The makeover: How to realize value from your distressed investment

We wrap up our series on distressed investing with the final step.

You’ve identified your distressed investment opportunity, crafted your strategy, performed your due diligence, structured the deal and, ultimately, closed it. Now it’s time to realize the value of your deal. After all this hard work, you want to optimize your return.

Put your plan into action

Time is of the essence after closing. Ideally, you’ve designed your turnaround plan well before the deal is signed. This leaves you with the room to make the quick and oftentimes difficult decisions that will generate a satisfying return. But until you’re handed the keys to the front door, there are certain aspects of this business that remain a mystery. As sound as your pre-close 30, 60, 90 and 100-day plans are, until you see how the business is operating day to day and understand where the inefficiencies lie, chances are your plan is going to be a moving target that requires reassessment.

Ask yourself, does my original plan still stand up? Do I need to bring in outside help—or do I use the management team that’s already in place? The pressure’s on to keep the company afloat and prove to stakeholders that you can return the business to profitability.

From value preservation to value creation

You could compare managing a distressed business to flying a plane while also changing the engines and developing a new control system. It’s a high-pressure environment that requires decisive action and confident decision making. As you take control, consider the following:

  • Understand the operational gaps: When you buy a new business, you often have a clear view of its financial performance but unless you’ve invested in deep operational due diligence what the business is doing and how it’s doing it may be a grey area. In distressed M&A, it’s important to get a full picture of the enterprise—including finance, operations, human resources, IT, sales and other functions—because there’s risk in not understanding the whole picture.

  • Eliminate biased thinking: Take the emotion out of decision making. Previous managers may be tied to the old ways of doing business, and their biases may prevent you from making the best decisions and achieving your goals.

  • Validate the plan: Now that you’re in the front door and starting to understand some of the nuances of the business, you may uncover opportunities you didn’t know existed or recognize elements of your plan that are no longer relevant. Bring together the company’s cross-functional teams to define the goals and communicate what will need to get completed and when it will need to be done.

  • Execute with experience: It’s one thing to have a plan in place, but executing it effectively requires experience with the ups and downs of turning a business around. During the first 100 days, stakeholders will be holding you accountable to the milestones set out in the plan. It’s a living plan, so leverage the experience available to you to make unbiased, data-driven decisions, and adjust your plan accordingly.

  • Measure: As the work is executed and changes take shape, you need to track progress and measure success. Have your changes made a difference? And will they enhance value over the short and long term? To start, define the benchmarks and key performance indicators and then be rigorous in using the information to drive decisions.

Ultimately, planning, execution and measurement are all designed to lead to growth. And all of this is exacerbated in a distressed situation. By taking a fit-for-growth mentality to this process, you’ll make short-term changes with an eye toward both immediate benefits and long-term growth.

Contact us

Domenic Marino

Domenic Marino

National Deals Leader, PwC Canada

Tel: +1 416 941 8265

Sean Rowe

Sean Rowe

National Deals Markets and Value Creation Leader, PwC Canada

Tel: +1 416 815 5093

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