| The pressure, the buzz, smart people - Keatinge looks back on corporate finance |
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| Internationalisation, technology and changes in the way corporate finance business is done have been major features of the last decade, Richard Keatinge tells Finance. |
Since retiring from IBI Corporate Finance in February, Richard Keatinge enjoys being away from ‘the need to be remorselessly looking for new business’. ‘I can advise some friends and people I know on occasional corporate finance issues. I’m also a non-executive director of Heitons, NTR and PJ Carroll.
‘I felt like getting out at the top’, he told Finance, ‘and having the chance to do a few things I wanted to as master of my own time’.
Having worked in IBI from 1978 - 1984 and then from 1993 to February last, the increased pressure to win new transactions was one the most significant changes he saw over the years. ‘Internationalisation, increased competition and the major growth in the technology sector are major changes in recent years.’
International tie-ups
Does internationalisation of corporate finance mean that independent houses will have to tie up with a big international firm? ‘Certainly, there’s a lot of pressure to join forces on a deal by deal basis. Often, one would have thought it would have made sense to team up with an international house, but the Irish corporate finance market is too small to make teaming up an advantage for the local player. The international side would be interested only in the relatively few number of big deals’.
That’s where the money is, still: big deals. ‘You’d need two or three big deals each year to make the business work, deals with fees of half a million plus.’
The type of corporate finance work has changed too. ‘Historically, in IBI, we would have done the whole piece from start to end, with Davy’s doing the placement, but that has changed too.’
The mix between distribution and pre-deal advice is different in Ireland/UK and the US. In the States, corporate finance houses would earn about 6% to distribute stock in large amounts, whereas it would be about 3% here. ‘In the US, a lot of the preparatory transaction work is delegated to lawyers and accountants - but you’re seeing lawyers getting a lot more involved here too now.’
The US people believe most value added is in the sales pitch. The fee split between international and local in a big deal would often be 50:50 or 60:40, or it could be arranged on the basis of where most stock was actually sold. But which side would earn more for the amount of time put in? ‘A lot of the preparatory work would be done locally over months, but then the international people would devote a very concentrated effort over a few weeks’.
Beauty parades
The beauty parade has become more pervasive, unlike earlier days when a corporate relationship delived a stream of business. ‘Of course, in state privatisations, the beauty parade is mandatory. Once we were involved in about five different parades at the same time. You’d want to be winning two out of five to make that worthwhile!’ Winning at beauty parades depended on quality of ideas and analysis of the client’s business, and the people’s interactive and presentation skills.
‘You could never forget that a corporate finance deal is always a big event for the client, even if it seemed one among many for us.’
Would he ever have found out why he lost a tender? ‘That was always very hard. People would be polite and say it was all very close. You’d never really know for sure, though’.
Technology
The growth in technology business in corporate finance is a major change in recent years. Keatinge is a sceptic about internet valuations: ‘my impression is that if you add them all up, somebody’s got to be wrong.’
But wouldn’t a corporate finance business have to suspend that scepticism and just take part in technology business? ‘Yes, you couldn’t ignore the sector if you want to get business. It’s a fact that there are people prepared to buy stock at these huge P/Es, so you would want to meet that demand.
‘The other point is that the nature of the corporate finance business in techology business is very different to older business - there’s a lot of private placements and international floatations’.
Would he have taken equity as fees? He laughs, ‘I’m pretty old-fashioned, I think a fee is a fee, that is, cash, but I can see why corporate finance houses would take equity to try to keep their people who are being enticed away to technology companies’.
Lessons learned
Just one month after leaving arguably one of the top jobs in Irish corporate finance, Keatinge is not likely to want to reflect on failures. So, we ask about ‘learning experiences’, the lessons one learns from mistakes. He pauses - with a grin, as if finding it hard to delve deep into long past events. ‘I suppose… where you’d lose close contact with the client. That’s when the trouble would come.’
How would you know you were losing close contact? ‘You’d sort of know that things were going on, or they weren’t listening to you, or they might even engage someone else without telling you!’
‘Mostly, this would happen if the client or the adviser danced around the core issues too much, issues like pricing and valuation. If you don’t make sure to be get to the heart of things then you can lose the closeness of the relationship.’
Managing people
Frankness and open communication was also a key to managing a corporate finance team. ‘You have to have an environment where people can say, here, I don’t understand this, what do you think? No-one knows everything. There has to be trust and no reason to hide doubts and so on.’
Corporate finance people he worked with were bright, numerate, lawyer, accountants and MBAs. ‘These sort of people want to be trusted, to be allowed get on with the job as team members or leaders. I couldn’t possibly do everything so I had to rely on people’.
Have the type of people involved changed over the years? ‘Not really, I’d say. Especially in IBI where we had a lot of continuity in people and that was very helpful to the business’
Advice to successors
What advice would Keatinge give to someone taking on the job of managing a corporate finance business? With no hesitation he says, ‘My advice is that the numbers one, two and three of the business are good people. Be very careful about who you have working for you. Invest a lot in recruitment.’
‘Basically, you’re looking for people with a high level of cop-on. For corporate finance work, you need people with strong financial ability, who are able to work in groups, who can work under colossal pressure and can commit to delivering for a deadline.’
Is it a good business to be in, to have equity? ‘Well, the equity is yourself and your ability and contacts. If you like pressure and the buzz of a transaction, it’s a great business to be in.’ |
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| Article appeared in the April 2000 issue.
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