In a previous article, I spoke about corporate brokerage, what it entails, the role of a corporate broker and which companies would require the services provided by a corporate brokerage firm.
In this article I will focus on the traditional lifecycle of a company to try and pinpoint the different stages where talking to a corporate broker could be extremely beneficial and possibly vital for a company and its shareholders.
The development stage, or seed stage, as it is sometimes known, is the stage where the setting up of the company is just a distant plan. There is, generally speaking, nothing more than an idea being toyed with at this stage. Many people actually ask friends and family for feedback on whether setting up a company would be worth pursuing.
A business plan is created to outline the objectives of the business and how the new company would be structured to achieve them. Initial funding for the setting up of the corporate vehicle would usually be provided directly from the owners.
During these early days, the business is usually referred to as a start-up and is a fully-fledged legal entity. This is when what was essentially an idea becomes reality, when production starts and goods produced are sold, where services start to be provided, where the company commences the process of dealing with clients and suppliers.
The owner will probably also have to tweak things over a period of time, understanding his clients, adjusting the business model and making sure that whatever is being provided – whether goods or services – is of good quality and competitively priced. The main target of the start-up company at this stage is to establish as wide a customer base as possible and a strong market presence.
The business is now doing well and moves into the next stage usually referred to as the growth phase. The business is up and running and the company now forms an integral part of the market. The owners and the company have become well known in the industry of which they form part and market operations are yielding healthy, regular profits. The overall picture looks good, but this may actually be the most delicate period during the lifetime of a company.
The overall picture looks good, but this may actually be the most delicate period during the lifetime of a company
To maintain the momentum of growth, new managers may have to be roped in, experts and professionals employed to create a more competent managerial structure, new people sitting on the board of directors in order to bring their experience in the industry to the service of the company. The business is indeed growing and bringing in new people and ideas may be the only way to stay ahead of competition.
Next comes the expansion stage. The company is successful and has established an important presence within the industry in which it operates. At this stage, the company would start looking at ways of increasing its revenues either by increasing production levels or increasing the product range on offer to cover a larger potential customer base. It is at this stage that you have an exponential growth in revenues and cash flows.
The company has now reached the maturity stage, the result of years of growth coupled with stability. Sales are good, profits too and the company has carved out for itself an excellent position in the industry within which it operates. However, growth is not what it used to be, and perhaps not quite up to the shareholders’ expectations.
Quite often, this stage is a bit of a crossroad for shareholders, who have to decide whether to continue investing in the business to give the company another push or to cash in on their efforts and look for an exit.
Throughout this lifecycle we can identify a number of stages where the services of a corporate broker can be sought by company owners. In the growth stage, for example, the business owner may look at the possibility of merging with another company that would allow him the corporate and financial stability to continue moving in the right direction.
In the expansion stage, the company may look at making an acquisition, either by acquiring a direct competitor in the industry or by acquiring a company they feel could give them a competitive advantage, perhaps even allowing them to enter a new market sector. Selling equity may also make sense during the growth stage, as this would raise capital that would allow the company to move to the next level. There may also be situations where company owners decide to offload a specific operational sector of the company either because the returns did not reach expectations or because it is felt that this operation would not be forming part of a future business plan.
The reasons for exiting may be varied and complicated, from succession issues to mere retirement plans, or simply maximising potential earnings when the company is at the very top of its revenue cycle. There are companies that spend years looking for what they would consider to be the right moment, the right buyers, the right market conditions, with their concerns being not merely the bottom line they would receive, but also a number of other factors such as the impact this would have on employees.
This is exactly where the services provided by a corporate broker can help shareholders reach the right business decision – by providing them with a constantly updated picture of what the market has to offer and always within strict parameters of confidentiality.
In the next article I shall look into mergers and acquisitions, what they entail and how different corporate structures change as a result of such transactions.
Alain Guillaumier is a management consultant at Baviere – Corporate Brokerage.