Business regeneration and recovery

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Situation

The current market conditions can quickly make businesses unprofitable. External pressures can create the need to withdraw from a country, region, industry or market. Because of this situation, shareholders and executives must decide the extent to which the existing asset portfolio, company structure and management model will allow the company to meet strategic objectives and achieve long-term financial results. Companies need to know if they have non-core assets and if these can be sold. It is important to close businesses efficiently and manage problem assets and loans. In addition, companies need to assess their ownership and operational structure to determine whether or not they are effective in terms of taxation and legal risks.

The credit crunch has also affected banks with asset-liability mismatches as well as financial institutions highly dependent on wholesale financing in global markets. For many financial institutions, balance sheet restructuring is becoming a primary concern.

Measures of success

Business restructuring can facilitate adapting to the new market landscape. Restructuring should primarily focus on maximising the shareholder value of all businesses, so it is essential to design and select the most effective strategy to achieve the desired financial performance. Such a strategy should consider dozens of strategic, investment, taxation, legal and management criteria. The ownership structure, management system and target business portfolio should meet these criteria. For example:

  • Target business portfolio: criteria can include maximising the value of company assets and making financial statements more transparent.
  • Ownership structure: criteria can include investors’ assessment of the proposed ownership structure and the possibility of promptly selling the asset.
  • Management system: criteria can include adaptability and its ability to support the entity’s expansion as well as making decisions quickly enough to be able to manage the company in an efficient manner.
Companies can select the best means for optimising their value, including the sale of shares or assets on a tight schedule. In such cases, it is critical to take an integrated approach to such areas as corporate finance, restructuring, bankruptcy and taxation.

As for banks, under the current circumstances, selling an entire portfolio or individual non-performing loans (NPLs) is one of the most effective ways to deal with distressed loans.

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