Turnaround & Restructuring

As a specialist Corporate Recovery practice we have developed a wide range of analytical tools and techniques to assist Companies which may be in temporary financial difficulty. In general terms, each Corporate Recovery assignment may be broken down into four steps as follows:

  • Identifying the problems
  • Assessment of business viability
  • Devising a recovery strategy
  • Monitoring a recovery strategy implementation

Identifying the Problems

In many cases the underlying cause of the difficulties facing a Company can be quickly determined.

Set out below are some of the issues which may lead a Company into financial difficulty, and, which left untreated, could lead to a Company becoming insolvent.

  • Ineffective Management
  • Boardroom dispute
  • Lack of necessary skills in finance, marketing, production
  • Inadequate succession planning
  • Over reliance on one customer/product/person
  • Product obsolescence
  • Inadequate financial capital
  • Unanticipated events such as litigation, freak accident or terrorism events such 9/11. (Other events, such as bad debts, can be insured against, or events such as interest rates can be hedged against.)

Once the issues are identified, the next step is to assess business viability.

Assessment of Business Viability

Indicators of a viable business are as follows:

  • Profitable order book
  • Adequate production facilities
  • Supplier co-operation
  • Bank/Shareholder support
  • Customer support
  • Good product/brand name
  • Identifiable market position

Indicators of a non-viable business are as follows:

  • Industry over capacity
  • Competitive price cutting
  • Market collapse
  • High fixed cost base
  • Long term loss making contracts

In assessing the ongoing viability of a business, we carry out a profitability analysis of each Company’s product line or service line, combined with a profitability analysis of the Company’s customer base.

Devising a Recovery Strategy

In moving the business forward, we distinguish between corporate strategies (i.e. “doing different things”) and operating strategies (i.e. “doing things differently”).

In some cases, there will be a blend of corporate strategies and operating strategies blended together.

In some cases, after carrying out the necessary market research it may be necessary to re-orientate the Company’s products or markets. In particular, it may be necessary to consider the following:

  • Entry into a new market
  • Withdrawal from a new market
  • Adding or deleting particular products
  • Adding or deleting particular customers
  • Changing the mix of products made
  • Changing the mix of customers

We pay particular attention to the components of a Company’s marketing strategy, which includes:

  • Product range
  • Pricing
  • Customers
  • Advertising
  • Selling
  • Distribution channels

In some cases it may be necessary to re-organise a Company’s financing structure. Options include invoice discounting, instalment arrangements with the Revenue, leasing assets etc.

Monitoring of Recovery Strategy Implementation

Once the strategic and operational strategies have been decided upon, they need to be implemented.

The Company’s progress under the new strategies should be consistently monitored with regular management accounts. In particular, any changes to the Company’s marketing strategy should be monitored, as it is likely that competitors will immediately react to any significant changes.

A key element of monitoring self-production of monthly management accounts, combined with a rolling long term business plan, which is updated annually.

Balance Sheet re-structuring

In some cases it may be necessary to restructure the balance sheet by raising new capital, sale/leaseback etc. In other cases it may be necessary to persuade the major creditors to write off a portion of their debt under an informal scheme of arrangement. In extreme cases it may be necessary to place the company into Examinership so that the company has court protection whilst it is re-structured.

Case Study One: Food Manufacturer

Food Manufacturer was established to develop a premium branded product. The Company ran into financial difficulty as a result of start-up losses, and was concerned that a much larger competitor had entered the market niche which the Company was in, with a retail price 25% lower than their own product was selling. Quick market research indicated that consumers were extremely brand loyal and that price did not influence the purchasers’ decision. In order to survive at the volumes the Company was operating, given its production limitations, we advised the Company to increase prices by approximately 60%. After some trepidation, the company increased its prices, and sales continued to increase due to the premium nature of the product, and profitability was achieved.

Case Study Two: Distribution Company

Large distribution company ran into cash flow difficulties as a result of its failure to collect its own debts (debtor days were 110 days) and excessive credit notes being granted to a minority of customers who claimed disputes etc. We carried out a profitability analysis of customers, and advised the company to drop 20% of its customer base, on the basis that they were inherently unprofitable. We revamped the entire credit management procedures, and, after four months, brought debtor days back from 110 days to 50 days, and restored the Company back to profitability.

Case Study Three: Engineering Group

An engineering group encountered financial difficulties as a result of accumulated trading losses. Due to extensive inter-company trading and transfer pricing, it was difficult to determine the group’s unprofitable products. A profitability analysis showed that a number of the products were inherently unprofitable, due to cheaper products from South East Asia. These products were dropped, and production was centralised from three locations into one location achieving significant savings.

How Can We Help?

We can carry out an independent assessment of your company to determine the difficulties facing it. We can assess your company’s core viability, and advise if it should continue trading. We can help select the necessary blend of recovery strategies to move the business forward if appropriate. We can recommend marketing experts, logistic experts and production experts.

If it is necessary for the creditors to write off some of their debt, we can advise on the best way to achieve this, whether it is by an informal Scheme of Arrangement, a Section 450 Scheme of Arrangement  (previously Section 201), a Section 676 Scheme of Arrangement (previously Section 279) or an Examinership.

For further information please contact Jim Stafford or Tom Murray on 01 661 4066 or jim.stafford@frielstafford.ie or tom.murray@frielstafford.ie