Quick Answer
After the analytical work, bankers translate findings into actionable recommendations. The evaluation step compares alternatives (public versus private; debt versus equity versus hybrid; primary versus secondary; IPO versus follow-on versus PIPE) on cost of capital, dilution, covenant burden, execution risk, and market windows. The preliminary recommendation matches the optimal structure to the company's needs and the investor base most likely to participate. The output feeds pitchbooks, board presentations, and offering memoranda.
This is the synthesis step. Every metric, comp, precedent, and ownership analysis covered earlier in this unit funnels into a single deliverable: a recommended deal structure that matches the company's needs to current market conditions.
Comparing Alternatives
The recommendation work starts by laying out the menu of structures side-by-side.
- Public versus private: Public offerings carry higher disclosure and execution costs but unlock the broadest investor base. Private placements (Regulation D, 144A resales) are faster and require less disclosure but limit the buyer universe to QIBs and accredited investors
- Debt versus equity versus hybrid: Debt is cheaper (interest is tax-deductible) but adds fixed obligations and covenants. Equity is more expensive but creates no repayment obligation. Hybrids (convertibles, preferred stock) split the trade-off
- Primary versus secondary: Primary brings cash into the company (growth capital, refinancing, M&A funding). Secondary cashes out existing holders (founder liquidity, sponsor exit) but adds no proceeds to the company
- IPO versus follow-on versus PIPE: IPO is the first registered offering, the most complex and the most signaling-heavy. Follow-on is a registered offering by an already-public issuer. Private investment in public equity (PIPE) is a private placement into a public company, faster and more discreet
Weighing Benefits and Risks
Each alternative is scored on the same five dimensions.
| Dimension | What It Captures |
|---|---|
| Cost of capital | The weighted average cost the company will pay (interest rate on debt, dividend yield expectation on equity) |
| Dilution | Effect on EPS, ownership, and voting power |
| Covenant burden | Operating, financial, and incurrence covenants that restrict future flexibility |
| Execution risk | Likelihood of pricing, sizing, and closing on terms; includes market window and roadshow risk |
| Market windows | Whether the IPO calendar, credit-market backdrop, and sector sentiment support a near-term deal |
Bankers typically present alternatives on a single page with these five dimensions as columns and each structure as a row.
The Preliminary Recommendation
The recommendation matches structure to need.
- Growth capital: Primary equity (IPO or follow-on) if the company is willing to dilute; convertible debt if it prefers to delay dilution
- Refinancing: New senior debt at lower rates; preferred stock if leverage is already high
- M&A funding: Acquirer-stock issuance for stock deals; bridge loan plus permanent bond financing for cash deals
- Existing-holder liquidity: Secondary follow-on for sponsor or insider exit; tender offer for retail shareholders
The recommendation also identifies which investor objectives and strategies (covered earlier in the unit) align with the proposed security: the targeting list for the roadshow.
Exam Tip: Gotchas
- Match the security to the investor. A speculative-growth IPO sold to income funds will trade badly; a high-dividend follow-on sold to growth funds will price poorly. The investor-targeting work from earlier in the unit feeds the recommendation directly.
Output Documents
The analytical work feeds three standard deliverables.
- Pitchbook: The marketing document the financial advisor team uses to win the mandate or update the board; contains the recommendation plus supporting analyses
- Board presentation: The recommendation framed for board approval, focused on the alternatives considered and the rationale for the chosen structure
- Offering memorandum (OM) or prospectus: The disclosure document for the chosen offering; built once the structure is set
Think of it this way: Everything in this unit, from financial-statement models through valuation through ownership analysis, exists to fill in the pages of these three documents. The technical work isn't an end in itself; it produces a defensible recommendation a board can act on.
Exam Tip: Gotchas
- The preliminary recommendation is not a guaranteed answer; it's a structured comparison. Two equally qualified bankers can reach different recommendations from the same data because the weight given to dilution, cost of capital, and execution risk depends on the company's priorities.