As a CEO considering which financial advisor to choose for your company’s next capital raise, you might feel that they all look and sound the same. You might even suspect they are all clones from CBS and the Stockholm School of Economics. So, does it really matter which advisor you pick?
Empirically, it certainly seems so.
We examined nearly 500 rights issues on the Swedish and Danish growth exchanges (First North and Spotlight) since the beginning of 2020. This dataset included over 20 smaller corporate finance houses and a few larger investment banks such as Carnegie and Pareto Securities. We rated transaction success by evaluating how well the company raised the targeted amount and, conversely, how often underwriters were called on their guarantees.
Many advisors in the dataset hadn’t participated in enough transactions for us to draw statistical conclusions. However, among those who had, there were significant performance differences. Some advisors structured better transactions for their clients than others.
But wait! There’s a potential issue here, and you’ve probably already guessed it. Larger, more advanced growth companies with better track records likely have more options. Everyone wants Goldman Sachs’s logo on their prospectus, but it doesn’t work that way.
Therefore, the statistical differences mentioned above might simply reflect a positive selection effect: Carnegie performs well because Carnegie gets to choose which growth companies they want to advise, not the other way around. I should know—I used to work in Carnegie and enjoyed that exact luxury.
So, what’s the truth? If you have a choice between two or three financial advisors, does it matter whom you choose?
Yes, it does matter, but don’t get too hung up on your advisor’s fancy brand. Our analysis of the 500 transactions clearly shows that the structure of the transaction matters more. The discount you offer, the guarantee level, the extent to which the transaction is supported by existing shareholders, and many other transaction variables are the parameters you need to get right.