Planning for a Successful Corporate Restructuring

corporate restructuring

Companies may find themselves in distress for a variety of reasons. Sometimes the source of the problem is internal dynamics and decisions being made, but often the distress is caused by external factors. A downturn in the economy, for instance, or a company with customer concentration losing one of their biggest clients can be enough to send a business into a tailspin.

When this happens, a corporate restructuring can help. For some companies, corporate restructuring provides the best opportunity for the business to be able to continue on and grow for the future.

What Is Corporate Restructuring?

When a company is in a distressed situation, corporate restructuring is a way for it to modify its debt and sometimes the legal, ownership, or operational structure of the business in order to mitigate any financial harm and reorganize the business in order for it to better succeed moving forward.

Navigating through these challenges can prove tricky, which is why securing advice from trusted advisors is essential, especially when the goal is to preserve shareholder value, as well as the value of the company overall.

There is no one “right way” to go about a corporate restructuring. Depending on the type of company and the specific situation, a restructuring can take many different routes, such as:

Bankruptcy: Sometimes, pressure from creditors means the best strategy is bankruptcy. This will allow the company to hold off creditors so they can develop a plan for reorganization.

§363 sale: For some companies, the best option is to file for bankruptcy and sell off their assets in a §363 sale. The business and its assets are sold free and clear of all liens, claims, and encumbrances. This allows the company to secure the maximum value of their assets to help fulfill their duty to creditors.

Refinancing existing debts: A company in distress may need to refinance their existing debts under more attractive terms.

Bringing in additional investors: In some cases, shareholders may be able to secure additional investors to provide equity to help de-leverage the company’s balance sheet.

Sale of the business: Sometimes, a business in distress can be sold outright. Here, it’s important to secure the services of a skilled investment banking team that can represent your company accurately while also making sure it’s presented to buyers in the most positive light.

What Does the Process Look Like?

With so many solutions available, MelCap’s role is to help clients choose the best one. We work with company leadership, as well as their trusted advisors, to evaluate the various alternatives that are available. In fact, many companies in distress find MelCap through one of those trusted advisors — a lawyer, accountant, or an investment advisor, for example.

The first step in the process is to conduct an assessment to get an accurate view of the company’s current financial situation. In some cases, part of the cause of the initial distress is a company not having up-to-date or accurate financials, leading to them not having an understanding of the company’s cash flow. Our MelPlan assessment gives a comprehensive view of the company’s financials, as well as external factors such as markets and the economy. We’ll also evaluate how long the distressed situation has been going on, as this will often factor into deciding the best course of action to take.

How Can a Company Prepare for Corporate Restructuring?

The most important factor in a successful corporate restructuring is acting quickly. Many companies that find themselves in a difficult situation try to push forward and wait the problems out, even as the water continues to rise around them. In a distressed situation, time is not your friend.

A company must also be prepared to evaluate each option very carefully and thoroughly. Although it may sound like a quick and easy route out of trouble, bankruptcy, for example, is a public and very expensive process, so we advise our clients not to enter into this decision lightly.

The most important thing for companies to understand is that restructuring — even in transactions that result in a bankruptcy or a sale — isn’t necessarily an ending. We work hard with our clients to find the best strategic buyer for their business. For many distressed companies, a corporate restructuring provides a rebirth and a way for the business to continue on and grow larger than before.

Different companies and different situations require different solutions to get the best outcome, which is why working with an experienced team like the one at MelCap is an essential first step for any company that finds itself in distress.

By Al Melchiorre

Al founded MelCap Partners in 2000, and is responsible for managing all aspects of client engagements from proposal through closing, developing business, reviewing offering memorandums and financial models, negotiating purchase agreements, and interacting with buyers and investors.