Confidence about the year ahead remains high amongst the senior corporate finance players in the accounting world. They have seen good and rising markets for several years and although they express caution about some aspects they expect this to continue.
One factor is the explosion in international cross-border activity. India, in particular, has become a significant factor. Chris Ward is global head of corporate finance advisory at Deloitte. Last year, for the first time ever, external foreign direct investment exceeded internal, he says. We acted for the Tata Group in their proposed acquisition of Corus, for example. He finds himself spending a lot of his time in India and staff numbers are being boosted. Within the last twelve months, says Ian Smart, managing partner at Grant Thornton Corporate Finance, advisory firms have been opening India desks and seconding people to and fro.
It is all part of a steady expansion. It is inescapable, he says. The trend to cross-border activity is unstoppable. Conference calls across twelve jurisdictions are now a matter of course, he says. In the old days they would have been purely domestic. Such deals, in India in particular, come from right across the board. We have dealt with Bollywood production, companies, an Indian property fund and retail businesses, says Mr Smart. There are 300 cities in India with a population of over a million people, he says, so the retail opportunities are immense.
Back in the UK, corporate financiers are wondering about the effects of interest rate rises. The condition of the markets is seen as benign by Stephen Bourne, head of corporate finance at BDO Stoy Hayward. But the one hiccup is interest rates, he says. If you look at some of the aggressive financing structures put in place over the last year interest rates will have an impact and an adverse effect on valuations. Vera Sabeva, head of the corporate finance faculty at the Institute of Chartered Accountants in England & Wales, agrees. We have had four consecutive years of bull markets, she says, but people are asking whether valuations are too high and whether there should be a correction.
Mr Smart says: Given the service sector boom has been fuelled by consumers that must raise question marks. And also the preparedness to lend and the preparedness to borrow must be questioned.
He sees a squeeze on credit availability coming but takes heart from the likelihood that the mid-market, in all its diversity, will ride it out. In the mid-market there are so many influences on businesses to transact, he says. Prevailing business conditions are only one factor. You also have succession issues, for example, management teams looking for other challenges or pressure on private equity firms to seek an exit.
Another factor is the trend towards private equity funds having the right to go hostile in public bids. But without the ability to understand the books there may be troubles ahead. Mr Ward is sceptical. Unless you can get access to the books to do some due diligence they will be completely exposed to what the existing banking arrangements may be, he says. They will have to buy the whole thing on equity and re-finance afterwards. And thats a brave call.
There will also be further calls for greater transparency in private equity transactions as the pressure for equality in corporate governance rises. A number of people want more transparency around private equity in the future, says Mr Ward. Its an inexorable trend and it will happen gradually, he says. Private equity firms are so powerful that I think it is inevitable and the private equity industry is mature enough to realise that if they dont do it themselves then someone will do it for them.
It will also be a big year for the Corporate Finance Faculty. 2007 sees the tenth anniversary of its founding. The Faculty has benefited from the boom in the market, says Ms Sabeva. It grew by 12 per cent last year, passed the 6000 members mark, and has established itself as the biggest network of corporate financiers in the world.