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Fertile ground for growth

WHEN mining giant WMC decided last year to offload its gold business, it created new growth opportunities for other mining companies.

It also provided fertile ground for the advisers, accountants, brokers, bankers and lawyers who grease the wheels of commerce.

Take, for instance, Croesus Mining’s recent merger with Central Norseman Gold Corp, which arose from the WMC sell-off.

The support cast for this merger featured several key players in Perth’s corporate finance industry.

Gresham Advisory Partners was financial adviser to Croesus, while RFC Corporate Finance acted in the same role for Central Norseman.

KPMG Corporate Finance provided an Independent Expert’s Report, while PricewaterhouseCoopers Securities provided an Independent Accountant’s Report.

Stockbroker Hartleys was broker for a placement of Croesus convertible notes and then advised WMC on the sale of the 42 million Croesus shares it acquired through the merger.

Then there were the lawyers, but that’s another story.

Welcome to the world of corporate finance. It’s an industry where the rewards can be high, and there appears to be no shortage of competition.

Yet the degree of competition cannot be measured in any conventional sense. Corporate advisers win assignments based on their track record, expertise, relationships and innovative ideas. Rarely, if ever, do they compete directly on price.

Having said that, it is generally accepted that ‘Sydney firms’ charge ‘Sydney rates’, which are above the fees charged by local firms.

Trying to compare fees is complicated by the use of success fees. This means the income earned by corporate advisers is usually tied to the success they achieve for their clients.

The competitors in the Western Australian corporate finance market cover a wide spectrum.

They include national groups like Gresham, RFC, NM Rothschild & Sons and Macquarie Bank, that have a permanent presence in WA.

Major international operators like UBS Warburg, JPMorgan and Credit Suisse First Boston, which cover Perth on a fly-in basis, provide an added layer of competition.

An important feature of these groups is that staff and resources can be allocated to where they are needed. Perth-based corporate advisory groups also cover a broad spectrum, from larger firms like Poynton and Partners through to specialist ‘boutiques’ that target small resource and technology companies.

Further competition comes from the big accounting firms and larger stockbrokers. In some transactions they play a supporting role – raising capital or providing valuation reports on a fee-for-service basis.

They also lead transactions in their own right, opening up scope to earn the success fees that make corporate finance a lucrative business.

Competitors in the market distinguish themselves both by the services they offer and the sectors they target.

A handful of firms – including Macquarie Bank at a national level and Carmichael First Capital at a local level – are able to offer both corporate advisory services and an ability to executive on-market transactions through their stockbroking arm.

Others say there is virtue in separating roles.

Poynton and Partners managing director and WA Business News 40under40 winner, Mark Barnaba, said his firm’s independence from the major corporate finance houses had been maintained after selling to South Africa’s Advanced Software Technologies in a four-year, performance-based deal that could be worth close to $70 million.

Poynton and Partners combines corporate finance, private equity and management consulting services.

“This encourages a commercial mindset combined with strategic thinking, and ensures that we have a firm understanding of business issues from multiple perspectives,” Mr Barnaba said.

Nedlands-based The Trudo Group, headed by Anthony Wooles also has integrated corporate finance and management consulting services.

Not surprisingly, many corporate finance firms in WA target the resources sector.

RFC and Rothschild are prime examples. Both firms have undetaken a lot of work in asset acquisitions and divestments, much of which flows from corporate takeovers.

RFC advised WMC on the divestment of its gold business unit, including the sale of its St Ives and Agnew operations, while Rothschild advised Normandy on the sale of its Big Bell assets and Kimberley Diamonds on the acquisition of the Ellendale assets.

Many of the boutique firms, such as Chatsworth Stirling, Churchill Capital and O’Callaghan & Co, target the small end of the resources sector.

They also target emerging technology companies. For instance, Chatsworth Stirling has worked with Sanford and B Digital.

The emergence of Perth as an oil and gas centre also has had an influence. PricewaterhouseCoopers Securities and KPMG Corporate Finance both regard energy and resources as their principal market.

One of the niches in the corporate finance market is assisting local companies raise capital in international markets.

London’s Alternative Investment Market – the ‘second board’ of the London Stock Exchange – has become an attractive source of capital for selected mining companies.

RFC Corporate Finance anticipates more interest in AIM listings. To facilitate this process, it has recently attained ‘nominated adviser’ status to the AIM – the first Australian firm to achieve this status. RFC director Stephen Allen said the appointment would make the admission process faster and less costly for WA companies.

Carmichael First Capital’s Craig McGown, who has substantial experience in offshore fundraising, said AIM was best suited to companies with offshore projects that are close to production.

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