Corporate Advisors: What do they do for your stock and are they worth the dazzling fees?

Nick Sundich Nick Sundich, May 15, 2024

Most small cap ASX stocks will have corporate advisors (one or multiple). At first glance, you may think of them as glorified management consultants. While that is true, they play a major part in financing capital raisings for the company and may even fill a board seat or two.

Given that they typically get paid thousands of dollars per month and a share of any capital raising proceeds, it is worth knowing what they do.

 

What do corporate advisors do?

Corporate advisors typically work with businesses to help them improve their financial and operational performance. They offer guidance and recommendations on a variety of issues, including deals (M&A and capital raisings), financial planning, risk management and strategic planning.

One of the primary roles of corporate advisors is to help companies identify potential risks and opportunities that could impact their bottom line. They conduct extensive research and analyse data to develop a comprehensive understanding of the company’s current financial situation, as well as the broader economic landscape in which it operates.

Corporate advisors also play a crucial role in mergers and acquisitions, serving as intermediaries between buyers and sellers to facilitate transactions. They provide due diligence analysis, negotiate terms and conditions, and help ensure that the deal is structured in a way that maximises value for both parties.

They may work externally to the company or perhaps serve on the board as a director.

 

So what should you look for in a corporate advisor?

Individual shareholders may not have a say in their individual company’s corporate advisor, but they can still make their own decisions on this basis. In other words, perhaps they should steer clear of companies backed by certain corporate advisors with a dodgy reputation. We are not going to name names in the article, although it shouldn’t be too hard for investors to find for themselves. Just search through the news about other companies they have backed and how things turned out. If there are persistently cases of companies going belly up, or otherwise getting in trouble with the ASX or other regulators, it is short odds that it could happen to their latest company too.

As a general rule, investors should consider several factors in making their investment decision, of which corporate advisors are just one. We aren’t saying it should be the be all and end all. However, we state again, if certain individual corporate advisors are involved with a company that have a bad track record, it might be a red flag. And by a bad track record, we might mean a company collapsed or certain legal breaches occurred.

It also might be a red flag if a company’s board entirely consists of corporate advisors from the same company. If on the other hand corporate advisors with a good track record are involved, it might be a good sign. But again, investors need to make their decisions on several grounds, rather than one.

 

What do they get paid?

Each individual corporate advisor’s agreement will set their terms, but you should expect it to cost $7,000-$15,000 per month. You should also expect corporate advisors to get a share of proceeds from any capital raising (typically 6%). Yes, this may be a small share of the proceeds, but it can still add up to big money for them and money that could’ve been spent on other purposes. After all 6% of $5m is $300,000.

So it is crucial to ensure companies get their money’s worth.

 

Be aware of your company’s corporate advisor

A corporate advisor can play a major part in a company’s success, raising capital for the company and providing strategic advice. They can get paid a lot of money so it is crucial they do their job well. And the involvement of some corporate advisors in particular companies may in some cases be a red flag, telling investors to steer clear!

 

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