Investment Banking How timing influences capital markets transactions

So when should you wait, and when should you pursue a capital markets transaction? Pirouz says the biggest factors to weigh include your strategic designs, operating and working capital needs, shareholder interests, and market conditions. When taken as a whole, these components create unique circumstances for every issuing client. There’s no one-size-fits-all solution, and Pirouz says that’s why Truist Securities starts every relationship by taking a deep dive into understanding a company’s goals and all these factors.

“It comes back to having a strategic dialogue with the company around their outlook,” he says. “What are your organic and inorganic growth expectations in the coming years? The reason that’s so important is that if you don’t anticipate having any inorganic growth, such as an acquisition, your financing needs are solely related to either refinancing your existing debt or making sure that you have ongoing funds for operations and working capital.”

In those instances, companies may be able to wait, as long as they’re not in danger of their existing debt coming due or even going current, which can be seen as a negative in the marketplace. There are exceptions, however. If you’re growing organically but that growth may require a new facility or new equipment, that changes your financing needs—and potentially your timing.

“First, we need to understand the timeline that’s associated with the spend,” Pirouz notes. “That helps us know if financing is needed today for more purchasing power, or if it’s smarter to slow down and transact multiple financings over time.”

If you’re several years out from a significant capital outlay, securing financing too early can result in negative arbitrage, with the cash weighing on your balance sheet.

Instead of growing organically, some companies may look to expand through an acquisition. Opportunities may present themselves at any time, so being financially prepared and having financial flexibility can better position one to make a move when the time is right, Pirouz says. Even then, it’s important to think strategically around all your goals.

“If you’re pretty sure you’re going to engage in significant M&A activity, that’s going to trigger acquisition financing,” he says. “Then we’re going to tailor the capital structure to meet your needs, which involves paying for the asset being acquired, refinancing any other credit facilities or bond maturities, and providing sufficient access to future capital.”

High-growth companies, especially those raising money through stock issuances and those that have negative earnings before interest, taxes, depreciation, and amortization (EBITDA), also can’t afford to be as flexible on timing. Pirouz uses software and biotech firms as examples he sees often.

“Your access to capital is going to come in the form of equity capital markets, either through private equity raises, an IPO or, if you’re already public, a follow-on equity offering,” he notes. “Equity markets have inherent volatility. We advise companies whose access to capital is dependent on equity capital raising that if the equity markets are open and your stock is viewed favorably by the investment community, your currency is high and it’s a good time to act.”

Companies with negative EBITDA also have a greater need for capital as they burn through cash to cover expenses during research and development or other critical stages before bringing their product to market. “What you don’t want,” Pirouz says, “is to ever get to where you’re close to consuming all your cash and you find yourself in a situation where the market is closed for new issuances.”

By understanding your goals and challenges, your Truist Securities team can help you make appropriate decisions to navigate the markets and optimize outcomes on your capital markets transactions.