This is not the first article to cast ‘restructuring’ as a strategic action and not as a familiar response to a need to cut costs in an organization. But of interest in our space, providing specialist corporate finance to the mid-cap sector, we are seeing and responding to a shift in the cycle of when clients are deploying our Advisory and Capital services.
Traditionally, ReSolve has been most active in businesses at the start of ‘the decline curve’, assisting with a new approach to launch them on a new phase. Partner Simon Fry, at the coal face of our client conversations, has seen some interesting developments in sectors including leisure, retail, property, technology and healthcare where businesses are starting conversations much earlier in their life cycle (in either the ‘growth’ or ‘maturity’ phases).
In the earlier phases of a business cycle, with less time pressure for cash injection, more traditional, ‘vanilla’ financing models are often deployed. However, we are now being asked to look at more innovative approaches to debt or equity restructuring at this stage that Simon Fry calls ‘early restructuring’. Here he outlines his top five identifiable triggers for early restructuring.
- A change in stakeholder structure. We often see a new infectious injection of fresh thinking from a new key stakeholder. This does not necessarily need to be an executive board member. It could be a non-exec, or even a supplier or partner business who brings new ideas to the table. Being at the right place at the right time when that happens can make for very interesting deals.
- Adapting to change. Every business needs to be adaptable to change, even the most successful business will at some point see a decline in revenue (remember Nokia phones ten years ago). With the general economic environment in a state of uncertainty, successful businesses will need to be open to the idea of new products or a change of direction of their services. If they don’t respond quickly enough they might find themselves struggling financially at a later date.
- Brexit – sorry but it’s there. I’d love to not mention it but many conversations about future investment come down to interest rate discussion, the economic environment and the impact of Brexit. The transition window looks like being extensive so it makes the decision making around it mid-term rather than short-term, There are clear restructuring issues around investment and location being brought to the table as a consequence.
- Sector attraction. There are times when we see cash looking for a home in a particular sector. It’s then often a case of ReSolve bringing parties together and creating the opportunities for a restructuring programme that leads to growth and development. We have seen this happen particularly in the TMT sector (Technology, Media and Telecoms).
- New systems implementation. At the point where systems start to groan under the strain, mid-caps look around for what are increasingly cloud-based solutions to process issues. That often raises questions on investment which can stimulate a discussion on different financing options. If there is real capacity for growth then good returns can be made across stakeholders.
Of course it’s not a science but ReSolve is increasingly developing Advisory and Capital services seeking out successful mid-cap businesses which see value in a significant change in direction of their business. They are not waiting for distressed times to try it out.