After working for one of Mainland China’s leading investment banks in Hong Kong for nine years, Gilbert Chan CPA, Managing Director and Co-founder of Giraffe Capital Limited, and a member of the Institute’s Corporate Finance Advisory Panel, was ready to take on a different kind of challenge. Chan had noticed there was a shortage of corporate finance advisors in Hong Kong that focus on advising small and medium enterprises (SMEs) on capital raising. “I observed that there were a lot of small- and mid-cap companies in the market looking for quality corporate financial services but, at the time, there were very few firms providing such services and they could not meet the demand of the market,” he remembers. This observation, combined with a desire to have greater control over his career, led to the founding of Giraffe Capital in 2016 with a former classmate from his university days, Johnson Chen CPA. The company’s name was inspired by Chan’s young son’s love of giraffes. “We positioned ourselves as a boutique sponsor firm providing corporate finance services for SMEs in Hong Kong and China,” says Chan.
The company differentiated itself by covering the whole value chain from pre-initial public offering (IPO) services, to IPO execution, to post-IPO business advisory and secondary fundraising. “We observed that companies tended to look for a one-stop solution. If you have assisted a company in the pre-IPO stage, you can also work with them to help grow their business after they are listed, providing services in a holistic way, instead of a piecemeal way as was the case in the past,” he says. As such, Giraffe Capital offers pre-IPO consultancy services; it advises companies during the listing process and helps them to gain approval from the Hong Kong Stock Exchange. Once a company is listed, it acts as a compliance advisor helping it to meet all ongoing regulatory requirements. The company also provides business consultancy, and merger and acquisition (M&A) services.
Chan says this approach means it has a number of clients who it has been serving since it was first founded. “We have not only helped them plan for an IPO and get listed, but we continue to explore new business opportunities with them through our network and knowledge, as well as identify potential M&A targets and create new business opportunities. We don’t only want to be involved in the IPO process and then leave. We want to continue to work together,” he says. Currently, Chan is involved in a project with one of the company’s clients that involves building an international school in Cambodia. “It is an interesting project as I have never imagined that I would get involved in building a school.”
Chan describes setting up Giraffe Capital as being the most memorable moment of his career. “I remember when we first started it was just myself, my partner and my secretary. We started everything from scratch,” he says. Despite being a new company, Giraffe Capital did not have any problems attracting clients and it received a number of IPO mandates shortly after it set up. “We were lucky to gain trust from various clients at the beginning, and that they passed their IPO mandates to us. We successfully completed all of them on time and built up our track record from there. Today, we are one of the most active boutique firms in Hong Kong engaging in IPOs for SMEs and compliance advisory services,” he says. Chan adds that the biggest challenge was finding the right staff. “It was difficult to get people with experience to join our firm. It took time to find the right professionals but we have high quality staff members now.”
”We observed that companies tended to look for a one-stop solution. If you have assisted a company in the pre-IPO stage, you can also work with them to help grow their business after they are listed, providing services in a holistic way, instead of a piecemeal way as was the case in the past.”
As Managing Director and Co-founder of Giraffe Capital Limited, Gilbert Chan CPA leads the growth of the company, which specializes in offering IPO advisory to small- and medium-sized companies in Hong Kong.
A problem solver
Though Chan’s day-to-day responsibilities keep him busy, he still puts in the extra effort and hours to build relationships with clients as well as his company. “I do everything – from the overall management of the firm to executing the corporate finance projects we have on hand,” he says. “During the day, I run around meeting different clients and other professional parties including accountants and lawyers and discussing potential deals or any issues that have arisen. After dinner, I go back to the office and start reviewing documents, such as prospectuses and corporate finance proposals. I usually leave the office around 11 p.m. or midnight. I work long hours but I love my job and I love corporate finance.”
Chan describes himself as a problem-solver. “With corporate finance transactions, there tends to be lots of issues occurring all the time. What we try to do is figure out a way our clients can complete the exercise using our technical knowledge, whether it involves corporate finance, accounting or even legal knowledge. It feels good when you are able to develop a way to solve a problem for your client,” he says. “Corporate finance involves meeting the financing needs of a corporate and there are many ways of doing this. Our role is to solve all problems that come up and ensure the transaction can move forward.”
The fact that corporate finance can be a stressful working environment with tight deadlines, Chan says, is the most challenging aspect of his role. “Everything is urgent in our industry, particularly when you are responding to comments and questions from the regulators. I could receive questions in the morning, and need to submit my response by as early as 3 p.m. It can be quite stressful as there is no margin for error.” He tries to counter this stress by not working at weekends to ensure he has some time to relax and be with his family.
SME listing challenges
Chan describes the IPO market in Hong Kong as being extremely buoyant due to a combination of factors. Years of quantitative easing by central banks and low interest rates have contributed to higher corporate valuations, encouraging more companies to list, particularly technology companies. At the same time, changes to listing rules in Hong Kong allowing pre-revenue biotech companies, as well as corporations with weighted voting rights to list, have also led to a boost in biotech IPOs.
Despite this buoyancy, Chan points out that SMEs face various challenges in their IPOs and fundraising activities. Chan adds that the regulator has also raised the standards for SME IPOs, leading to the process taking longer. “In the past, you could do an IPO for an SME in less than six months, but with the enhanced regulations, the time from submitting an application to listing is up to nine months, which can be a challenge for them as the extended time increases the cost and uncertainty,” he says.
