Co-coordinating the interest and efforts of 50 or 60 lending institutions from different countries is complex enough, even without involving equity holders and all the other parties who depend on a company's well-being. While an adviser may persuade the leading banks to co-operate in a rescue package, a one-off lender with only a small stake in the proceedings may complicate matters by holding out for full payment with the threat of liquidation. One of the most urgent tasks for a rescue team, therefore, is to present a coherent plan to the stakeholders - shareholders, customers and employees - which allow them to settle their differences and work towards a common goal of survival, debt reduction and profitability. Attention will focus on the new team, led perhaps by a company doctors, not least because managers are typically wary of a situation which could involve liability for wrongful trading.
The issue of strategic direction is paramount, in all cases. Companies which have been encouraged by their financial advisers to expand in good times of buoyant trade and easy credit have often got themselves into all kinds of problems with unwise acquisitions: maybe a hasty expansion abroad, maybe the reckless acquisition of assets at high prices. When the climate changes, the merchants of growth are rarely the right people to engineer a tactical retreat; not least because their reputations may have been built on the management of expansion. Once again, an outsider's analysis and experience can galvanize the firm into taking tough but necessary decisions and help persuade the different stakeholders that these decisions are the right ones, even if they differ starkly form the strategy initially pursued.
According to research from the London Business School, a key ingredient in many corporate turnarounds has been the restructuring of a company’s financing. The research suggests that cost-cutting, probably a panicky director's first impulse when times get hard, is less effective than debt restructuring or reduction. Relatively few turnarounds where proper balance sheet reorganizations have taken place subsequently fail. As hefty debt repayments loom, it may be extremely difficult for directors to go to their lenders - particularly if these are many, in the case of extended trade company syndicates - to ask for help. A well-thought out rescue plan, however, can concentrate the minds of the most diverse lenders and gain the company vital room for man oeuvre. The name of the game, though, remains' cash generation - not immediately profitability.
Two other aspects of corporate rescue work are worth comment. In some cases, where companies have been the victims of poor management or even alleged fraud, the advising team may have to exercise considerable detective skill simply to unearth the correct figures. A hare-pressed management team, particularly one introduced in a state of emergency to turn the business around, may well have neither the time nor the expertise to do this vital spade-work alone, even though it might well yield spectacular returns in due course. Second, within a recovery situation where the group is near the brink, the involvement of insolvency experts is essential in understanding the possible 'downsides' of courses of action being proposed by the recovery team, with all the banking, security arrangements and possible insolvency implications, The skill match works well.
The issue of strategic direction is paramount, in all cases. Companies which have been encouraged by their financial advisers to expand in good times of buoyant trade and easy credit have often got themselves into all kinds of problems with unwise acquisitions: maybe a hasty expansion abroad, maybe the reckless acquisition of assets at high prices. When the climate changes, the merchants of growth are rarely the right people to engineer a tactical retreat; not least because their reputations may have been built on the management of expansion. Once again, an outsider's analysis and experience can galvanize the firm into taking tough but necessary decisions and help persuade the different stakeholders that these decisions are the right ones, even if they differ starkly form the strategy initially pursued.
According to research from the London Business School, a key ingredient in many corporate turnarounds has been the restructuring of a company’s financing. The research suggests that cost-cutting, probably a panicky director's first impulse when times get hard, is less effective than debt restructuring or reduction. Relatively few turnarounds where proper balance sheet reorganizations have taken place subsequently fail. As hefty debt repayments loom, it may be extremely difficult for directors to go to their lenders - particularly if these are many, in the case of extended trade company syndicates - to ask for help. A well-thought out rescue plan, however, can concentrate the minds of the most diverse lenders and gain the company vital room for man oeuvre. The name of the game, though, remains' cash generation - not immediately profitability.
Two other aspects of corporate rescue work are worth comment. In some cases, where companies have been the victims of poor management or even alleged fraud, the advising team may have to exercise considerable detective skill simply to unearth the correct figures. A hare-pressed management team, particularly one introduced in a state of emergency to turn the business around, may well have neither the time nor the expertise to do this vital spade-work alone, even though it might well yield spectacular returns in due course. Second, within a recovery situation where the group is near the brink, the involvement of insolvency experts is essential in understanding the possible 'downsides' of courses of action being proposed by the recovery team, with all the banking, security arrangements and possible insolvency implications, The skill match works well.
