IPO) and the use of online investment and share-trading platforms; the purpose may be to raise capital for development or to restructure ownership.
- Financing and structuring joint ventures or project finance.
- Raising infrastructure finance and advising on public-private partnerships and privatisations.
- Raising capital via the issuance of other forms of equity, debt, hybrids of the two, and related securities for the refinancing and restructuring of businesses.
- Raising seed, start-up, development or expansion capital.
- Raising capital for specialist corporate investment funds, such as private equity, venture capital, debt, real estate and infrastructure funds.
- Secondary equity issuance, whether by means of private placing or further issues on a stock market, especially where linked to one of the transactions listed above.
- Raising and restructuring private corporate debt or debt funds.
The principals in corporate finance transactions may include:
- Companies acting through their directors and other staff, including specialists in strategy, corporate development and M&A;
- Institutional or private investors, including private equity firms and venture capitalists;
- Banks and independent lenders who provide debt;
- Governments and other public authorities and agencies.
Corporate finance advisory roles
In professional services firms, such as accountancy practices, law firms and independent corporate finance advisers, the service lines and professionals who work in corporate finance are described variously as advisory, financial advisory, deal advisory, transaction advisory services, transactions, deals or corporate finance.
In investment banks, advisers on deals are often described as M&A advisers.
Brokers, or corporate brokers, focus on capital markets transactions, including raising new finance for IPOs, secondary equity issuance and acquisitions.
Transaction services specialists, including those who work in accountancy firms, are appointed by a business, or by an investor in, lender to or acquirer of a business, asset or project in order to carry out financial and other forms of due diligence and transaction-related services. 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 purpose.
In the case of transactions on capital markets, reporting accountants are appointed by issuers to provide due diligence and opinions about the information to be published in a prospectus or shareholder circular. Such opinions may be private to the parties involved or published in an investment circular.
In law firms, solicitors who provide advice in relation to corporate finance, including carrying out legal due diligence, work in divisions that are in general known as corporate or corporate finance.
Other advisory roles
There are many other types of specialist advisers who may be involved in corporate finance activities, including individual transactions.
There is no definitive list and advisory roles may be quite fluid, but, for example, in its 2019 report, AI in Corporate Advisory, ICAEW’s Corporate Finance Faculty listed the following as specialist types of advisory in professional services firms:
- Corporate finance/lead advisory
- Transaction services/support
- Private equity/management buyouts
- Debt advisory
- Public company
- Capital markets
- Capital projects and infrastructure
- Real estate
- Growth finance
- Operational due diligence
- Completion mechanisms
- Sale and purchase agreements
- Post-merger integration
- Financial modelling
- Commercial due diligence
- Cyber security
- Specialist tax services
- Forensics [forensic accounting]
- Pensions consultancy
- Value creation services
- Environmental, social and governance advice.
If you have any comments or questions about this working definition of corporate finance, please email firstname.lastname@example.org