Meanwhile, the Hong Kong Stock Exchange has announced that the profit requirements for Main Board listings will increase by 60 percent from 1 January 2022, rising from HK$20 million to HK$35 million in the most recent financial year, and from HK$30 million to HK$45 million in aggregate for the two preceding financial years, during a three-year track record period, with an aggregate profit requirement of HK$80 million. Even so, Chan thinks Hong Kong still provides a good destination for SMEs to raise funds, as its acceptance for SME IPOs is higher and it has greater liquidity compared with other capital markets, such as in Singapore.
To help ensure a smooth listing process, Chan suggests SMEs should talk to advisors and engage professionals early on to prepare the foundation work. “In an IPO, time is your best friend,” he says. “With time you can resolve most problems. So if a company is considering an IPO in Hong Kong, they should start planning early and find a good sponsor and listing team to set up the legal structure and conduct a thorough “body-check” to ensure they can meet every aspect of the requirements.” He adds that companies should also try to consider all of the issues or questions the regulators may raise during the vetting process, with reference to questions asked in recent similar cases or new rules about to launch. “It is similar to taking exams. You try to predict the areas of concern, which are the questions, with your experience, which is like going through past papers, and prepare well before submitting your listing application, which is a bit like entering the examination hall.”
Chan graduated from The Chinese University of Hong Kong with an accounting degree. He began his career at EY and worked as an investment banker at CCB International Capital Limited before co-founding Giraffe Capital Limited.
A technical bent
Chan has been interested in economics and accounting since he was a secondary school student. This interest inspired him to pursue a business degree at The Chinese University of Hong Kong. “During my first year, I studied business administration, marketing and management, but I found they were too generic for me. I wanted something more technical,” he says. As a result, in his second and third year, Chan chose to major in accounting. “Accounting is very useful because you deal with figures and numbers every day. I was sensitive to numbers, so I joined a Big Four firm as an auditor immediately after graduating.”
Chan became a Hong Kong CPA after qualifying with the Association of Chartered Certified Accountants during his time at EY.
At EY, Chan worked on the annual audits of a number multinational corporations and listed companies. “After three years, I had the chance to work on IPO projects, which aroused my interest in advising on IPOs and corporate finance,” he remembers. In 2007, he started to think about changing careers. Chinese investment banks had started to set up offices in Hong Kong, and Chan had the opportunity to work as an investment banker at CCB International Capital Limited (CCBI), the investment bank of China Construction Bank Corporation and one of the largest banks in the Mainland.
Chan worked on IPO projects at the bank. He remembers that deals were initially relatively small as CCBI established itself in Hong Kong. “We grew together and after a few years, the deals got bigger and I joined some very big state-owned enterprise IPOs,” he says. But after nine years at the bank, he started to rethink his career again, prompting him to found Giraffe Capital. “I realized that in a large organization, when you are working on an IPO exercise, you are just one person in a working team and the recognition you receive from the client is less than when you work on an IPO for an SME. I also wanted to have more control over what I did,” he remembers. “Instead of executing a project at the bank, I can now flexibly initiate a project myself with my clients at my own practice.”
“Instead of executing a project at the bank, I can now flexibly initiate a project myself with my clients at my own practice”
Taking everything into account
Chan advises younger Institute members who are interested in transitioning into corporate finance and working on IPOs to familiarize themselves with the business models of companies from Mainland China. “Companies listing in Hong Kong now are mainly either China-focused or from Mainland China, as many companies from Hong Kong that can meet the listing requirements have already listed,” he explains. Chan adds that understanding how Mainland companies work is not only important for members who want to specialize in IPOs, but also for those who want to go into auditing. “The Chinese market is huge and provides immense opportunities. You have to know it well and build up your own network when you are young. I am working as a team with many Mainland accountants and lawyers whom I have known for many years and grown up together. It takes time to gain trust from each other,” he says.
He adds that having extensive technical accounting knowledge is helpful when working on IPOs in order to complete the due diligence and modelling work. “Training as an accountant or auditor is a very good foundation and provides all the technical knowledge you need for doing an IPO.” He points out that accountants are taught to be sceptical. “Being an auditor, your left hand should not trust your right hand unless proven by objective evidence. This training is extremely useful when you are doing your due diligence work with key customers and suppliers or evaluating a potential deal.” He adds that he once met a client engaging in big data marketing in Mainland China who claimed to have a very profitable business model. “I could tell he was not being honest right from the beginning from his presentation, outlook, knowledge of coding and behaviour. Everything was just too good to be true. I always tell my colleagues to maintain a sceptical mind and to not trust what is said unless it is proven to be true.” Chan says financial analysis, modelling skills and the application of Excel are also essential tools in his work, all of which can be acquired through the process of becoming a CPA.
Chan is a proud father of boy and girl twins, who are seven years old. He enjoys taking them to the beach or farms, or all sorts of outdoor activities like playing basketball and football. “I also love dragon boat racing. I have been paddling for more than eight years. I am happy when I am out on the water and I can escape for a few hours. This is how I strike a work-life balance,” he says.
Giraffe Capital Limited provides corporate finance services for small and medium enterprises in Hong Kong and Mainland China. It offers pre-initial public offering (IPO) services as well as post-IPO business advisory, secondary fundraising, business consultancy, and merger and acquisition services.