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Strategy and restructuring

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Lat­est posts by Daniel Bru­ell­mann (see all)

Seri­ous mis­takes made while busi­ness­es are still prof­itable may cause restruc­tur­ing needs.

Prof­itabil­i­ty improve­ment, turn­around or even liq­ui­da­tion, need a viable con­cept with a coher­ent strat­e­gy and detailed mea­sures address­ing strate­gi­cal, struc­tur­al, oper­a­tional and finan­cial issues and solu­tions to be imple­ment­ed as soon as pos­si­ble with sup­port of stakeholders.

Dis­tress can be caused by fail­ing to secure financ­ing which can be main­tained in the long-term. Exces­sive indebt­ed­ness can be a result of using unre­al­is­tic finan­cial pro­jec­tions or delay­ing opti­miza­tion of work­ing cap­i­tal and not nec­es­sary assets.

Com­pa­nies which, for what­ev­er rea­son, lose their prof­itabil­i­ty are often in the dif­fi­cult sit­u­a­tion of not being able to imple­ment new projects and even slide into insol­ven­cy. Lat­est at that point, Investors goals will look very dif­fer­ent than borrowers.

Finan­cial con­straints  or evi­dent insol­ven­cy risk require quick action. Liq­uid­i­ty and financ­ing must be secured and man­aged, prof­itabil­i­ty improved and val­ue conserved.

How­ev­er, viable turn­around con­cepts are only viable with a coher­ent strat­e­gy and ade­quate mea­sures address­ing cri­sis sit­u­a­tions and con­vinc­ing stake­hold­ers that it can be imple­ment­ed successfully.

An exter­nal team com­ple­ment­ing busi­ness, restruc­tur­ing, legal and audit­ing skills and qual­i­fi­ca­tions can effi­cient­ly add resources for an unbi­ased analy­sis of the sit­u­a­tion and the imple­men­ta­tion of urgent mea­sures. It can also help find­ing con­ver­gent solu­tions accept­able to the par­ties even fol­low­ing unpro­duc­tive negotiations.

How we can help

Among first mea­sures, we can put  in place a Turn­around Dash­board col­lect­ing most rel­e­vant infor­ma­tion to sep­a­rate val­ue cre­ation from destruc­tion. Then a restruc­tur­ing plan pri­or­i­tizes first mea­sures to opti­mize sol­ven­cy with the help of a liq­uid­i­ty con­tin­gency plan until secur­ing longer term financing.

Those who know and will lead the busi­ness in the future should be part in the def­i­n­i­tion and hence imple­ment strate­gic and oper­at­ing mea­sures for prof­itabil­i­ty improve­ment. How­ev­er, man­age­ment is usu­al­ly absorbed in fight­ing symp­toms. In such a sit­u­a­tion, it is often use­ful to involve exter­nal spe­cial­ists to take urgent finan­cial mea­sures. They thus might bet­ter demon­strate to the investors the eli­gi­bil­i­ty for financ­ing of indi­vid­ual busi­ness­es and projects.

A third par­ty may also be use­ful to medi­ate between the bor­row­er and lender con­ver­gent solu­tions accept­able to both par­ties when nego­ti­a­tions are get­ting nowhere, or to arrange ade­quate alter­na­tive refi­nanc­ing through dif­fer­ent mea­sures and instruments.

Debt mora­to­ri­um or refi­nanc­ing with debt can­cel­la­tion can make sense also for cred­i­tors in the con­text of a restruc­tur­ing and recap­i­tal­iza­tion. But a finan­cial restruc­tur­ing can hard­ly last with­out removal of the strate­gic, oper­a­tional or per­son­al caus­es of distress.