Every so often you’ll be reading a financial report for a company embarking on a special situation and come across the term “transaction advisory services” (a.k.a. TAS).
But, what exactly is this, and how can it affect the special situation you’re tracking?
Let’s dig into that today.
Table of Contents
What exactly is Transaction Advisory Services?
Transaction Advisory Services (TAS) refers to a suite of professional services provided by consulting firms, investment banks, or accounting firms to assist companies and investors in navigating complex business transactions.
Think of this as a bunch of services that a consulting company provides to a firm that is looking at strategic options or other sorts of special situation events. The aim is to help with the entire process by lending expertise as an advisor (and, let’s face it, to suck up as much of the company’s capital for themselves as possible).
What is the role of transaction advisory services?
The role that transaction advisory services plays is that of an advisor, like Yoda to Luke in Star Wars.
These transactions typically include mergers and acquisitions (M&A), divestitures (like spin-offs or split-offs), capital raisings, restructurings, or other strategic deals.
When the C-Suite departs from the normal processes of managing the managers who manage the workers who make the widgets, they may lack the necessary skill, knowledge, or experience needed to execute a smart deal for shareholders. So, they reach out to a company that specializes in hand-holding management through the entire process.
What do transaction advisors do?
Transaction advisors (or “TAS professionals”) act as advisors to ensure the transaction is executed efficiently, maximizes value and minimizes risks.
Efficiency - The goal here really comes down to eliminating as many steps as practical so that time and money is not wasted on things that do not need to be done.
Maximizing value - Management are often clueless about the real world value of their company and how it ranks among their peers. A “TAS professional” will do the legwork to come up with relative values and then provide management with an estimated value for their company.
Minimize risk - With significant experience, TAS teams know of a lot of the pitfalls that a company could run into so inform management about them and then help steer the company around them.
All of these are pretty valuable when it comes to stewarding a company through a process that’s likely foreign to the top brass.
What does transaction advisory services involve?
There are a lot of ins and outs when it comes to transaction advisory services, but some of those include:
- Due Diligence:
- Investigating the financial, operational, legal, and strategic aspects of a target company to identify risks, liabilities, or opportunities (e.g., reviewing Chemours’ $4 billion debt in the DuPont split-off).
- Ensures buyers or sellers know exactly what they’re getting into.
- Valuation:
- Assessing the fair market value of a business or asset using financial models (e.g., discounted cash flow, comparable company analysis) to guide pricing decisions.
- Example: Valuing PayPal at $47 billion during its eBay spin-off.
- Deal Structuring:
- Advising on how to structure the transaction—whether it’s a sale, merger, spin-off, split-off, or joint venture—and optimizing tax, legal, and financial outcomes.
- For instance, ensuring the DuPont-Chemours split-off was tax-free for shareholders.
- Negotiation Support:
- Helping clients negotiate terms, prices, and conditions with the other party, often bridging gaps between buyer and seller expectations.
- Integration or Separation Planning:
- Post-deal support, like integrating a newly acquired company or, in divestitures, separating operations (e.g., splitting Chemours’ facilities from DuPont’s).
- Financial Advisory:
- Guidance on funding the deal (debt, equity, or cash) and managing capital structure, especially in leveraged transactions.
- Risk Management:
- Identifying and mitigating risks, such as regulatory hurdles, market volatility, or operational disruptions.
Who Provides TAS?
A few different types of financial or business services companies can provide Transaction advisory services. For example:
- Big Four Firms: Deloitte, PwC, EY, and KPMG often lead in TAS, offering end-to-end support.
- Investment Banks: Goldman Sachs, JPMorgan, or Morgan Stanley focus on high-stakes M&A and financing.
- Boutique Firms: Specialized advisors like Lazard or Houlihan Lokey handle niche deals.
You can add accounting firms to this list, but they’re not especially focused on TAS. Rather, the three groups above are the usual providers.
What’s a Real World Example of a Company That Used Transaction Advisory Services in the Past?
The number of firms that have employed a consultant for transaction advisory services are more numerous than the grains of sand at your local beach, but here are two examples of TAS in action:
eBay Employs Goldman Sachs for Transaction Advisory Services
In the eBay-PayPal spin-off, TAS teams likely helped eBay assess PayPal’s standalone value, structure the tax-free distribution, and ensure compliance with SEC rules.
After some pressure from Carl Icahn, eBay agreed to spin off PayPal to shareholders. Management didn’t have a lot of experience with these sort of transactions, so approached Goldman Sachs to aid with the transaction.
The result was a clean split that benefitted shareholders and kept Uncle Carl happy.
DuPont Secures Houlihan Lokey for Transaction Advisory Services to Aid with its Chemours Divorce
In the DuPont-Chemours split-off, advisors would have modeled the exchange ratio (1 DuPont share for 0.8747 Chemours shares), evaluated Chemours’ debt load, and managed shareholder communications.
Faced with sluggish growth, management decided to split DuPont off from Chemours and refocus on growth. Since this was a split off and not a spin off, management needed to be careful with the exchange ratio to ensure a fair deal for shareholders.
The result was a fair deal for the remaining Chemours shareholders and the new DuPont shareholder group. Both shareholders profited in the years that followed.
Why It Matters
TAS bridges the gap between strategy and execution, turning a deal concept into reality. It’s critical for companies to avoid overpaying, missing hidden liabilities, or botching post-transaction integration—think of Chemours’ early struggles with debt and lawsuits, which might’ve been mitigated with a sharper TAS focus on liabilities.
In short, TAS is the expert hand guiding companies through the financial, legal, and operational maze of big transactions.
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